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States suffer pains of the widening financial crisis

By PHILIP GAILEY, Times Editor of Editorials
© St. Petersburg Times
published December 8, 2002

The nation's governors have something in common with the top management of United Airlines: Both are struggling with a widening financial crisis largely of their own making and pleading for help from Washington. United appears headed for a crash landing in bankruptcy court. Governors are bracing for their own hard landing. In both cases, there will be casualties, from lost jobs to sharp cuts in state spending.

Republican governors and governors-elect can be forgiven for not sharing their party's jubilation over its historic election gains last month. States are facing their worst budget crisis since World War II. State revenues fell by more than 6 percent last year, and the National Conference of State Legislatures is estimating that the states will have to close budget shortfalls totaling $67-billion. California alone is looking at a $20-billion deficit next year.

Unlike the federal government, all states except Vermont are constitutionally required to balance their budgets. Deficits are not an option. States can cut spending, raise taxes or both. Many states, including Florida, already have made the easy spending cuts and exhausted the budget gimmicks they have been using to delay the day of reckoning. This time, it'll take more than another cigarette tax increase to close the budget gap.

Florida is about to feel the pain as Gov. Jeb Bush and the Republican-controlled Legislature confront an estimated budget shortfall of nearly $2-billion. They also have to come up with money to begin phasing in a costly and constitutionally mandated class size reduction, with a price tag in the billions of dollars. There are other needs to be met in education, child protection and social services. The question is whether the Republicans in Tallahassee, who hate taxes, can bring themselves to close enough exemptions to the state sales tax to come up with a significant revenue increase. The only alternative is budget cuts, which the state can ill-afford.

Other states are facing equally painful choices as they try to balance their budgets. The nation's governors are putting much of the blame for the growing fiscal crisis on the federal government. They complain that Washington has done little to help states cope with the spiraling costs of Medicaid, the second largest item in most state budgets, after education. The states have the major responsibility for carrying out President Bush's education plan, the Leave No Child Behind Act. Unfortunately, the plan is long on mandates and short on federal cash. The president and Congress promised to give the states and local governments $3.5-billion to train "first responders" in case of a terrorist attack, but they have seen little of the money so far.

The federal government may have exacerbated the problem, but the states are the main culprit. Back in the booming '90s, governors and legislatures cut taxes and increased spending as if there were no tomorrow. According to the Center on Budget and Policy Priorities in Washington, between 1994 and 2001, 43 states enacted major tax cuts that are costing them $40-billion in lost revenue every year. And as the Washington Post pointed out in a recent report, "States also made the choice to expand social programs and the reach of Medicaid, the costs of which are now exploding."

Unlike airlines, states cannot declare bankruptcy. Some observers believe that it would be a mistake for the federal government to bail out United Airlines or the states. A federal rescue would spare the airline executives and state elected officials from having to make tough choices and would ease the pressures for change. Nothing like a budget crisis, some say, to get corporations and government to come to terms with reality.

Washington has serious budget problems of its own, but it also has an obligation to extend a helping hand to states in this time of fiscal crisis. We're not talking about a bailout that would spare governors and legislators from having to make politically unpopular choices, either on taxes or spending. At the very least the federal government should help cover some of the costs of the unfunded mandates it has slapped on states in recent years. Some governors are asking for emergency revenue-sharing to shift federal dollars to state coffers. That idea is worthy of serious consideration.

It's easy to say the states' profligate ways got them into this mess, and that they shouldn't expect Washington to bail them out. That may be largely true, but the federal government can't pretend its policies haven't contributed to the problem, or that the health of the states has no impact on the health of the nation. For the president and Republican congressional leaders to give a cold shoulder to the states at a time when they are pushing to make the Bush tax cuts permanent is as callous as it is irresponsible.

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