A Fiscal Crumpling of the Cheer in State Capitals

WASHINGTON. — Washington -- A dark veil of gloom and depression has fallen across the finances of the states.

Budgets passed during the legislative battles of last spring and summer are starting to unravel. Maryland, Maine, Florida, New Jersey, New Hampshire, Georgia and Washington are among the states already forced to revisit their 1992 budgets because of serious, unpredicted gaps between revenue and spending. California now fears a $2-billion shortfall for this fiscal year -- even after covering, in mid-summer action, the biggest deficit any American state has ever faced ($14.3 billion).


New York state, which thought it had pared enough and upped taxes enough to cover its $6-billion shortfall, now has an additional $875 million budget gap to close.

Marching into these breaches can be dangerous business. In New Jersey, Democrat Gov. James Florio had a "veto-proof" Republican legislature handed to him this fall -- largely because of the massive tax increase he'd instituted in 1989. Connecticut's Independent Gov. Lowell Weicker recently had to face 40,000 screaming, spitting, hissing protesters who descended on the Connecticut Capitol demanding repeal of the state income tax that Governor Weicker forced the legislature to accept.


Protest does little, though, to mask the hard facts: In the past two years the states have felt obliged to raise taxes by a cumulative $25 billion. They've cut $10.2 billion from their spending growth. The cumulative swing is the heaviest ever to hit the states.

And that doesn't count all manner of fiscal sleight-of-hand to get budgets balanced, including raids on several states' public-employee pension funds.

The states last year were blind-sided by drastically falling revenues. They found themselves running $4.5 billion behind where they'd expected to be in sales taxes, $4.8 billion behind in personal income taxes, $3.2 billion off the mark in corporate income taxes.

Recession-driven revenue losses have mirrored, almost exactly, the tax increases states have felt obliged to impose.

No matter who wins elections, there are no easy ways out. The Republicans taking over in New Jersey say they're going to roll back $590 million of Governor Florio's $2.8-billion tax increase. But unless the economy suddenly climbs out of the tank, New Jersey will have a fiscal year 1993 deficit of $550 million -- and that without a penny of tax rollback.

The National Governors' Association now offers us the unsettling news that things could get "far worse" in 1992. The association's executive director, Ray Scheppach, warns there are "no easy solutions" for the states' woes and that "it is likely that many of the problems will not go away with an economic recovery."

Wait a minute! Even with recovery, continued state fiscal nightmares?

Yes, even an economic recovery won't slay the two inflationary dragons devouring the states' wealth: Medicaid and prisons.


Driven by price inflation and federal mandates expanding eligibility, Medicaid costs to the states soared 20 percent last year. State spending on prison construction increased 12.7 percent in fiscal year '90 and 11.4 percent in fiscal year '91.

And thereby hangs the tale of the states' real dilemma for the '90s: the sheer unaffordability of continuing to do things the "old way."

Across the country this year, there were a few -- but only a few -- glimmerings of fresh thinking, groping toward a day of reformed state governance. California and Illinois, for example, adopted some "prevention"-oriented social services. The Texas legislature approved some portion of the billions of dollars in economies recommended by the state comptroller.

And down in Florida, Gov. Lawton Chiles' Commission on Right-Sizing State Government is warning that unless state government decentralizes, becomes entrepreneurial and revamps outmoded personnel policies, it will be unprepared for the year 2000: "Our prison population will more than double. Spending on human services will increase 400 percent, yet the state's safety net will be in tatters. Urban sprawl will intensify. Environmental degradation will accelerate. Our spending on highways, prisons, water and sewer systems, schools and other state-funded services will double."

As a forerunner of system-wide changes he'd like, Governor Chiles gave his workmen's compensation chief broad powers to run his operation like a private business. The director eliminated about 10 middle-manager positions, then used the savings to finance incentive bonuses for front-line, clerical personnel in the department. Within a month, productivity spurted up.

A million and one small productivity increases, plus major systems reform on every front from land development to health care to education, are our only ticket to sounder state finances in the '90s. In a way this brutish recession, which ought to be sparking government reform efforts coast-to-coast, is masking the incredibly tough job we'll still face when the economy perks up.


American agriculture, plus successful American corporations, have shown us how to produce foods and goods and services at dramatic cash savings. Now, how about government?

It may sound tough; politicians like to control, not set their managers free to do things in new and imaginative ways. But the alternative is: a decade or more of inferior and declining government services, still more fiscal crises, and bitterly resisted tax increases.

Neal Peirce is a syndicated columnist.