States Straining To Repair Budgets

Illinois Gov. Patrick Quinn vetoed a budget.
Illinois Gov. Patrick Quinn vetoed a budget. (Seth Perlman - AP)
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By Peter Slevin
Washington Post Staff Writer
Tuesday, July 7, 2009

CHICAGO, July 6 -- Illinois has stopped paying $1,655 a funeral to bury the indigent dead. California is issuing IOUs in place of tax refunds. Ohio's rainy-day fund has dwindled from nearly $1 billion to exactly 89 cents.

Nearly a week into the new budget year, all three states are stymied, unable to balance their books and unable to decide whether to fill the huge gaps with tax increases, spending cuts or both. Either way, it will hurt.

Politicians, feeling the pressure from state employees and constituents, are sniping at one another and deploying their legislative tools. California Gov. Arnold Schwarzenegger (R) vetoed a budget because it included tax increases. Illinois Gov. Patrick Quinn (D) vetoed one because it didn't.

Mississippi used a last-minute sleight of hand to make the numbers work, passing a budget that left the state's utility regulatory agency and public service commission unfunded. Connecticut's 50,000 employees will take seven unpaid furlough days in the next two years.

Arizona's Republican governor called the Republican-led legislature into special session on Monday after the two sides failed to agree on the fate of a sales tax hike. Ohio Gov. Ted Strickland (D) said the state is losing money every day its two-year budget goes unpassed and called on lawmakers "to bring their pizza and pillows to the statehouse."

"For a lot of people, there is a continuing failure to recognize the severity of what is happening with this economy," Strickland said in a telephone interview from Columbus. "Programs will be reduced. Some programs will be eliminated."

Billions in federal stimulus dollars have kept cuts from being worse, Strickland said, but there is no magical cure for budget ills largely caused by plummeting tax revenues. The combination of a sour economy and balanced-budget requirements is forcing states to live with smaller budgets at a time when demand for services is increasing.

Ohio's unemployment rate is 10.8 percent "and going upward," Strickland said. For the next two years, he projects a $3.2 billion deficit that would be met with $2.4 billion in cuts and $933 million in estimated revenue from new video lottery terminals at racetracks.

In California, the budget hole was $24 billion until the government missed its July 1 deadline to have a new budget in place. Now, Schwarzenegger told reporters on Monday, the gap is $26.3 billion.

"It has reached across the country. State revenues have been pummeled," said Todd Haggerty, a research analyst at the National Conference of State Legislatures. He said 44 states reported cash shortfalls in the last budget year, with 31 already projecting gaps for the fiscal year beginning next summer.

"You're seeing pretty much anything and everything on the table because of how broad and how deep the recession is," said Haggerty, who is based in Denver. "Program cuts, agency cuts, furloughs, hiring freezes, salary freezes, layoffs."

California started issuing IOUs last week. The first ones went to people owed tax refunds. Others may go to vendors and local governments. Rod Brown, president of the California Bankers Association, said the IOUs, formally called warrants, pose a dilemma for his members.

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