States Face Cuts, New Taxes, or Both, 2 Surveys Find

By Lonnie Harp — January 09, 1991 4 min read

Governors and lawmakers in many states will be forced to decide on drastic spending cuts, new taxes, or some combination of the two in order to balance their fiscal 1992 budgets, according to two surveys released last week.

Before they even get to that point, however, state leaders will have to move quickly over the next few months to eliminate mounting budget deficits in the current fiscal year, the reports by the National Conference of State Legislatures and the National Governors’ Association and National Association of State Budget Officers suggest.

Officials in 29 states anticipate swift action to shore up revenue shortfalls in their fiscal 1991 budgets, the ncsl reported.

The legislative group’s post-election survey paints the gloomiest picture to date of state finances as the nation by all accounts enters its first economic recession in seven years.

Sagging tax collections showed signs of spreading throughout the country, the survey indicates, and the nation’s 10 largest states reported that $6.7 billion in program cuts or new revenue will be required to balance their books by July.

Regional recessions once confined to the New England and Middle Atlantic states have taken hold in the Midwest and South and are beginning to turn up west of the Mississippi River, the ncsl survey found. As a result, many states will be forced to find patchwork funding plans to get them through the last few months of fiscal 1991.

California legislative officials report that tax collections currently are about $1.5 billion below expectations.

Deficits in excess of $1 billion are also forecast for New York and Pennsylvania, and Florida, Michigan, and Virginia are not far behind.

Similarly dire predictions were also voiced last week by the nga and nasbo, which found that 28 states will have to act to avoid fiscal 1991 budget deficits and noted that more may soon be added to that list.

The organizations calculated current state-revenue shortfalls at $9.6 billion, or about 3.2 percent of total spending in the current year.

While the governors and budget officers pointed to a slowing national economy and increased federal mandates as leading contributors to states’ troubles, the ncsl report argues that many fiscal 1991 budgets were already on shaky ground even when they were put together last spring.

“State budgets were precariously balanced when the fiscal year began,” the ncsl said. “At least 30 states intended to use carryover [funds] to balance their budgets.”

The current economic downturn finds many states in much the same circumstances they encountered in 1983, when a severe national recession caused a dive in tax collections and prompted many governments to raise sales and income taxes.

The ncsl study predicts that similar measures will be required as states plan for fiscal 1992. Most states will not be able to weather the economic slowdown without new austerity steps, it argues.

“Even if the recession is short and shallow, states are unlikely to recover their fiscal stability without substantial program reduction or substantial revenue increases,” the study warns.

Especially in such states as Virginia and Michigan, where governors have vowed not to raise taxes, cuts could be severe, observers said.

The ncsl listed the most likely candidates for tax increases as Connecticut, Florida, Georgia, Maine, Maryland, Michigan, New Hampshire, New Jersey, Rhode Island, and Virginia. Others where tax increases are seen as a strong possibility included Minnesota, Pennsylvania, Tennessee, and Texas.

The predictions were based on solely on fiscal projections, however, and did not take into account political factors, such as the intense anti-tax backlash that has swept New Jersey since the legislature raised taxes last summer.

The bleak news is even expected to take a toll on states where revenue collections are outpacing estimates, the ncsl study indicates.

Arkansas, Louisiana, and Utah are ahead of budget projections, but both states expect spending deel10lmands in fiscal 1992 to require either cuts or new revenue.

A fiscal 1991 surplus in Nebraska will help balance the fiscal 1992 budget, but officials report that the state could fall into the red by fiscal 1993.

Rising oil prices, which have stoked the recession fires in many states, are yielding extra revenue in such energy-producing areas as North Dakota and Texas. But both states expect increased spending to quickly swallow the unexpected revenue.

The exception is Alaska, where higher oil prices have already produced a $2.5-billion surplus.

The ncsl found that while a few states have gained from rising oil prices, they too are not optimistic.

“Even the states now benefiting from petroleum and natural-gas prices have adopted a very cautious outlook, since the current level of prices is as much due to speculative activity as to pressure on supplies,” the report says.

The widespread fiscal straits create a “foreboding” atmosphere for governors and legislatures that convene this month, the report notes.

Even so, the survey suggests that education will be a prominent issue as lawmakers turn to shaping their fiscal 1992 spending plans.

Legislators in 28 states said elementary and secondary education issues will be prominent concerns during their 1991 session. Ten states plan to focus on higher education.

Education will vie with Medicaid and prisons as the chief program concern for legislatures, the ncsl said.