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States seek financial help as new fiscal year begins

Mike Auer joins in a protest in Harrisburg, Pa., of state budget cuts to programs for disabled. Meanwhile, President Obama attends a town hall gathering in Racine, Wis., about the economy.
Mike Auer joins in a protest in Harrisburg, Pa., of state budget cuts to programs for disabled. Meanwhile, President Obama attends a town hall gathering in Racine, Wis., about the economy. (Bradley C. Bower/associated Press)
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Washington Post Staff Writer
Thursday, July 1, 2010

State governments desperately need money. Congress is in no mood to spend it. And the reckoning will begin Thursday, when the new fiscal year will start for most states.

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Nothing less than the nation's nascent economic recovery hangs in the balance. States say that if they do not find financial rescue they will have to cut services and workers. That would deliver a potentially crippling blow to the economy, which needs higher employment levels to fatten wallets, promote spending, bolster tax revenue and reduce dependence on expensive social services.

States face a combined deficit of $89 billion in the fiscal year that begins Thursday, according to the National Conference of State Legislatures. And because every state but Vermont is required to balance its budget, the only recourse is cutting employees or vital programs, including education spending, medical services, programs for the disabled and elderly, and police and fire protection.

All that cutting could mean the loss of 900,000 jobs -- in the public sector and in private companies that rely on state business, according to the Center on Budget and Policy Priorities, a liberal research group.

President Obama has called for $50 billion in aid for states, but concern about the federal deficit has made lawmakers wary about significant new spending.

"We may be looking at a culture and lifestyle around this country that will start to remind people of the Depression, not a recession, if we cut through these budgets much more," said New York Gov. David A. Paterson (D), who was among a small group of state chief executives who descended on Congress on Wednesday to make a last-ditch plea for federal help.

Although the downturn has not hit the Washington region, with its relatively stable federal workforce, as hard as it has some parts of the country, Virginia and Maryland have eliminated jobs and imposed employee furloughs in the past year. Both states have proposed cuts to a wide range of programs, including education and local government aid for the coming budget year -- cuts that will have to go deeper without a new round of federal help.

A bill that would funnel federal money to states by helping them with a larger share of their Medicaid costs has failed repeatedly in Congress, most recently last week.

Cindy Mann, the federal director of Medicaid, said she was on the phone last week with the Massachusetts health secretary when word came that the legislation had failed again in the Senate. "She just got what the budget looks like without the [higher federal Medicaid match]. There's going to be a lot of sticker shock," Mann said. "It's going to wreak a lot of havoc on the states."

A recent Pew Research Center survey found that most Americans think that states should solve their budget crises without federal help. Paradoxically, however, most respondents also said they oppose reductions that would have to be made for states to balance their budgets.

Thirty states have already included a new round of federal money in their budgets, assuming that Congress was sure to approve it given its past support and the fiscal chaos likely to ensue if the money is not forthcoming. But there is now serious doubt that the federal government will provide new aid to extend a program in the stimulus bill that is scheduled to expire at the end of December. Only nine states that have budgeted the federal aid have contingency plans for what to do in its absence, according to a survey by a state legislatures group.

"The states are going to have to go back and take some action," said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers (NASBO). "There is a lot of concern about a cliff with stimulus funding and how fast it drops off in fiscal 2011."

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