ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MELISSA BLOCK, host:

And I'm Melissa Block.

All week, we've been telling you about the federal government's sorry fiscal state, and how that might affect the upcoming debate over tax cuts made by President Bush. Those cuts are set to expire at the end of the year. Now, today, we turn to the states. It's no secret many are in terrible shape, struggling with billion-dollar budget gaps. So they have slashed spending and raised taxes. Many have also gone deeply into debt.

For their stories, we turn first to the nation's smallest state.

ANTHONY BROOKS: This is Anthony Brooks in the city of Cranston, Rhode Island. I'm here at the Budlong public swimming pool. There's a sign that says no pushing and no running. And as it turns out, this summer there was no swimming, either. Thats because Cranston just didnt have the funds to keep this facility, the citys only public pool, open. And that's why, except for a couple of ducks, this pool is empty today.

Mr. ALLAN FUNG (Mayor, Cranston): This is only the third time in its history that it has been closed. And its sad to say that many of the kids in this hot summer had to go without that city resource.

BROOKS: Allan Fung is the mayor of Cranston, where the unemployment rate is above 12 percent, just as it is in the rest of the state. Keeping the public pool closed is just one of the many tough decisions Fung has been forced to make.

Mr. FUNG: Well, we've had to reduce library hours. Senior centers have taken cuts. Ive tried to balance the pain in every single department.

BROOKS: The city has also cut the number of firefighters and police, and raised taxes on cars. All this is a result of a severe fiscal crisis in the state. Years of spending and borrowing have made Rhode Island the nations most indebted state, according to the Center for Budget and Policy Priorities. It's also been trying to shed its reputation as anti-business. So this past year, state lawmakers, like Democratic House Speaker Gordon Fox, were in no mood to raise taxes.

Representative GORDON FOX (Democrat, Rhode Island): Where most states, in terms of getting out of these economic bad - hard times, if you will, have been raising taxes, Rhode Island should be known on the map because we are looking to decrease taxes.

BROOKS: Which is what lawmakers did: They cut taxes for the states highest earners. And to help close a $570 million deficit, they slashed tens of millions of dollars in local aid, forcing cities and towns to cut services. Some of them have even had to shut off their streetlights.

Scott Avedisian is the mayor of Warwick, Rhode Island.

Mr. SCOTT AVEDISIAN (Mayor, Warwick, Rhode Island): What were really seeing is a total abdication of the states policies down to the local level and say, you know what, you're going to have to go out there and deal with it.

BROOKS: But Maureen Moakley, a political science professor at the University of Rhode Island, says state lawmakers did what they had to do.

Professor MAUREEN MOAKLEY (Political Science, University of Rhode Island): The traditional pattern was municipalities would spend, would over- commit, and then the state would bail them out. Thats over.

BROOKS: Moakley says for years, Rhode Island has talked about the need to consolidate and regionalize local services. Now, municipal leaders might have no choice but to finally do that.

Anthony Brooks, NPR News.

DAVID SCHAPER: I'm David Schaper in Illinois, where things�aren't any better than Rhode Island - and actually might be worse.

State Representative SANDY COLE (Republican, Illinois): All right, these all go back here, but we've got to put these walls up.

SCHAPER: Take, for example, the Republican State Representative Sandy Cole's predicament. With the help of her son and a staffer, she's moving bookshelves, unpacking boxes, and hooking up phones and computers as she moves into a new district office.

State Rep. COLE: Well, we're moving the district office because my former landlord couldn't wait for the state to pay the bills. They're about 90 days to 150 days in arrears in paying the bills, and he called in his month-to-month lease.

SCHAPER: That's right. The state of Illinois fell so far behind in paying rent that this elected official got evicted. And it's not just landlords not getting paid. Illinois is months behind in paying providers of critical services, from doctors and hospitals to those who care for the disabled, the homeless and the mentally ill. Not to mention, it's also several months behind in delivering state aid to schools, universities, cities and towns.

When the state catches up, Cole says it pays interest, but in order to catch up on this huge backlog of bills, Illinois is borrowing money to do it.

State Rep. COLE: The taxpayers still have to make that interest payment, along with finally paying off the loan. So...

SCHAPER: So, you pay interest on your rent and then pay interest on the money that was borrowed to pay the rent, right?

State Rep. COLE: Right. Crazy. It's just not good fiscal management. It doesn't make sense.

Mr. LAURENCE MSALL (President, Civic Federation): The financial condition of the state of Illinois is a fiscal train wreck.

SCHAPER: Laurence Msall is president of the Civic Federation, a Chicago-based government budget watchdog. And he says it's not just the poor economy that derailed Illinois.

Mr. MSALL: The state's train wreck is caused by inaction and dereliction of duty in Springfield, the failure to provide a balanced budget.

SCHAPER: Msall says Illinois' governors and Democratic-controlled legislature haven't matched spending with declining revenues. In fact, he says, they keep spending more. And as Illinois keeps borrowing to pay its pension obligations -for capital projects and just to pay the rent - credit agencies downgrade Illinois' bond rating to the point that Illinois now has the lowest bond rating in the country, which makes borrowing more expensive. Msall's Civic Federation projects that the $9.6 billion the state has borrowed over the last year will eventually cost Illinois taxpayers an extra half a billion dollars in interest.

David Schaper, NPR News, Chicago.

BLAKE FARMER: I'm Blake Farmer in Nashville. Unlike little Rhode Island and big, bad Illinois, Tennessee has done a decent job maintaining fiscal stability. In fact, people are pretty proud of�a recent ranking. Of the 50 states and Washington, D.C., Tennessee places 51st in total debt. That's a good thing.

Governor PHIL BREDESEN (Democrat, Tennessee): This obviously puts us in the best position. If you could call it number one instead of number 51, I'd appreciate it.

FARMER: Tennessee Governor Phil Bredesen says a long tradition of using cash instead of credit has muffled the compounded effects of lower tax revenues. Tennessee's even paid cash for roads and college buildings, when borrowing is the norm.

Gov. BREDESEN: We're going to conduct our business and not get on to the slippery slope of starting to take a bunch of these things, and seeing how easy it is to pass things off to the future.

FARMER: But Tennessee has gotten off that high horse of pay as you go, and taken at least one small step onto that slippery credit slope.

Unidentified Man: Let's say we need a little hole with it.

FARMER: Men in electric-green road vests mix concrete in a wheelbarrow. They're replacing a 60-year-old bridge over Nashville's Mill Creek. Site manager Greg Cox says it was in pretty rough shape.

Mr. GREG COX (Construction Site Manager): The steel structure underneath was deteriorated. Honestly, I was amazed that the trucks were going across it.

FARMER: Two hundred bridges are slated for rehab over the next few years.�To accelerate the building spree, the state is using bonds to fund construction. It's not become a habit here, but that kind of borrowing has gotten some states in trouble.

Tennessee has trimmed costs and dipped into savings to get by. But deeper cuts are coming. For example, drug and alcohol clinics will lose their funding next year if state revenues dont pick up. Deborah�Hillin is director of Buffalo Valley Incorporated.

Ms. DEBORAH HILLIN (Director, Buffalo Valley Incorporated): We have four locations. Well, those four locations would be cut down to one or two. It causes another economic issue because now, I've got to lay people off.

FARMER: At least 75 employees would lose their jobs, Hillin says. And thats just one agency contract with one state department. With the coming end of stimulus funding and no meaningful turnaround in tax revenue, even thrifty Tennessee may be tempted to pull out the credit card a little more often.

For NPR News, I'm Blake Farmer in Nashville.

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