Recession saps black ink from state budget books

Mounting fiscal woes are putting state officials throughout the nation increasingly on the spot.

Having made it through what some veteran observers have termed the roughest budget year in four decades, governors and legislators in most, if not all, states face a bleak outlook for the coming months.

This is a major conclusion of a study of 1982 state budget-shaping, directed by Steven D. Gold of the National Conference of State Legislatures (NCSL).

While some states are better off financially than others, most of them are in rather precarious conditions. Revenue is not keeping pace with appropriations, and this condition is wiping out reserves and in some instances producing deficits.

Recession-induced drops in revenue, cuts in federal aid, coupled with public employee pay raises and increased spending needs for corrections, law-enforcement, and other priority programs, have contributed to the worsening fiscal plight of most states.

Seven states thus far have closed their fiscal 1982 books in the red -- Connecticut, Minnesota, New Hampshire, Ohio, Oregon, Washington, and West Virginia. And an eighth, Michigan, appears headed in that direction.

According to the study, conducted in conjunction with the Washington, D.C-based Urban Institute, 10 other states ended their fiscal year on June 30 with balances in their general-fund accounts amounting to 1 percent or less of their total appropriations for the year.

Wyoming, with a 16.4 percent cushion, and North Dakota with 25.1 percent treasury balance, appear to be in the best shape. They were among only a dozen states with more than a 5 percent surplus.

Although financial strategists in most of these states are counting on similarly making it through fiscal 1983, NCSL projections are generally more modest. Only two states -- Alaska and Wyoming -- topped 10 percent.

Meanwhile, at least 24 states, eight more than in fiscal 1982, now project a deficit or surplus of 1 percent or less in the current budget year that, with a few exceptions, expires next June 30.

State budget-shaping is a particular challenge because unlike the federal government, a balanced budget is required in 49 of the 50 states, Vermont being the lone exception. In some instances, however, deficits are permitted if they are due to unforeseen circumstances.

Michigan and Ohio have been particularly squeezed for dollars. Their economies hinge considerably on the depressed auto industry. The situation is similar for Oregon and Washington, whose timber production has been slowed by the decline in home building.

The generally more affluent oil-producing states also have felt the pinch due to declining petroleum prices caused by the oil glut. Some of these states, like Texas, which enacts its budgets every two years rather than each year, have gotten by through dipping into often fast-dwindling reserves.

Those without such a cushion have been forced to trim budgets, reduce taxes, speed up collections, defer programs, or cut public-employee payrolls.

All but five states held legislative sessions this year, including some where previously adopted biennial budgets for fiscal 1982-83 were adjusted to meet changed financial conditions. The five exceptions were Arkansas, Montana, Nevada , North Dakota, and Texas.

Of nearly half of the 45 states involved in budget-crafting for fiscal 1982 and 1983, 22 increased one or more taxes, although in some instances temporarily. This despite the fact that 1982 is an election year and most governors and legislators approving the levy hikes are asking voters reelect them.

Responding to their fiscal troubles, at least 16 states imposed hiring freezes, 20 laid off state workers, four raised personal income taxes, five others boosted sales taxes and excise taxes -- including those on gasoline, cigarettes, and liquor -- were upped in 17 states.

This action partially reverses the tax-cutting trend of recent years. Still, total levies in fiscal 1983 will consume a smaller proportion of combined personal income than they did in the mid-1970s, according to Mr. Gold.

Contrary to what had been expected last January, federal aid cuts did not dominate state budget deliberations last winter and spring. Instead the recession-induced decline in state revenues commanded far more attention. Most states did not replace much of the federal funding that was cut from their programs in fiscal 1982.

Further reductions embraced in President Reagan's proposed fiscal 1983 budget are viewed with greater concern at state capitals across America.

Despite their difficulties in making ends meet in fiscal 1982, lawmakers in many states built their budgets for the current year on optimistic assumptions about national economic trends. They anticipated the recession would end shortly and growth in the economy would be fairly strong during the coming months.

Iowa legislators, for example, based their spending package for fiscal 1983 on a 14.1 percent boost in the revenue from the state personal income tax and an 11.9 percent growth in income from the sales tax. In contrast, these levies grew by only 9.0 percent and 1.7 percent, respectively, in the year just ended.

For the current fiscal year, at least 13 states forecast an increase in revenue of at least 10 percent year over last year's yield. These ranged from 10 .1 percent in Kansas to 21.6 percent in Vermont. At the same time 10 states authorized increased spending in excess of 10 percent during fiscal 1983. The biggest boosts were 17.9 percent in Ohio, 19.7 in Wisconsin, and 21.5 percent in Vermont.