States Eye Budgets Amid Lackluster Revenue

Legislatures in all 50 states are setting priorities and attempting the difficult job of balancing their budgets amid lackluster revenue and rising costs for education and health care. Newly inaugurated governors are looking for ways to create jobs, and many have promised tax cuts. Those promises may be hard to keep.

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State legislatures are setting priorities for the New Year in attempting the difficult job of balancing their budgets. A report from the U.S. Census Bureau released this week shows a 30 percent decline in state revenues in 2009. And that means most states are facing big budget gaps.

Newly-inaugurated governors are looking for ways to create jobs and cut spending, some have even promised tax cuts.

But NPR's Kathy Lohr reports that those promises may be hard to keep.

KATHY LOHR: Governors are taking office under enormous pressure to turn their state budgets around. In California, the nations oldest governor, Democrat Jerry Brown, is facing a $25 billion budget shortfall. He promised to be transparent but acknowledged the budget process will be painful.

Governor JERRY BROWN (Democrat, California): Choices have to be made and difficult decisions taken. At this stage in my life, I've not come here to embrace delay and denial.

LOHR: In Florida, Republican Governor Rick Scott is facing a budget gap of at least $3 billion and a 12 percent unemployment rate.

Governor RICK SCOTT (Republican, Florida): The people of Florida elected me to get this state back to work, and I believe in this mission.

(Soundbite of cheering and applause)

LOHR: Scott promised to fight what he calls the axis of unemployment, by lowering taxes, reducing regulation and litigation, and he vowed to make government accountable.

Gov. SCOTT: Our current problems are absolutely solvable and our future is in our hands. We are resilient people.

LOHR: But exactly what gets cut and how to raise money are looming questions. In many states, tax revenues are up from their lowest point but they're still far below pre-recession levels. State tax collections on average are down 12 percent below normal.

Mr. NICK JOHNSON (Director, State Fiscal Project, Center on Budget and Policy Priorities): In most states we are at the point of no easy solutions.

LOHR: Nick Johnson is with the Center on Budget and Policy Priorities in Washington. He says so far, 40 states have projected budget gaps for the upcoming fiscal year.

Mr. JOHNSON: States by now have drawn down their reserve funds. Theyve made the relatively easy cuts and taken the relatively easy actions. It's at the point of pretty difficult choices in a lot of states.

LOHR: Some states will raise sales or income taxes, others will continue to increase fees on businesses and anything they can think of. Many are promising deeper cuts in state services. That means education, Medicaid reform and pension funds will be among the programs debated again this year.

Some may try to restructure their tax systems. Robert Ward, with the Rockefeller Institute of Government in New York, says state officials need to adopt a long-term economic outlook.

Mr. ROBERT WARD (Deputy Director, Rockefeller Institute): Most of the states emphasized shorter term fixes borrowing, budget gimmicks, failing to make payments to their pension funds those sorts of things can sort of paper over the problem for one year at a time but not only dont solve the long-term problem, they often make it worse.

LOHR: Billions in federal stimulus dollars that went toward education and other state programs are also about to end. And that, too, is putting more pressure on state officials to come up with their own sources of funding.

Among those facing the biggest problems: Illinois, New Jersey, California and Texas. Many felt Texas was recession-proof, but it turns out that low taxes and the stagnant economy have produced a budget gap there as high as $25 billion over the next two years.

And Robert Ward notes several Southern states are struggling, including Louisiana, Mississippi and South Carolina.

Mr. WARD: The poorer state will be even less able to provide for the neediest. And the long-term solution, obviously, is to try to grow the economy in the poorer regions of our country. And we have been trying to work at that for a long time and we're still struggling to figure out the answers to that one.

LOHR: New Yorks Governor Andrew Cuomo has proposed a one-year freeze on state hiring and salaries, but analysts suggest that won't do much good. They say New York and other states will have to make a lot more tough decisions this year.

Kathy Lohr, NPR News, Atlanta.

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