Last year, when the states were awash in budget surpluses and Proposition 13 was on the front pages, state legislators all but fell over each other to cut taxes. In all, some three dozen states trimmed taxes in varying degree.
Now, just a few months after Proposition 13's first anniversary, at least some state officials -- with a few notable exceptions, such as those in oil-rich Alaska -- are beginning to wonder if the tax-cutting was a mistake.
With an economic slump on the horizon, many state governments are headed for an old-fashioned revenue pinch that some analysts say could leave them as strapped for funds as they were during the 1974-75 recession.
What's more, the states are getting proportionately less money from Washington these days. Partly because of pressure from the states for a balanced federal budget, Congress may eliminate their portion of revenue-sharing.
"We no longer have a uniform picture of affluence," says John Shannon, assistant director of the Advisory Commission on Intergovernmental Relations, a nonpartisan agency that follows federal-state developments.
Patricia Mosser of Data Resources Inc., a Massachusetts-based economic consulting firm, agrees. "The picture, essentially, is bleak," she says. DRI predicts some states may have to hold back growth in services.
The outlook marks almost a complete turnaround from the situation in mid-1978 and before. After years of hardship -- and frequent tax increases -- state treasuries brimmed last year with sizable surpluses. Governors were plainly embarrassed.
The bounty stemmed primarily from the right mix of economic conditions. The economy was growing briskly enough then to keep income and sales levels -- and the taxes that come with them -- high. And inflation was pushing taxpayers into higher and higher brackets.
But the tax-cut push that followed Proposition 13 came just as most states had committed themselves to substantial increases in spending. So the reductions, when they finally hit, amounted to more of a squeeze than generally was perceived.
The reductions took hold at the same time two other developments were beginning to have effect: The federal government was reining in on its aid to states and localities, and the economy was beginning to slow down.
As a result, the fiscal position of states and localities combined has been reversed almost overnight in what some analysts say may turn out to be its fastest swing on record.
Commerce Department figures show the combined operating balances of states and localities nationally have shifted from a surplus of $8.4 billion per year, in early 1978 to a $6.1 billion deficit in the second quarter of this year.
And both DRI and Townsend-Greenspan, a New York consulting firm, predict the deficit will swell to $9 billion or so by the end of this year and up to $12 billion in 1980, depending upon the depth of the predicted recession.
Steve Roberts, DRI's chief state budget analyst, says the result could be a crunch for the states rivaling in severity that of the 1974-75 recession. In that event, he says, some states might have to cut back on essential services.
Conspicuous among the exceptions are the oil states such as Alaska, Texas and Louisiana, which will continue to enjoy huge surpluses, thanks in part to the recent sharp rise in crude-oil prices. Severance-tax revenues in all three states are high.
Analysts also say the big agricultural states, such as Kansas and Nebraska will fare reasonably well next year. While some farm prices have slipped in recent weeks, they're expected to remain firm enough to keep tax receipts high.
But not every state is blessed with oil wells or cornfields. Most of the others are expected to feel at least some squeeze over the next few months, and the Northeastern industrial states are expected to be particularly hard hit.
Moreover, there seems little prospect ahead that the states will get any relief. Many already have reduced their tax bases in the wake of Proposition 13, and with the economy apt to be in a slump that won't get the help they'd counted on.
And except for the possibility of a large antirecession program -- which the White House and Congress both oppose at the moment -- most analysts say it's unlikely that Washington will step up its aid to states.
If anything, governors may be doing well to talk Congress out of cutting back on the states' portions of the revenue-sharing program. The House already has approved the cutback several times, and the Senate may go along this fall.