Red Ink in the States

January 06, 1991

Times are tough in America's state capitals -- and the outlook is for more bad news in the months ahead. The nation's recession has hit state governments hard. There is little for governors to do except impose distasteful spending cuts, seek higher taxes and prepare for howls of protest.

Thirty-one states are running huge deficits in the current fiscal year, totaling $11.6 billion. That shortfall could triple next year. California's two-year shortfall could exceed $5 billion, New York's and Virginia's each could top $2 billion and nearly every state in the Northeast is running far behind pre-recession revenue forecasts.

States are being battered by the country's rapid slide into recession, federal mandates that impose new fiscal burdens on localities, cuts in domestic aid from Washington and too many new programs added during the boom years of the 1980s.

Maryland's predicament is typical. Though the state has a reputation for sound fiscal management, it was caught flat-footed by the sudden drop-off in tax receipts after the Persian Gulf crisis flared last August. Gov. William Donald Schaefer ordered a hiring freeze and reduced spending to save $180 million. But tax revenue continued to sag, forcing a second round of reductions totaling $243 million, which were approved by the Board of Public Works last week. Layoffs have been kept to a minimum but some program cuts run deep. Another $200 million now must be chopped out of next year's budget.

Mr. Schaefer is discovering that no matter what he does, it displeases some vocal group. Earlier efforts to eliminate a youth services program and a kidney dialysis program prompted such protests that the governor relented. A plan to lay off 1,800 workers failed to gain legislators' backing. And no one wants to discuss the dreaded "T" word, except possibly to build new roads.

What's a governor to do? Unlike the federal system, where deficits are allowed to pyramid, all states except Vermont are required to maintain balanced budgets. This forces governors to act quickly in depressed times to raise taxes or cut spending. It is a painful process for those in state capitals but it avoids the calamitous mountain of debt that now overwhelms Washington.

"Downsizing" is the buzz word. A lack of money is forcing administrators to trim staff, eliminate all but essential programs and seek new ways to do more with less. In the end, this may produce positive results. But in some areas, these service reductions will hurt citizens who badly need help. Only a return to good economic times is likely to change that situation -- or a lessening of public antipathy toward higher taxation.

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