[NYTr] Crashing Economy: States chop '08 spending plans

[All the News That Doesn't Fit]

USA Today - Dec 26, 2007
http://www.usatoday.com/news/nation/2007-12-26-states-woes_N.htm?csp=34


States chop '08 spending plans

By Dennis Cauchon, USA TODAY

The housing market meltdown and fears of an economic downturn are
prompting state and local governments to cut spending plans for next
year.

Severe budget problems have arisen in states where home values have
deflated most, including California, Florida and Nevada. In other
states, strong revenue growth has turned sluggish.

"We're hoping for an upsurge in the coming months, but we're bracing
for the worst," says Massachusetts state Rep. Mark Falzone, vice
chairman of the budget committee of the National Conference of State
Legislatures.

Many state and local governments have known good times since 2003.
Surpluses led to more spending on popular programs such as education,
health care and highways, as well as modest tax cuts.

Revenue for state and local government rose 5% in the first nine months
of this fiscal year, according to the Bureau of Economic Analysis. But
spending was up 6.8%.

Unlike the federal government, most states must balance their budgets.
State and local governments will spend $1.8 trillion this year — about
13% of the economy.

A nationwide gap of 1 percentage point between spending and revenue
requires states to cut spending or raise taxes by $18 billion.

Revenue is slumping in areas that often foreshadow a recession: sales
taxes and business profit taxes.

"The downward trend in our (corporate) profits tax has given me pause
because it's usually the first sign of trouble," Louisville Mayor Jerry
Abramson says. The mayor has ordered a freeze on most hiring, travel
and purchases such as office furniture and computers.

Governors are taking action, too. California Gov. Arnold Schwarzenegger
is considering asking the Legislature for a 10% spending cut and
releasing more than 20,000 prisoners. Nevada Gov. Jim Gibbons told
state agencies to prepare for 8% budget cuts outside of education and
prisons. Virginia Gov. Tim Kaine wants to spend $261 million of a $1.2
billion budget reserve.

Some states already have tackled budget problems:

•New York. The state used about $2.3 billion of an $8.2 billion reserve
to cover a deficit. Revenue is up 1.1% in the first seven months of the
state's budget year, but spending is up 4.6%. Wall Street's financial
problems have hurt the state through layoffs, smaller bonuses and lower
profits.

•Florida. The state expects a $1 billion drop in tax collections. It
has twice trimmed spending plans and may tap its $1.8 billion budget
reserve. The problem: Fees and sales taxes from home construction have
tumbled.

•Indiana. Gov. Mitch Daniels told state agencies not to spend $65
million approved in their budgets this year.

The budget problems are not nationwide. Texas, Kansas and Washington
are among about a dozen states enjoying strong economic conditions.
Oregon mailed $1.1 billion in tax refunds to residents because income
tax collections surpassed expectations.

Energy and farm states are doing especially well. So are states that
didn't have big real estate busts.

"Our city is on a roll," says Oklahoma City Mayor Mick Cornett. The
city is spending $100 million a year rebuilding its schools and will
spend tens of millions for a downtown park.

State legislators say they've tried to plan more cautiously and build
up reserves, a lesson learned from the budget crisis that followed the
recession in 2001. Congress gave states a $20 billion bailout in 2003.

"Hopefully, we've learned from our mistakes," says Republican state
Rep. Sharon Schwartz, chairwoman of the House Appropriations Committee
in Kansas.