State budgets walloped again

Revenue shortfalls lead to new budget gaps only three weeks into the new fiscal year. States are forced to make more painful budget cuts.

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By Tami Luhby, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The bad news about state budgets just keeps getting worse. Only three weeks into the new fiscal year, gaps are already opening up. And the shortfalls are only expected to grow.

"If you think legislators are breathing a sigh of relief because their budgets are passed, think again," said William Pound, executive director of the National Conference of State Legislatures.

State legislators and governors had to contend with deficits totaling $142.6 billion as they closed out fiscal 2009, which ended on June 30 for 46 states, according to the conference. Three states have yet to pass balanced budgets for fiscal 2010, as officials tussle over painful budget cuts and tax increases.

But even some states that approved budgets are going back to the drawing board as revenues drop faster and more sharply than they had estimated.

Legislators from around the country, who are meeting in Philadelphia, gathered Tuesday to discuss their common plight. Gallows humor was abundant, according to Corina Eckl, director of the conference's fiscal program.

An Arizona official joked that the state's financial plight is comparable to the Grand Canyon, while an Illinois legislator said his state's budget situation is so scary, it's best told around a campfire at night.

"The revenue forecasts are continuing to underperform even the most pessimistic of projections," Eckl said. "There's still a lot of this ahead of us."

At least 12 states and the District of Columbia are confronting gaps totaling $24 billion in budgets already adopted, according the Center for Budget Policy and Priorities, which focuses on policies affecting low- and moderate-income families and tracks state budgets.

In a sign of what other states may have to contend with, California Gov. Arnold Schwarzenegger and lawmakers have reached a compromise to close a $26 billion budget gap. The spending plan, however, is anything but pretty and has raised the ire of many groups within the state.

The agreement, which was approved Friday by the state legislature, calls for slashing $15.5 billion in spending, including some massive cuts to education, social services and corrections, as well as borrowing $2 billion from local government, shifting money from other funds and other accounting gimmicks.

Surprise revenue drops

Vermont legislators were disappointed to learn last week that a $28 million gap has opened in their $1 billion budget, which lawmakers approved in early June after overriding the governor's veto.

The state has already cut more than $100 million in spending over the last five quarters, said Rep. Michael Obuchowski, chair of the legislature's joint fiscal committee. To balance the budget, officials hiked taxes and fees by $50 million.

"We're getting to the point where we're going into the marrow," he said. "We will have to look at whole programs and furloughs. There isn't anything easy left."

Gov. Jim Douglas, who became the first Vermont governor ever to veto a budget, will propose ways to eliminate the shortfall in coming weeks, said spokeswoman Dennise Casey. The governor has criticized lawmakers for passing an unsustainable budget.

Tough decisions

Colorado officials, who finalized the state's fiscal 2010 budget in May, found out they were facing a $384 million deficit just days before the start of the new year.

"This means essential and important state services will be reduced even more, impacting the safety net that protects families in every corner of the state, and challenging our ability to invest education, health care and infrastructure," wrote Gov. Bill Ritter Jr. in a newspaper op-ed piece Monday.

Officials already squeezed $1.4 billion out of the fiscal 2009 and fiscal 2010 budgets by taking other painful steps. Among them: closing a women's prison, reducing the state's workforce, lowering rates for doctors providing Medicaid services and temporarily eliminating a senior property tax break. They also depended heavily on using federal stimulus funds, tapping into other state funds and dipping into reserves.

Even though the state has had to take these measures, Colorado has considered itself relatively lucky, said Evan Dreyer, the governor's spokesman. Though it is certainly affected by the national recession, Colorado's unemployment rate has remained relatively steady at 7.6%, nearly two percentage points below the national level.

Now, the more difficult decisions must be made. Ritter has asked all state agencies to determine how they would cut 10% of their budgets. State employees, who must take four furlough days, won't get raises before July 2011.

"Cuts in this plan will be deep and painful," Ritter said.

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