More States See Red As Fiscal Shortfalls Multiply Across US

STATE government officials from Maine to California have an urgent New Year's resolution: cut spending fast. It's a resolution most states cannot afford to break. Twenty-eight states are running deficits totaling an estimated $9.6 billion, according to a new survey by the National Association of State Budget Officers and the National Governors' Association (NGA).

The budget crisis could bring layoffs, furloughs, hiring freezes, and program cuts to states. But officials, sensing public anger over government spending, see little chance of higher taxes.

Across the country, states are being dragged down by the deepening recession. As the economy weakens, tax revenues slump and demands for welfare grow because of unemployment. At the same time, states find they are unable to control large chunks of their budget for health care, prisons, and several other programs because of mandates handed down from Washington and the federal courts.

Worst hit are eight Northeast states, from New England to Virginia, as well as Michigan, Mississippi, and California. In all, 11 states have shortfalls of more than 5 percent of their 1991 budgets. Most of the remaining states with fiscal problems are east of the Mississippi River, including Tennessee, North Carolina, and Georgia, which all have budget shortfalls of 3.1 to 5 percent.

Raymond Scheppach, executive director of the NGA, says state budget problems grew more serious in October 1990, when collections of sales, income, and corporate taxes began to sag.

Reduced revenues from sales taxes apparently resulted from war jitters in the Midwest as well as recession forecasts, which made consumers hang onto their wallets. Higher gasoline prices and the new 5-cent federal tax on gasoline in December also cut into fuel sales, which reduced the states' gas tax collections.

Meanwhile, Dr. Scheppach says Medicaid costs, which are largely borne by the states, ``are exploding'' and adding to the current deficits. Newly mandated federal rules for Medicaid, as well as inflationary pressures, drove up state health-care costs by 18.4 percent last year, and are expected to send them soaring by 22 to 25 percent this year.

Governors are expected to make the growing cost of health care, as well as the need for improved education, their two top priorities this year.

Although their problems are worsening, state officials appear determined to weather the current crisis without resorting to higher taxes. The survey found that of the 28 states with problems, only four (California, Mississippi, Massachusetts, and Rhode Island) are even considering new revenues.

In contrast, 26 states are contemplating hiring and travel freezes. Twenty-two are trying to target reductions to specific programs. Sixteen are considering across-the-board cuts. Fifteen may defer spending, 14 may have layoffs of public employees, 12 may dip into their rainy-day funds, and 12 may shift funds from one program to another to cover shortages. Nine states may require employee furloughs, or payless days, while six are contemplating cutbacks in pension funding, the survey found.

The current crisis is the worst for states since 1983, when a nationwide recession drove joblessness up toward 10 percent, says Gerald Miller, executive director of the budget officers' association. In contrast, unemployment in the current slump is still below 6 percent. But Dr. Miller warns: ``We still have not seen the worst of this recession.''

Furthermore, at the onset of the previous recession, states were running an average budget surplus of 9 percent. This time, there is no surplus.

Miller notes the climate for tax increases is so poor that states will hesitate to go down that road. Another problem is the new federal tax program, which hiked levies on gasoline, cigarettes, and alcohol - effectively closing that route to hard-pressed states.

Experts see little good news in the next year or two. ``The estimated $9.6 billion shortfall is not only unusually high, it is likely to go higher as the year progresses,'' Scheppach says.