Most States Avert ‘Doomsday’ Crises
States start their new budget year today, reeling from the recession but sparing most citizens from painful cuts in education and health care.
Arizona, California, Illinois, Ohio, North Carolina and Pennsylvania are among states still struggling to approve budgets for the 2010 fiscal year, which begins today in 46 states. Indiana, Massachusetts, New Jersey and Wisconsin were among states adopting budgets shortly before the deadline.
Big tax hikes were approved in some states, including Hawaii, Nevada, New Jersey and Oregon. Many other tax proposals, though, died in budget negotiations, says Pete Sepp, vice president of the National Taxpayers Union, an anti-tax group.
"With a few exceptions, states have been able to avoid the doomsday projections that big tax hikes were on the way - but doomsday may be just a year around the corner when the federal stimulus money runs out," Sepp says
The $787 billion federal stimulus package, signed into law in February, played a key role in limiting budget cuts and tax increases. The stimulus will provide $250 billion to states over two years, mostly for education and Medicaid.
Even before the stimulus bill, education, health care and corrections were the programs most protected from spending cuts, says Scott Pattison, executive director of the National Association of State Budget Officers. The stimulus money added another layer of protection.
"The programs that aren't favored - historic preservation, economic development, libraries - are the ones most vulnerable to cuts," Pattison says.
For example, Ohio plans to preserve state aid to education and an income tax cut but is considering slashing library spending by 30% and tourism promotion by 90%. The state's budget is at an impasse over the governor's proposal to raise $933 million by putting slot machines at racetracks.
Among states still awaiting budgets:
California@.@ The state's long budget stalemate shows few signs of ending, so Controller John Chiang will start issuing IOUs for $3 billion of $14 billion in payments due this month. Schools, debt holders, employees, pension funds and hospitals will get cash. Interest-bearing IOUs will be used for tax refunds, college aid and welfare.
Connecticut.@ Republican Gov. Jodi Rell plans to veto a budget approved by the Democratic Legislature that would raise taxes $2.5 billon over two years. The top income tax rate would rise from 5% to 7.5%.
Arizona.@ Republican Gov. Jan Brewer and Republican legislative leaders are debating whether to let voters consider a sales tax hike.
How states settled budgets:
Wisconsin.@ Gov. Jim Doyle, a Democrat, signed a budget that lifts spending 6.6% over two years, including more education funding. The budget rolls back a 2% pay hike for state employees and slashes film industry incentives.
New Jersey.@ Gov. Jon Corzine, a Democrat, signed a budget that increases taxes by $1 billion, including a new top rate of 10.75% on incomes above $1 million. Spending was reduced $4 billion, including cuts in property tax rebates.
Massachusetts.@ Gov. Deval Patrick, a Democrat, said he would sign a bill that increases the sales tax from 5% to 6.25% and spends record amounts on education.