Ailing States Face Bleak Outlook in Next Fiscal Year

By Keith B. Richburg and Ashley Surdin
Washington Post Staff Writers
Tuesday, August 11, 2009

NEW YORK -- As states across the country grapple with the worst economy in decades, most have cut services, forced workers to take unpaid days off, shut offices several days a month and scrambled to find new sources of revenue.

The good news is that much of the pain this year has been cushioned by billions of dollars of federal stimulus money, which has allowed states and localities to avoid laying off teachers, prison guards, police officers and firefighters.

The bad news is that for the next fiscal year, beginning in July, the picture looks even bleaker. Revenue is expected to remain depressed, even if the national economy improves. There will be only half as much federal stimulus aid available, and many states have already used up their emergency reserves.

Most states have just approved a budget for the fiscal year that began July 1, and their legislatures have adjourned for the summer. But in a dozen or more states, those budgets have already gone into the red less than two months into the fiscal year, by a total of about $24 billion. More than 30 states are projecting deficits for next year, according to the Center on Budget and Policy Priorities, a Washington-based think tank, and other expert estimates.

The economic picture in state capitals has looked bad since last fall, when the national economy first went into freefall and many governors called their legislatures into emergency sessions to make drastic mid-year cuts for such things as health-care services and support for public colleges and universities. But as legislatures have just completed their regular budgeting process, the extent of the fiscal disaster is only now becoming clear -- and some are already talking about additional special sessions this fall, with more painful cost-cutting ahead.

Maryland, with a $1.9 billion budget, faces a $700 million gap, according to the Center on Budget and Policy Priorities. The District has a new $650 million budget with a $150 million shortfall. Virginia, with a $1.8 billion budget, also faces a new deficit, but the size has not been determined.

For the next two fiscal years, the states face a combined budget shortfall of $350 billion, according to the center and the Council of State Governments, using roughly the same projections.

"I think that states are going to have to look at revenue and programs across the board, or they're going to have to raise revenue in an anemic economic environment," said Chris Whatley, deputy executive director of the Council of State Governments. "Either way you look at it, it's going to be about tough decisions in state capitals."

Already, in California, the epicenter of the states' fiscal meltdown, domestic-violence shelters have been turning people away because state funding was eliminated, and some shelters have shut down.

State funding has also been eliminated for several programs run through California's office of AIDS, and for a black infant health program that helps 6,000 African American pregnant women and new mothers statewide. "This is the worst I've ever experienced, and I've been with the County of Sacramento for 23 years," said Sharon Saffold of the county's health department.

State offices across Michigan were closed Friday, but not for a holiday. It was the fourth of six furlough days for more than 37,000 state workers, with two more shutdowns due before Labor Day.

New Jersey Gov. Jon S. Corzine (D), struggling in a reelection campaign, recently signed a new $29 billion budget that was $1.5 billion less than the first budget he signed as governor four years ago. But even that was not enough to stop Moody's, the Wall Street rating agency, from downgrading New Jersey's credit outlook to "negative," citing the state's huge debt and the use of one-time budget gimmicks.

CONTINUED     1        >

© 2009 The Washington Post Company