22 states facing budget gaps

More job cuts, service losses likely

The moribund economy is drying up tax revenues more dramatically than expected, forcing 22 states to confront growing budget gaps. Some states already have eliminated jobs and services - and more cuts are likely.

The new shortfalls, totaling at least $11.2 billion, come just months after numerous states enacted belt-tightening measures while writing yearly budgets. Officials also adjusted their revenue projections downward to account for the slowing economy. But in many cases, the actual revenue for the first quarter of the fiscal year, which began July 1, has proven to be even lower.

The gaps "will almost certainly widen" as tax revenues continue to disappoint, according to the Center on Budget and Policy Priorities, a Washington, D.C., think tank that compiled the state data in a report this month.

Economists and other observers fear the numbers may signal the onset of a historic fiscal crisis for state governments.

"States have been confronted with bad economic circumstances in the past, but never so many states, all at once," said Bill Pound, executive director of the National Conference of State Legislatures.

The revenue pools are shrinking for a number reasons: Rising layoffs are cutting into payroll taxes. The credit crisis and housing slump are affecting taxes levied on real estate deals. Sales taxes are shrinking as shoppers worried about the economy stay home. Every state in the union but Vermont legally requires a balanced budget. So state governments have begun cutting.

In Utah, Governor John Huntsman called the Legislature back for a special session last month to slash $270 million, with a 3 percent across-the-board budget cut. Governor Tim Kaine of Virginia this month disclosed a sudden $900 million budget gap, and announced 500 layoffs, the suspension of 2 percent raises for state workers, and a hiring freeze. Georgia, faced with a $2 billion shortfall, is contemplating cuts of up to 10 percent at state agencies. Lawmakers are also discussing eliminating funding for the state's Music Hall of Fame in Otis Redding's hometown of Macon. When legislatures convene in January they will have to consider even harsher reductions, warned Donald Boyd, a senior fellow at the Rockefeller Institute in New York, who tracks state budgets. "What states have done so far - still generally mild - pales in comparison to what they will do," he said.

The pain likely will spread beyond the warrens of state bureaucracy, as laid-off state workers and curtailed government spending help fuel a vicious economic cycle. The Center on Budget and Policy Priorities, which typically takes a liberal view on policy issues, notes that as the economy declines, residents require more services from their state government, not fewer.

The only alternative to cutting services, a tax increase, has proven unpopular in a number of states, including California and Florida. As a result, said Florida's Democratic Representative Ron Saunders, "We're doing what families are having to do. Most people I know don't have the same discretionary income they had last year, so they're facing difficult decisions."

Some of the most dire problems are emerging in states like California and Florida, where the housing collapse was the most pronounced.

California lawmakers, who faced a $15.2 billion deficit going into the fiscal year, argued over their budget for months.