By Shannon McCaffrey
If you thought state budgets were in bad shape last year, just wait: This year promises to be brutal for lawmakers — many facing re-election — as they scramble to find enough money to keep their states running without raising taxes.
Tax collections continue to sputter. Federal stimulus dollars are about to dry up. Rainy day funds have been tapped. And demand for services — such as Medicaid, food stamps and unemployment benefits — is soaring.
As lawmakers head back to state capitols this month, budget woes range “from bad to ridiculously bad,” said David Wyss, chief economist at Standard & Poors in New York. “There are some states, those hit particularly hard by the recession, that I don’t think can cut spending enough. They’re running out of things to cut.”
Typically, the worst budget years for states are the two years after a recession ends. Across the nation, budgets are already lean after several rounds on the chopping block. And unless lawmakers increase taxes or fees — unpopular moves in an election year — most will need to cut even more as they grapple with the steepest decline of tax receipts on record. Services ranging from higher education to programs for the elderly could be in jeopardy.
The crunch could also mean new tolls to pay for road projects, more prisoners being released early to trim corrections budgets, and the end of welfare programs that don’t bring federal matching dollars.
The Center on Budget and Policy Priorities offers a bleak forecast: State budget shortfalls are likely to reach a whopping $180 billion for the coming fiscal year, double the size of Texas’ annual budget.
“It’s going to be the toughest year yet,” said Raymond Scheppach, director of the National Governors Association, who predicts money could evaporate for higher education, the arts and economic development. “The states haven’t hit bottom.”
States had already closed a $146 billion gap when they put together their budgets for the current fiscal year. They were short by about 20 percent, with 36 states now reporting an additional shortfall of $28.2 billion for the fiscal year that ends in June, according to data compiled by the National Conference of State Legislatures.
That’s because state tax collections lagged behind even projections revised downward to be more pessimistic.
Forty-three states and the District of Columbia have slashed spending on popular services, including education, health care and services to the elderly and disabled.
With cuts reaching into classrooms and hitting the neediest residents, elected officials will be under increasing pressure to find more money. But in a number of fiscally conservative states, leaders have pledged not to raise taxes, leaving them few options.
One possible rescue could come in the form of more stimulus money from Washington, but the prospects are uncertain. States last year were able to tap President Barack Obama’s economic stimulus package to soften the blow of budget cuts, mainly in education and health care, and some of that money is still left.
Politics are also at play. Twenty-two governorships are open in 2010, meaning incumbents on their way out the door could try to hand off the budget misery to their successors.
States’ budget problems are the result of plunging real estate values and home sales; unemployment, which is taking a toll on personal income tax collections; and plunging sales tax collections.
Corina Eckl, fiscal policy director for the National Conference of State Legislatures, predicted that after several years of across-the-board cuts and short-term fixes designed to ride out the sour economy, states this year will look to make deeper, more, sustained cuts that could fundamentally change what services government provides.