Governors seek "creative" remedies for budget shortfalls

If I were to select a key word for state and local fiscal issues today as well as in the near future, it would be "uncertainty." Just like the global warming increases weather fluctuations more so than to raise the average temperature, recent developments -- economic, political, and institutional -- in state and local governments may not lift the level of service delivery, but are sure to make their budget situations a lot more volatile, like riding a roller coaster.

In 2004 most states were just barely recovered from the recent economic downturn. Yet they are hitting hard again by a weak national economy and, especially, a worsening housing crisis. Confronted with severe budget deficits, "a growing number of states" -- -- led by California, New York, and New Jersey -- are using "creative" and "risky" budget gimmicks to cope with shortfalls, reported by the Washington Post (1/13, A3, Richburg).

Because most states are not allowed by their constitutions to run budget deficits, state legistlatures convening for their 2008 sessions must make painful decisions about where to find money to close the gaps or what programs to cut.

Further limiting their options, many of the governors have ruled out increasing taxes to cover the shortfalls, as there is always an aversion to raising taxes during a recession.

New York's solution is to "securitize, or sell off, a portion of the state's lottery proceeds to start a $4 billion endowment for public universities." New Jersey would "drastically increase[e] the fees on the state's three toll roads, and issu[e] as much as $48 billion in bonds against future toll revenue." In Massachusetts, the budget may "count as revenue as much as $900 million from license fees from three new casinos." However, critics say that the governors' one-time gimmicks to raise money may just "mask the deeper budgetary problems" that revolve around "budgetary responsibility."

The only other way for states to close the gap is by radically reducing spending. In California, Gov. Arnold Schwarzenegger (R) proposed reducing every state program by 10 percent next year, eliminating cost-of-living adjustments and enacting budget revisions to reduce what he called "Sacramento's overspending." For most states, however, there is not much left to trim after going through such painful cuts during the 2001 slowdown.