ASHINGTON, Nov. 25 — Plunging tax
collections and soaring medical costs have created the worst
fiscal problems for states since World War II, the National
Governors Association said today.
"Nearly every state is in fiscal crisis," the governors
said in a new report surveying the states.
The states' fiscal woes will force governors, many of them
newly elected, to propose politically sensitive tax increases
or drastic cuts in services.
Raymond C. Scheppach, executive director of the governors
association, said states were increasing tuition at public
colleges and universities, cutting Medicaid eligibility and
benefits, increasing taxes on individuals and corporations and
laying off state employees.
"You will see huge cuts in Medicaid" next year, beyond the
cutbacks already enacted, Mr. Scheppach said.
Medicaid and other health costs like employee health
benefits account for 30 percent of state spending and grew
last year by 13 percent, the largest increase in a decade, the
report said. At a time when revenues are declining, Mr.
Scheppach said, such growth is unaffordable and
Governors and state budget officers said the fiscal
condition of the states was more dire than the condition of
the national economy. The recession has reduced state
revenues, especially personal income and capital gains taxes,
Mr. Scheppach said, but the states' fiscal problems are also
linked to long-term trends, like the increase in health costs
and the growing importance of services in the economy.
Relatively few of the newly elected governors have said
precisely how they will deal with these fiscal problems. "Most
of them don't understand how bad it is," Mr. Scheppach
In its "Fiscal Survey of States," the governors association
found that the amount of money states had on hand at the end
of the most recent fiscal year had fallen to $14.5 billion,
from a peak of $48.8 billion in 2000. The current balance
equaled 2.9 percent of state spending, the smallest cushion
Total state tax
collections fell by 6 percent last year and declined in every
quarter, even as spending grew by 1.3 percent, Mr. Scheppach
These figures are consistent with data reported recently by
the Rockefeller Institute of Government at the State
University of New York, which found tax revenues down 6.3
percent in the fiscal year that ended June 30. Among states
reporting the largest reductions were Alaska, Oregon,
California, Massachusetts, Connecticut and New York.
In New York, the budget director for Gov. George E. Pataki,
a Republican, told state agencies last week to cut spending by
5 percent in the remainder of the fiscal year, which ends on
March 31. The budget director, Carole E. Stone, also said that
cuts next year would be deeper than expected. The state is
facing a deficit that legislators have estimated at $5 billion
to $10 billion.
Oklahoma is experiencing the worst budget crisis in
decades. Oklahoma State University, in Stillwater, was told to
return money to the state, and its library has reduced its
hours. The state finance director has instructed all state
agencies to reduce spending by 6.5 percent.
Gov. Gray Davis of California, a Democrat, said last week
that he would call a special session of the State Legislature
to consider $5 billion of spending cuts and other emergency
measures to "stanch the bleeding" in state finances. The
governor told legislative leaders that the deficit in the
coming year could exceed $21 billion.
Herb J. Wesson Jr., the Democratic speaker of the
California Assembly, said, "This is a terrible crisis, and
every Californian will be affected."
In Illinois, a Democrat will become governor for the first
time in 26 years, and he will inherit a huge problem: a
deficit that could grow to $2.5 billion, in a budget totaling
In his campaign, the governor-elect, Rod R. Blagojevich,
said that Illinois could resolve its budget problems without
an increase in sales or income taxes. But aides to Gov. George
Ryan, a Republican, said that spending cuts made last spring
were overwhelmingly unpopular, and that further cuts would be