State officials cut, slash budgets as recession depresses revenues

Michigan drivers may notice that there are fewer state troopers checking on highway speeders. University of Wisconsin students in Madison will find no new books on the shelves this fall. And residents of towns in Minnesota and Iowa may become aware that it takes longer than usual for the trash to be picked up or the streets to be cleared of snow.

It was only a year or so ago that many state governments, thanks to inflation-swollen tax revenues, were basking in budget surpluses. But the situation has changed dramatically -- particularly in the nation's heartland, where the recession has had its most powerful effect in layoffs and rising public assistance rolls.

Most state governments in the Midwest now face projected operating deficits of from $100 million to $300 million. And unlike the federal government, the vast majority of states cannot legally close the books on a deficit.

So they are scrambling to pare expenses in almost any way they can. Many states are delaying bill payments and putting off capital expenses and planned service increases. Most have had a hiring freeze in effect for the last several months. Governors in four Midwestern states have recently ordered spending cuts ranging from an across-the-board 3 percent in Ohio to an average of 8.3 percent in Minnesota.

The depth of the recession and the effect of layoffs on tax revenue and welfare caseloads caught most state finance officials in this region by surprise. And the recent cutoff of federal revenue-sharing funds to states added to the pinch.

Most states had planned some cushion to counter the changing economic conditions, but rarely enough. Illinois apparently stands alone in having built up a very sizable "rainy day" reserve fund of $390 million. It will dip in for director Robert Mandeville, who says similar funds in other states are only a fraction of that size insists that Illinois plans no service cuts at all.

Of all Midwestern states, Michigan is by far the hardest hit in the current budget squeeze. Unemployment has been at 14 percent for the last several months , and public assistance caseloads have doubled in the last year.

"This state is in a very tough financial bind -- we're on the brink of the destruction of state government," insists Dr. Douglas Roberts, deputy director of the Michigan Department of Management and Budget.

For the first time since 1939, he says, the state will have less to spend in the new budget -- $200 million with no allowance for inflation -- than in the previous year's budget. By drawing on a "rainy day" fund and making $150 million in cuts, including a trim last week of 80 state trooper positions, Michigan has barely managed to end its fiscal year Sept. 30 without an operating deficit. Some 1,000 more layoffs are expected within the next few months.

Yet on top of this already tight money situation, Michigan voters face a ballot question Nov. 4 which could make Michigan's money crunch even more severe.

The so-called Tisch or D proposal is a constitutional amendment which would cut property taxes by $2.7 billion and require the state to make up the bulk of the loss by service cuts. Any hike in state taxes or fees thereafter would require the approval of 60 percent of the state's voters. Dr. Roberts, who insists that the result would be "absolutely devastating," says it would mean an end to all state funds for 12 of the state's public four-year colleges and a 50 percent cut for the three others.

Voters in both Iowa and Ohio will also decide important fiscal questions in their states in November.

In Iowa, where Gov. Robert Ray and the Legislature have managed to trim $150 million in expenses over the last six months, the ballot question is whether or not to hold a state constitutional convention which would consider setting Iowa spending limits.

In Ohio, state officials have by varied means managed to close with a $266 million expected shortfall, voters will decide whether or not to approve a tax reform measure which would bring the state an additional $800 million a year.