Now it's states' turn: Most face skyrocketing deficits

January 01, 1991|By Paul West | Paul West,Washington Bureau of The Sun

WASHINGTON -- As he paces his government office in Augusta, Maine, John R. McKernan Jr. tries to imagine what will happen if four of his 20 staff members are laid off.

He has a good reason for believing layoffs are likely. He's the one who will order them.

"These are horrible decisions," said the Republican governor, re-elected to a second term in November. "You'd never make them if you weren't required to; it's just human nature. People in government are there to help people, not hurt them."

But now, Maine itself is hurting. And like governors and legislators across the country, Mr. McKernan must make tough choices this winter to help make ends meet.

Nationwide, 31 states confront a combined gap of more than $11.6 billion this budget year. The next budget year, by most indications, will be worse, with a shortfall that could be three times bigger -- and the steps needed to eliminate it that much tougher and more painful.

With a speed that has surprised some financial experts, declining business conditions are sharply reducing the expected flow of tax money to states, which can no longer turn to the debt-ridden federal government for assistance. That, in turn, is prompting a wave of new belt-tightening measures, since every state, except Vermont, must by law balance its budget.

Hard times may mean putting off improvements in public schools, cutting social services to the poor, raising tuition for state college and university students, or creating more traffic jams because of delays in patching roads and bridges or building new ones. There may be less pay for some state workers and unemployment lines for others, and, perhaps inevitably, higher taxes for almost everyone.

Every week, it seems, another state joins the casualty list, while those already in trouble report worsening conditions. The other day, Pennsylvania disclosed a gap of nearly $1 billion; only last month, the state's chief executive, Robert P. Casey, like other election-minded governors, had been campaigning for a second term by depicting Pennsylvania as a rising star with a robust economy.

Virginia announced recently its budget gap had widened by almost $500 million to $1.9 billion over the next two years. In New York, a $1 billion austerity plan had scarcely been finished when budget officials said an additional $200 million to $500 million might have to be cut.

The severity of the emergency varies from state to state. The worst may be Michigan, which must close a gap that amounts to 12 percent of the state budget.

Maryland, whose $423 million shortfall comes to 6.7 percent of the current budget, is in the middle.

Although the East led the nation into the current downturn, it is not alone in getting squeezed. California, hit relatively late, expects a $2.2 billion gap this year, state officials recently told the National Association of State Budget Officers.

In the past, balancing budgets meant concocting a mix of spending cuts and new taxes.

But this year, the tax option "will be much more difficult for governors to deal with," said Gerald H. Miller, director of the National Association of State Budget Officers.

The expert on state budgets, who gets calls almost daily from "very nervous" new governors, says several factors "clearly changed the political landscape and the notion of what these governors could do." They include federal budget negotiations in Washington, which deepened the anti-tax mood evident in last month's election, and a revolt by New Jersey taxpayers after Gov. James J. Florio pushed through a massive state tax increase.

In all, 26 states, including many of those in financial trouble today, raised taxes last year -- by a record $10.3 billion -- to cover the increased costs of everything from health care to building new prison cells.

"What's different this time is the early response: They're taking those [tax] options off the table," Mr. Miller said.

Some governors, such as Mr. Casey, a Democrat, and Michigan Gov.-elect John Engler, a Republican, are constrained by campaign pledges not to raise taxes. But others are also taking that position, at least for now, including Gov. William Donald Schaefer of Maryland and two Democrats with national ambitions, Govs. Mario M. Cuomo of New York and L. Douglas Wilder of Virginia.

Mr. Wilder has laid off 800 state workers, proposed early retirement for 4,600 others and canceled a pay raise for the rest. He also ordered state agencies to trim spending by 5 to 10 percent. Ruling out higher taxes was based in part on the governor's recognition that public resistance to tax increases remains strong, particularly at a time of deepening economic distress.

"Having seen so much waste in government and so much unlimited spending, people are saying: 'Show us your best case first [for cutting spending] before [raising] taxes,' " Mr. Wilder said. "I think that's the mood."

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