State budgets facing toughest year as legislators head back

ATLANTA — If you thought state budgets were in bad shape last year, just wait: 2010 promises to be brutal for lawmakers — many facing re-election — as they scramble to find enough money to keep their states running without raising taxes.

Tax collections continue to sputter. Federal stimulus dollars are about to dry up. Rainy day funds have been tapped. And demand for services — like Medicaid, food stamps and unemployment benefits — is soaring.

As lawmakers head back to state capitols this month, budget woes range "from bad to ridiculously bad," said David Wyss, chief economist at Standard & Poors in New York. "There are some states, those hit particularly hard by the recession, that I don't think can cut spending enough. They're running out of things to cut."

Typically, the worst budget years for states are the two years after a recession ends. Across the nation, budgets are already lean after several rounds on the chopping block.

Unless lawmakers increase taxes or fees — unpopular moves in an election year — most will need to cut even more as they grapple with the steepest decline of tax receipts on record. Services ranging from higher education to programs for the elderly could be in jeopardy.

The crunch could also mean new tolls to fund road projects, more prisoners being released early to trim corrections budgets, and the end of welfare programs that don't bring federal matching dollars.

The Center on Budget and Policy Priorities offers a bleak forecast: State budget shortfalls are likely to reach $180 billion for the coming fiscal year, double the size of Texas' annual budget.

"It's going to be the toughest year yet," said Raymond Scheppach, director of the National Governors Association, who predicts funding could evaporate for higher education, the arts and economic development. "The states haven't hit bottom."

Forty-three states and the District of Columbia have already slashed spending on popular services, including education, health care and services to residents who are elderly and/or disabled.

Kansas, which has already cut spending by about $1 billion, faces a nearly $359 million deficit in its 2011 budget.

Gov. Mark Parkinson's office has said he will propose increasing state tobacco taxes. Meanwhile, a coalition of state school districts that sued the state for higher funding has agreed to ask the state Supreme Court to reopen the case. A number of districts have cut employees' pay, imposed furloughs or reduced the number of days in the school year.

In suburban Atlanta, Mary Ann Neureiter, who runs an adult day care center, saw her state aid cut in half in 2009.

"It's heartbreaking because I foresee, in the coming year, it's going to get even worse for services for the elderly," she said.

With cuts reaching into classrooms and hitting the poorest residents, elected officials will be under increasing pressure to find more revenue. But in a number of fiscally conservative states, leaders have pledged not to raise taxes, leaving them few options.

In Oregon, voters go to the polls Jan. 26 to decide whether to uphold tax increases the Legislature imposed on corporations and higher-income residents.

Lawmakers in other states will be watching to see what happens, said Corina Eckl, fiscal policy director for the National Conference of State Legislatures.

"It really could be a bellwether for public tolerance," she said.

Politics are also at play. In Kansas and 21 others states, governorships are open in 2010, meaning incumbents on their way out the door could try to hand off the budget misery to their successors.

Eckl predicted that states this year will look to make deeper, more, sustained cuts that could fundamentally change what services government provides. Whole programs could be eliminated. Layoffs will take the place of furloughs.