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Boston Globe, The (MA)

December 15, 2002

STATES FACING HARD CHOICES IN BATTLING HISTORIC DEFICITS
STUDIES SAY CRISIS IS WORST SINCE WWII
PUBLIC SERVICES FACING TRIMS AS STATES REDUCE THEIR BUDGETS

Author: Tatsha Robertson, Staff Writer

Edition: THIRD
Section: National/Foreign
Page: A22

Index Terms:
US BUDGET

Estimated printed pages: 5

Article Text:

Virginia has shut down a dozen Department of Motor Vehicles offices and prosecutors in Virginia Beach no longer take domestic abuse cases. Oregon plans to stop prosecuting minor nonviolent crimes, such as shoplifting and prostitution. Libraries in several states are closing their doors once a week, and the California agency that runs the Golden Gate Bridge is asking pedestrians for donations.

These are miserable times for the nation's governors as they struggle to balance budgets by the middle of next year. Nearly every state, from Massachusetts to California, is battling historic deficits. As a result, state governments have been forced not only to make tough choices, such as raising taxes, but also unusual ones, such as closing hospitals, libraries, welfare offices, and parks.

Vermont is the only state not required by law to balance its budget.

Two recent national studies have called it the worst budget crisis for the states since World War II. Overall, they are facing an aggregate deficit of at least $40 billion, but the impact the deficit will have on the nation's economy will be two or three times that much, said Ray Scheppach, executive director of the National Governors Association, which released a report on the states' budget crisis.

"It's the worst I've seen it. Going back to the post-war era, I've never seen such an acute and focused fiscal crisis and particularly for the state government," said Richard P. Nathan, director of the Nelson Rockfeller Institute of Government at the State University of New York-Albany. "Their revenues are drying up, their expenditures are escalating, and if we don't do something about it, it will undercut all new efforts made to improve the national economy."

The estimated budget gap of $547 million in Massachusetts is among the largest in total dollars, according to the report by the National Conference of State Legislatures, but it is below average on a percentage basis. Massachusetts officials have predicted that in the next fiscal year the shortfall will far exceed an earlier projection of $2 billion.

Two-thirds of the states report declining revenues and more than half face expenditures larger than their projected budgets, according to the National Conference of State Legislatures. California Governor Gray Davis announced his state's deficit will be far worse than the projected $23 billion over an 18-month period. On Friday, Davis proposed $10.2 billion in budget cuts, including layoffs of state employees.

"It's bleak. There is no question," said Bill Pound, executive director of the National Conference of State Legislatures. "I think it's probably the worst situation in thirty years, and it's more serious than the last budget downfall we had in the 1990s."

Governors are pressing Washington for help, but the federal government has its own financial woes, so states are going it alone, with some cutting health care benefits for the poor. According to a study by the College Board, tuition and fees for the 2002-2003 academic year at public four-year colleges have increased 9.6 percent, one of the largest increases in decades. Prosecutors in several states are choosing not to take misdemeanor cases, to reduce spending. Besides closing 12 motor vehicle offices, Virginia laid off 2,000 state employees.

"We have made the easy choices," said Kevin Hall, spokesman for Virginia Governor Mark Warner. "We have cut through fat and now we're getting to muscle and bones, and none of these are easy choices. But none of these are made in a haphazard or an unthinking way."

The budget crisis of the states is a dramatic ending to the flush 1990s, when governors won over voters by refusing to increase taxes and poured money into health care and education programs. While officials now blame soaring medical costs as well as the recession on the states' anemic fiscal outlook, the problems states are experiencing have a lot to do with actions taken during those years, according to a recent report by the Center on Budget and Policy Priorities.

From 1994 to 2001, revenue grew substantially. Corporate profits were high. Capital gains also soared, increasing income tax receipts. Assuming that revenues would continue to flow at those levels, officials in 43 states cut taxes. But the bonanza stopped: The stock market flopped, and personal consumption leveled off. Companies that once paid millions in taxes moved to offshore havens such as the Bahamas. But all of those tax cuts have remained permanent. States will not receive a total of $40 billion this fiscal year because of the cuts enacted during the 1990s, according to the Center on Budget and Policy Priorities study. This year, sales tax collections were 3.2 percent lower than originally budgeted by the states, according to the report by the governors association.

Scheppach, who is an economist, said the budget crisis is a result of a convergence of several events, including the deterioration of tax collections as well as the recession and soaring health care costs. The crisis has been coming for some time, but states were able to cushion the blow with rainy day funds - surpluses created during the boom years - but those reserves have been used up.

"So, all this is like the perfect storm," said Scheppach. "All of these things have come together at the same time."

These days governors and legislatures will do more than tax cigarettes, said economists who study state budgets. They said the budget crisis will have a strong effect on the residents' quality of life. For instance, the transportation agency that runs the Golden Gate bridge in San Francisco will erect a contribution box near the sidewalk of the bridge. Illinois has closed prisons and mental health facilities.

"You are going to find more restrictions on drugs, cuts in reimbursement rates to hospitals and nursing homes. Low-income people are going to lose access to Medicaid. You are going to see a fair number of termination of state workers," said Scheppach.

But some of the most dramatic measures taken to balance state budgets pertain to crime.

Missouri shortened sentences of some prison inmates to save money. Two weeks ago, Harvey Bryant, the prosecutor in Virginia Beach, ordered his office to stop taking the 2,200 misdemeanor domestic violence cases brought annually. Bryant said in an interview that he deeply regrets the action, but insisted a directive from the governor forced the cuts. As a result, victims of such abuse will have to find lawyers or represent themselves in court, while every defendant will have a court-appointed attorney. Bryant said he is concerned that defendants will have an unfair advantage over the victims without lawyers.

In order to cut millions from the budgets of Oregon courts, officials announced that from March until the fiscal year ends on June 30, shoplifting, prostitution, and criminal trespassing cases will not be processed through the courts. Instead, prosecutors will have the option of dropping the cases, delaying them until the Legislature provides more money, or imposing noncriminal fines.

Public libraries also have taken a hit. New York City, Seattle and Minneapolis are just three cities that have cut library hours and staffs to slice budgets. A total of 14 libraries in New York's borough of Queens will end Saturday service in order to cut spending by 14 percent. Maurice Freedman, president of the American Library Association, said he expects libraries in Brooklyn and Manhattan to follow suit.

"Libraries are having a hard time, especially those libraries that are part of a city and local county government," said Freedman. "The politicians were not forthright about the budgets. They were all running for election - from the president on down to the dog catcher. Now that the election is over, we have to pay the piper."

SIDEBAR:
TOUGH BALANCING ACTS
PLEASE REFER TO MICROFILM FOR CHART DATA.

Caption:
CHART MAP

Copyright (c) 2002 Globe Newspaper Company
Record Number: 0212150461