Published Online: July 2, 2009

States Without Budgets as Key Deadline Passes

The finances of several states around the nation are sinking deeper into chaos as lawmakers struggle to work out budget differences amid a recession that has wiped out tax revenue and set the stage for dramatic cuts in service and pay for government workers.

The start of the new fiscal year arrived Wednesday with states from California to Connecticut still without spending plans in place.

Gov. Arnold Schwarzenegger declared a fiscal emergency and ordered state offices closed three days a month to save money as state officials plan to pay bills with IOUs starting Thursday.

Deep budget cuts have already forced California school districts to cancel summer school programs, moves that have affected — among others — elementary and middle school students in Los Angeles, which has the country's second largest district.

School officials in North Carolina, Oregon, Florida and other states have also cut or limited summer classes.

Cutbacks to other programs — and possibly government-wide shutdowns — loomed with cash quickly running out.

But the pain extends far beyond the West Coast. The governor of Pennsylvania is proposing a 16 percent tax increase. A budget veto by the Illinois governor left the state with no spending plan at all. Indiana barely avoided a shutdown.

In most states, the debate centers on whether states should be raising taxes to bridge the budget gaps. Schwarzenegger said he wouldn't sign anything that raised taxes or fees beyond what he has already proposed.

"I'm proud of California, even though we have our crisis," the governor said. "No one can point fingers, because as you can see, there are 30 states right now that have their fiscal year starting today that also don't have a budget, so I mean let's not get carried away and just look at California as we are the only state that cannot manage the budget."

The recession has taken a devastating toll on tax revenues and state finances. States had a cumulative $121 billion budget gap in crafting this year's budgets — and the gap would be even bigger without federal stimulus money, said Todd Haggerty, a research analyst at the National Conference of State Legislatures.

“You can't look to any one region that's performing better than the others," Haggerty said. "You can see Arizona and California in the west, Ohio and Illinois in the middle and Pennsylvania and North Carolina in the east."

The NCSL says seven states — Arizona, Connecticut, Kentucky, Mississippi, North Carolina, Ohio and Pennsylvania — have experienced delays or had to extend their sessions to deliberate on the budget.

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