The economic recovery that is brightening the political horizon in Washington is casting only a chill light on state capitols. Tax increases and tax protests, budget squeezes and program cutbacks are still the order of the day in most major states, a Washington Post survey indicates.
Utah Gov. Scott M. Matheson (D), chairman of the National Governors Association, which begins its annual meeting today in Portland, Maine, said Friday, "If there's an economic recovery out there, the effects on the states are certainly delayed. Most of us are still trying to control the hemorrhaging."
The picture is mixed, with the Great Lakes industrial states suffering the sharpest fiscal distress and expecting the slowest relief, while less populous states such as Maine and Arizona see somewhat brighter prospects.
But such Sun Belt stars as Florida and California went through brutal tax and spending battles in their legislatures this year, underlining Matheson's comment that "the governors of the '80s are engaged in the game of crisis management."
The governors association and the National Association of State Budget Officers reported in a June survey that 47 states have taken "austerity measures" in the current fiscal year, including hiring limits and program cuts in more than two-thirds of the states. Matheson said a follow-up survey found that in most of the 39 states that raised taxes, "not one dime went for any new program. It all went to offset the recession losses and the cutbacks in federal aid."
In many instances, The Post's roundup showed, states have responded to the federal cutbacks and economic squeeze by reducing their aid to cities, counties and school districts, adding to the pressures on local government.
With the hard times have come hard political battles, some of which are just heating up. Tax limitation or rollback referenda are in prospect in three of the 12 states The Post surveyed--Florida, Ohio and Oregon--and in Michigan, recall petitions are being circulated against the Democratic governor and 14 state legislators who supported his tax-increase package.
In many states, the 1983 budget struggles resembled the Perils of Pauline. For the first 10 days of July, 206,000 welfare recipients and 17,000 public employes across Pennsylvania waited anxiously for their checks while state officials tried to figure out how to find the money.
For months, as Democratic legislators warned of an impending budget shortfall, Republican Gov. Richard L. Thornburgh had dismissed them as "Chicken Littles." When the governor finally acknowledged the magnitude of the fiscal crisis, House Majority Leader James J. Manderino (D) announced: "As far as Chicken Little is concerned, the sky has fallen."
The checks finally went out July 11 as Thornburgh used his veto power to slice $1 billion from the state's $8 billion budget, with half the cuts coming in aid to local schools. Democratic legislators later voted an increase in the state income tax to restore most of the cutbacks.
Pennsylvania's budget impasse reflects the continuing dilemma of many industrial states, which have had to raise taxes and cut spending just to stay afloat. This has made it difficult for them to pay for new initiatives that might help ease the transition from primarily a smokestack economy.
A chief casualty of the budget crunch in Harrisburg, for example, was PennPRIDE, a five-year, $6.5 billion plan by House Democrats to rebuild the state's economy through education and economic development projects. Thornburgh cut the program to the bone.
In California, feuding between Democratic legislators and Republican Gov. George Deukmejian over political redistricting left the state without a budget for a record 19 days. The squabbling got so bitter that when Deukmejian refused to remove a political sign in the lobby of the state Capitol, the chairman of the rules committee took away parking privileges for Deukmejian's senior staff.
When a $26 billion budget compromise finally emerged, Deukmejian vetoed $1.1 billion in spending, particularly from programs involving adult day care, occupational health and safety, the public defender's office, medical care, mental health, drug abuse, education and job training.
"Most of the programs that serve the poor have been cut," said Pam Haynes, a legislative staff member. "About the only thing we didn't make cuts in was the crippled children's program, which is a fairly middle-class program."
Deukmejian made more than a fifth of his cuts in spending for the state's community colleges and proposes to impose tuition charges for the first time, an effort the Democrats have vowed to resist.
Deukmejian, who had promised not to raise taxes, now prefers to talk about "closing tax loopholes." He has eliminated most medical deductions, extended the sales tax to vending machine food and home video movies, and barred solar energy tax breaks for heated swimming pools.
Recovery in the midwestern industrial states continues to be slow, and newly elected Democratic governors in the region are getting little Republican support for unpopular tax increases and spending cuts. In Michigan, only one GOP legislator supported Gov. James Blanchard (D) when he pushed through a 38 percent boost in the income tax.
Conservative citizens' groups have gathered half the signatures needed to initiate a recall of Blanchard, and they appear to have enough signatures to recall a freshman Democrat from Pontiac who supported the tax hike. This apparently would be the first recall of any state lawmaker.
Despite rising sales in the auto industry, unemployment is hovering at 15 percent in Michigan and welfare caseloads remain at an all-time high. Blanchard has cut education and social-service spending, scrapped 25 boards and commissions and delayed state aid payments to local schools and hospitals. Metropolitan Wayne County, which has staggered through several payless paydays, is trying to put employes on a four-day work week.
Asked about an economic recovery, a Michigan budget official said, "We can see the train coming down the tracks a long way off."
The economic climate is equally bleak in nearby Ohio, where not a single GOP lawmaker supported Democratic Gov. Richard F. Celeste's recent 90 percent income tax surcharge. Support for the tax hike was so tenuous that a Democratic senator whose wife was seriously ill in Florida had to be flown to Columbus to cast the tie-breaking vote.
Celeste, despite a precipitous drop in popularity, plans to increase spending by 27 percent, with a special emphasis on education and job training programs designed to diversify Ohio's industrialized economy. But his tax package has sparked a statewide drive for a constitutional amendment that would cancel the governor's tax increases and require a three-fifths legislative vote for future tax increases. The campaign has collected half the needed signatures to put an amendment on the ballot.
Ohio budget director Cristina Sale said many of the state's jobs in the steel and auto industries are gone for good. "We are looking toward a much more tenuous recovery for Ohio than is projected nationwide," she said, adding that no one expects the jobless rate to dip below 12.5 percent in 1984.
In Illinois, third-term Gov. James R. Thompson (R) had to go back on his campaign promises and ask for $1.9 billion in new taxes when the recession knocked the props from under his budget assumptions. "Something happened to us that has never happened before," said Illinois budget director Robert L. Mandeville. The Democratic legislature, after months of battling, enacted about $1 billion of the increase--which may or may not be enough to avoid another tax increase next year.
The state work force has been cut by 3,000 and aid to education cut by 20 percent, but state Rep. Woods Bowman (D) said, "Everything indicates . . . the employment rate will stay higher than in the past. We face a chronic deficit and erosion of our ability to raise revenue."
New York was spared the overtime legislative sessions that other states endured; for a change, its budget was passed on time. But the process was far from painless. The new budget includes nearly $1 billion in new taxes, including hefty increases on cigarettes and liquor, a rise in auto registration fees and a new 3 percent levy on long-distance phone calls within the state.
New York also has imposed a 10 percent capital gains tax on major real estate transactions and a controversial gross receipts tax on the 18 largest integrated oil companies doing business in the state.
The law allows the companies to pass on the tax to consumers, but Mobil Oil Corp., for one, has announced it won't pay it.
Gov. Mario M. Cuomo (D) managed to win approval for a new program to house the homeless, a $150 million prison bond issue and a state takeover of local Medicaid costs, but he also cut 10,000 workers from the state payroll. "A reduction like that has to affect services," said Timothy Russert, the governor's counselor.
As in other regions, the effects of the recession have not been distributed evenly. While New York City's service-based economy has emerged largely unscathed, there has been a dramatic increase in unemployment and welfare cases in western New York, particularly in Buffalo's hard-hit steel and auto industries.
Florida's legislature was forced into a special session early this month when legislators, who had voted for $1 billion in added levies in the past year, balked at Gov. Robert Graham's (D) plea for an additional $480 million to finance improvements in education. In the end, Graham got about half of what he wanted by horse-trading for local projects, but the whole array of tax increases is the target of a constitutional amendment, placed on the 1984 ballot by petititon, to cut taxes back to the 1980-81 level and curtail future increases.
Another Sun Belt state, Texas, voted no new taxes this year, and is one of the few states that expects a budget surplus, now estimated at $630 million. A governors' survey found that all the states had an aggregate surplus of $291 million--or enough to finance one day of operation--but if Texas is excluded, the remaining 49 states show a deficit.
Still, this is a lean year by Texas standards, with revenues running 15 to 18 percent below expectations. The reason is simple: 30 percent of the state sales tax is tied to the depressed oil industry, and the recovery, especially around Houston, is moving slowly.
"A lot of grocery stores have little reason to exist without the oil industry," state comptroller Bob Bullock said.
Texas also borrowed from the federal government for the first time to pay jobless benefits. Nineteen states and the District of Columbia are in debt to the unemployment fund for a total of $9.6 billion, led by Michigan ($2 billion), Pennsylvania ($1.9 billion), Illinois ($1.9 billion) and Ohio ($2 billion).
In smaller states included in The Post's survey, the outlook is varied. A depressed timber industry forced Oregon legislators to hold three special sessions last year to avoid a budget deficit. The lawmakers adopted an income tax surcharge, laid off state workers, tightened welfare rules, cut funds for state colleges and slashed property tax relief from $800 to $170 per homeowner.
Other states, such as Maine, seem less ravaged by recession. The Maine jobless rate has dropped to 8.6 percent, and chief economist Lloyd Irland says railroad shipments and traffic on the Maine Turnpike are up--a clear sign, he believes, that the economic downturn has bottomed out.
Maine, like many states, found revenues by boosting minor taxes and shifting more of the burden to local governments. On one hand, the state boosted taxes on gasoline and cigarettes. On the other, the legislature reduced welfare payments to localities and directed town officials to take over maintenance of state highways within their borders. Almost every one of the state's 499 towns and cities had to raise local property taxes this year.