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BROKEN BUDGET: State revenue rises, but not enough to offset cuts

Saturday, December 31, 2011 | 9:00 a.m. CST

Editor's note: This story is the latest installment in a joint initiative by The Associated Press and Associated Press Media Editors on the fiscal crisis facing U.S. states and cities, how state and local governments are dealing with severe budget cuts and how American lives will change because of it.

BATON ROUGE, La.  — College students clash with administrators over steeply rising tuition. Public employees shut down statehouses amid cuts to pay and retirement benefits. Teachers and social welfare advocates protest budget cuts. Lawmakers struggle to cope with sharp declines in tax revenue.

If government budgets were once an eye-glazing topic, they moved to the top of the public agenda in 2011 as state and local governments faced some of their most difficult decisions since the national recession began in late 2007.

A fourth year of declining tax revenue meant deep spending cuts and, in many states, a rethinking of the role of government and the scope of the services it should provide.

Budget experts expect last year's tumult to give way to somewhat steadier times in 2012, as tax revenue continues a slow rebound. But few budget planners are celebrating, as cautious optimism about an uneven economic recovery is leading to subdued expectations.

"There will be no restorations," said Eileen Klein, chief of staff for Arizona Gov. Jan Brewer. "I hope we can eliminate that word from the budget vernacular."

The end of a three-year state sales tax increase in 2013 and concerns about Medicaid expansion in 2014 driven by the federal health care overhaul has led the state's Republican governor and GOP lawmakers, who have a majority in the Legislature, to say they must hold the line against new spending.

The cautiousness in Arizona is an illustration of the continued budget turmoil expected in 2012 throughout much of the nation, even after four years of deep spending cuts.

States have closed budget gaps totaling more than $500 billion since late 2007, with 48 states cutting programs and services. Louisiana, for example, recently trimmed subsidies that are provided to grandparents and other relatives taking care of children who are not their own, ended a program in 10 local jurisdictions to help people find jobs and sliced money for counseling services for at-risk children.

Republican Gov. Bobby Jindal cut public college funding another $50 million this month to help close the latest budget shortfall. Rising tuition has led to rallies on campuses across the country, including some protests that turned violent in California.

Adam Thongsavat, 22, expects the year ahead to be even more active on campuses. The student body president at the University of California, Davis, where campus police pepper-sprayed peaceful demonstrators last fall, said students are angry over rising tuition and a lack of job prospects once they graduate.

In his time as a student, he saw tuition and campus fees at the public university rise by nearly 68 percent, from about $8,000 in 2007 to $13,400 this year.

"I think 2012 will make even optimists pessimistic," said Thongsavat, who recently graduated with a double major in history and political science. "I think what you're going to see is a lot more unrest unless leaders in Sacramento, our regents and community leaders take active stances on improving student lives. We're going to see a lot more of the same, and it's going to get a lot worse."

Federal stimulus money approved by Congress when the Democrats were in control helped during the heart of the recession, delaying layoffs of teachers and police officers while moderating cuts to Medicaid and other public health programs. Some states raised taxes and fees and tapped their rainy-day funds.

But even with a trickle of good economic news recently, state officials say no one should expect robust government spending anytime soon. Commitments still exceed incoming tax revenue in many states.

"It's at a slow pace. But any improvement, no matter how small, is positive news," said Todd Haggerty, a research analyst at the National Conference of State Legislatures.

Arkansas is among those states expecting to see a slight bump in tax revenue for the fiscal year that begins July 1, but it will not be enough to significantly restore funding to slashed programs and services. Worries about the strength of the economic recovery linger, making state officials hesitant to spend, said Richard Weiss, head of the Arkansas Department of Finance and Administration.

"There are a lot of clouds out there, and there's a lot of headwind out there that we're very concerned about," he said.

Twenty-nine states are spending less from their general funds today than they did before the recession, according to a recent joint survey from the National Governors Association and the National Association of State Budget Officers.

More than 30 states have raised taxes since the recession began, but some of those increases were temporary and are expiring soon, as in Arizona. With the economy slowly reviving and unemployment rates dipping, many governors and lawmakers say they don't want to jeopardize the recovery by raising taxes again.

But tax revenue is not expected to grow enough to make up for the impact of four years of dismal economic times. Rainy-day funds, internal transfers and other one-time sources have largely been tapped, so governors and lawmakers must look for new places to cut spending.

"They've done the easy cuts and only a few have budget reserves left," said Elizabeth McNichol of the Center on Budget and Policy Priorities, a Washington, D.C.-based think tank. "There aren't really things that are sacrosanct any longer."

Changes to public employee retirement benefits and sweeping reforms to health care programs such as Medicaid are among the most likely targets.

At least 17 states project budget gaps for the next fiscal year, while a handful need to balance budgets in the remaining six months of the current budget year. The revenue of all 50 states combined remains $21 billion below 2008 levels, according to the National Governors Association-NASBO report.

Budget gaps in states projecting shortfalls in the 2012-13 fiscal year are estimated to total $40 billion. By comparison, California alone closed a deficit of $42 billion in 2009, during the worst of recession.

The nation's most populous state is again facing budget troubles, but the problem appears more manageable than during the past few years.

Even so, Democratic Gov. Jerry Brown and state lawmakers have fewer options to close the $13 billion shortfall that is projected over the next 18 months.

In December, Brown ordered $1 billion in midyear spending reductions to public schools, universities and social services because tax revenue did not meet projections. The state has given school districts the option of slicing another seven days from the current school year, now 175 days long. That already is five days shorter than before the recession.

Low-income seniors and the disabled will get less in-home care when the reductions start in January. School advocates warn that an estimated 1 million students will have trouble getting to class with a drop in home-to-school transportation funding.

"The cut to transportation is absolutely devastating," said Steve Henderson, a lobbyist for the California School Employees Association. "What that means is a lot of low-income and rural kids will not have the ability to get to school."

Brown has proposed a 2012 ballot initiative to raise $7 billion annually through 2016 by boosting income taxes on individuals making $250,000 or more a year and increasing the state sales tax by a half-cent. He also has submitted a plan to the Legislature to revamp public employee pensions.

Washington state is considering similar cuts to cope with its shortfall, including shortening its school year, eliminating medical programs for 55,000 low-income residents and letting some low- and moderate-risk offenders out of prison early.

Missouri is reducing funding for elementary and secondary education to close a mid-year budget deficit tied to tornado recovery. North Carolina Gov. Beverly Perdue, a Democrat, is warning of thousands of teacher layoffs next fall because federal aid to local school districts is running out.

In Colorado, Gov. John Hickenlooper has proposed deep cuts to K-12 funding and higher education, largely because of a spike in Medicaid enrollment.

"This doesn't make us happy," said Hickenlooper, a Democrat. "I don't see a way to get around it."

 


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