Winter The States Fiscal Squeeze Coping with budget shortfalls

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					                                                                                                     Winter 2003
                                         The States’ Fiscal Squeeze:
                                        Coping with budget shortfalls

                                        How the states are coping -- so far

  The news keeps changing every day, but governors are already presenting legislators with their
 views on how to solve the looming crises. As of Jan. 31, here’s how the budget battles are shaping
                                       up in the ERC states:

          Of all the ER C states, only R hode Islan d will     Craig Benson froze government spending on
enjoy a surp lus this year, of $1 2 million, acc ording to     computer purchases, state hires, out-of-state travel
the state's budge t office. Next yea r, the Ocea n State       and any new outside co nsultants.
may incur a deficit of $175 million.                                     Without impo sing sales or income taxes,
          In Connecticut, Gov. John G. Rowland has             which the go vernor has ruled out, the G ranite State
begun laying off 3,800 state employees as he grapples          faces a deficit of up to $80 million for the two-year
with a deficit of $650 million for the rest of this year       budget cycle that ends on June 30, and a $220 million
and an antic ipated $1 .5 billion for F Y 200 4.               budget deficit for the next two-year cycle.
Legislators are considering a num ber of ways to raise                   New Jersey's James McGreevey has already
revenues, such as a corporate income tax surcharge             warned his state's mayors to expect cuts and no
hikes in cigarette and personal incom e taxes.                 additional state aid, given the $1.3 billion deficit for
          On Jan. 30, Gov. Ruth Ann Minner of                  the rest of this year. N ext year's deficit is exp ected to
De lawa re a nno unc ed h er p lans to c lose nex t yea r's    be in the neighborhood of $5 billion.
$300 m illion gap – 1 0 percen t of the budge t —                        New York Gov. George E. Pataki of New
through a combination of measures. They include                York acknowledged a $2.2 billion gap for the
"eliminating and reducing programs, positions and              remainder of the fiscal year that ends on Mar. 31. In
discretionary funds, by reengineering programs for             his Jan. 28 budget message, he proposed cuts in a
greater efficiency and effectiveness, and by driving           variety of programs, including a $1.9 billion
down the growth of mandated costs," she said.                  reduction in Medicaid spending. He also asked for
          "A tax increase is definitely not the answer,        other action s to balance next year's bud get, which is
but neither is a big-time gambling casino," said Maine         projected to be $9.3 billion in the red.
Gov. Jo hn E. Ba ldacci of his state 's $1 billion de ficit.             Vermont's Jim Douglas, the governor of the
"Both of these are shortsighted, short-term remedies           only state in the country not constitutionally required
that in the end w ill only make o ur proble ms worse."         to have a balanced budget, foresaw a $30 million gap
           On Jan. 29, Gov. Mitt Romney of                     for next year in his budget address.
Massac husetts used e mergency a uthority granted him                    As a new governor, Pennsylvania's Edward
by the Legislature to announce cuts totaling $343              G.. Rend ell has until early M arch to com e up with
million. This year's deficit could be between $448             ways to find $443 million needed to bring the current
million and $650 million. Facing a $3 billion                  fiscal year into balance. Next year's deficit estimates
shortfall for all of next year, Romney had to renege           range from $1.5 billion to $2.3 billion.
on his campaign pled ge not to cut services.                             Facts and figures from Puerto Rico and the
           In his first week in office, New Hampsh ire's       U.S. Virgin Islands were not available at press time.

                                                                                                   Winter 2003

    ERC states' deficits as a percentage of total general fund budgets, FY04


Connecticut figures are approximate as of Feb. 5 information from the governor's office.
Delaware, M aine, New Jersey, New York and V ermont figures are from the gov ernors' budget messages.
New Hampshire includes general operating funds and education trust fund.
Pennsylvania's deficit is estimated at between $1.5 and $2.3 billion. Since the budget message is not due until March,
both figures are included.
Rhode Island is base d on 2003 figures.
Figures for Puerto Rico and U.S. Virgin Islands were not available.

                                                                                           Winter 2003

         Differences in FY02 tax collections and FY03 budget projections

"The Fiscal Surv ey of States"
The National Governors Association and the National Association of State Budget Officers
November 2002

                                                                                                      Winter 2003

                                          DIRECTOR'S COLUMN

                                    Responding to the region's fiscal crisis:
                                      CSG/ERC forum for fiscal leaders

          Everything sta te legislators do these days is                Then, legislators go to work. It won't be
tempered by one ov erriding issue: the fiscal crisis.         easy and it wo n't be pretty.
Estimates of the states' cumulative deficit range from                  Already, the b ad news is starting to trickle
$67 billion to $80 billion. As Everett Dirksen said,          in. In advance of their formal budget messages, some
"A billion here and a billion there, and soon you're          governors are warning o f service cuts, layoffs,
talking about real money."                                    reorganiza tions and tax in creases (refe rred to by a
          It certainly is real. State s are facing their      variety of euphemisms).
worst fiscal predicaments since World War II. The                       To em power yo u with the tools yo u need to
causes are well known. They include an erosion of             make informed choices, we have assembled a team of
tax revenues due to an anemic economy, the                    experts to aid in our unde rstanding of the econom ic
explosion in health care c osts, and new federally            context.
mandated expenditures in areas such as homeland                         James Diffley, group managing director of
security and education.                                       US Re gional Serv ices at Glob al Insight (forme rly
          With these difficulties in mind, T he Coun cil      DRI-WEF A), will present the outlook for the
of State Governments Eastern Regional Conference              Northeast economy. The nationally-known federal
Legislative B udget Cha irs' Roundtab le proudly              budget analyst, Stanley E. Collender, will present the
convenes this special seminar, "The States' Fiscal            federal budget picture. U.S. Rep. John Olver of
Squeeze: Coping with Budget Shortfalls." The                  Massachusetts, a member of the House Committee on
seminar features experts in health care, corre ctions,        Ap pro pria tion s, wi ll ex pla in th e fed era l bu dge t's
education and tax policy presenting and discussing            implications for the Northeastern states.
options for reducing appropriations and improving                       Expert-led roundtable conversations on
the cost effective ness of state pro grams and services.      corrections, education, healthcare, debt financing and
The focus will be on both immediate action options            technology applications will be exceptional
and long-term implications.                                   opportunities for dialogue.
          The pre ssure on tax a nd budg et chairs will                 This semin ar will allow par ticipants to
intensify in the coming weeks, as the governors               interact with other fiscal leader colleagues as well as
present their respective budget messages. All of the          the policy exp erts. It will give them p ractical, useab le
CSG/E RC mem ber jurisdic tions are bra cing for cuts         ideas for co ping with the grim budget situatio ns in
or, at best, hoping for level funding in federal aid for      their states.
such important programs as education and                                CSG/ERC is pleased and proud to provide
transportation.                                               this important learning and sharing opportunity on
          Governors in five states - Delaware, Maine,         such an overriding issue of profound concern at such
Massachusetts, New Jersey and Verm ont - must                 a crucial time. We are happy and ready to serve our
submit their bu dgets to their re spective legisla tures in   state, commonwealth, territorial and international
January. Four - Connecticut, New Hampshire, Rhode             associate leaders.
Island and Puerto R ico - must do so in Febru ary.
          Pennsylvan ia's Edward G. Rend ell has until        Alan Sokolow
the first week of M arch to sub mit his budge t.              Director


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