Governors Push Congress to Ease State Fiscal Crises

VIRGINIA is fighting a potential budget deficit of $2 billion. Massachusetts' shortfall could be nearly as large. New York's tide of red ink could reach $6 billion. All across America, as many as 30 states face their worst fiscal crises in nearly a decade. There is talk of layoffs, furloughs, reduced services, lower education budgets - and sometimes, higher taxes.

Governors and state legislators blame two culprits - the current recession and Uncle Sam:

The recession, which has dragged down tax revenues and boosted outlays for unemployment compensation and welfare.

Uncle Sam, especially the Congress, which has forced the states to spend billions of dollars on new and expanded programs.

The nation's governors are in Washington this week to urge that President Bush and Congress move quickly to ease the pain in state capitals. Otherwise, the impact of the current recession could worsen.

Gov. John Ashcroft (R) of Missouri, vice chairman of the National Governors' Association (NGA), expresses the dismay felt by many chief executives about Washington's expensive meddling in state affairs. Mr. Ashcroft strongly objects to federal mandates which tell the states how to spend their money.

``This practice of the federal government ... is an affront to the legislatures of our states and the ability of our people on the local level to allocate resources,'' he says.

Ashcroft gives this typical example in his own state:

``Missouri this year will experience almost $140 million in new revenue growth. But 14 new federal mandates for Medicaid and other federal requirements will require state spending of $112 million. ... So the lion's share of all growth in my state is already allocated as a result of federal mandates.''

At a time when tax revenues are falling in most states, new federal rules on Medicaid, for example, will require the states to add nearly $2 billion to their budgets this year alone.

In California, the new Medicaid rules in 1991 will add $229.5 million to the budget. In Illinois, they will add $152.3 million; in New York, $148.4 million; in Massachusetts, $100.5 million.

Next year, the impact of these new rules will be even larger - for example, California, $391.4 million, and Illinois, $208.5 million.

Experts now predict that state spending on Medicaid will soar from $33.6 billion in 1990 to $66.1 billion in 1995. As a percentage of state budgets, Medicaid has already risen from 4 percent in 1970 to about 15 percent today, and could reach 17 percent by 1995.

To their horror, state officials have discovered that nearly 50 additional bills have been introduced this year in Congress that would add further to state fiscal burdens.

Martha Sabricius, a fiscal policy specialist with the National Conference of State Legislatures, calls this trend ``a very, very serious problem for state fiscal health.'' In addition to Medicaid, she says that new mandates from Congress on clean air and solid waste could also be ``budget busters.''

Analysts say Congress is largely to blame. As the federal government deficit mounts, Congress continues to pass new programs, but then orders the states to pay for them.

Unlike the federal government, 49 of the 50 states have constitutional provisions that require them to balance their budgets. Only Vermont does not. So when the federal government orders a new program, states must either raise taxes, or reduce other programs.

Gov. Booth Gardner (D) of Washington, chairman of the NGA, says that happened in his state, with unfavorable results. Pushed by federal mandates, Washington has spent more and more on long-term care, primarily nursing homes. But short-changed are projects to help women and children, which many state officials think would be a more cost-effective use of some of those state dollars.

Looking at all this, governors attending this week's annual winter meeting in Washington are expected to urge five short-term actions on the federal government:

1. Relax mandated Medicaid expansions by making them optional for the 1991 and '92 fiscal years. That could save states at least $2 billion a year.

2. Provide emergency funds to the states of about $150 million to meet the growing needs of unemployed workers. The jobless rate rose to 6.2 percent in January, which means 1.2 million more people are unemployed than a year ago. This is rapidly draining state funds for relief.

3. Halt the recent trend of shifting a larger percentage of the cost of government programs to the states. Recent examples are highway and transit projects.

4. Release federal monies building up in trust funds for use in building and repairing highways, bridges, airports, and transit systems. These funds, collected through gasoline taxes and user fees, are currently being hoarded by Washington to offset the budget deficit, but states desperately need the funds for the nation's infrastructure.

5. Stop infringing on traditional state revenue sources, such as cigarette, liquor, and fuel taxes. To boost revenues, Congress and the White House last year tapped all of those sources.