Tough choices for states during budget crisis

States using cost-saving strategies
Most states so far have avoided the kind of tax increases California is considering. Instead, they have opted to cut state spending, tap their rainy-day funds or launch big — and risky — borrowing programs.

Among the hardest hit are states coping with the fallout from the mortgage crisis: Nevada faced a deficit that was 21 percent of its overall budget, with Arizona at 19 percent and California at 15 percent. Alabama, Maryland and Rhode Island were close behind, with deficits ranging from 12 percent to 14 percent of their overall spending plans.

New York Gov. David Paterson is summoning lawmakers into an emergency session in mid-August to deal with a "mammoth collapse in revenue," including a 97 percent drop in banking taxes from a year ago. He ordered a hiring freeze and called for a $1.23 billion cut in state spending that could affect such things as colleges and hospitals. He has also proposed leasing state roads, bridges and tunnels as well as the lottery to outside companies.

Nevada Gov. Jim Gibbons has refused to raise taxes and instead signed a budget that withdrew $267 million from the state's rainy-day fund, or most of the reserve. He also slashed agency budgets and delayed construction projects to help cover a $1.2 billion shortfall in the $6.8 billion budget.

Minnesota used nearly half its rainy-day fund this year, or $500 million, and Massachusetts tapped its fund for $310 million.

Arizona legislators narrowly agreed to a spending plan in time to avoid a partial shutdown of state government. The plan closes a $2 billion gap through a combination of spending cuts, borrowing, the taking of money from special-purpose funds, and the deferral of some spending until the next fiscal year.

Voters to weigh in on slot machines
Maryland voters will be asked in November to legalize slot machines to help generate hundreds of millions of dollars in the next few years. That would be on top of a 1 percent increase in the sales tax, a restructuring of the income tax system and $500 million in cuts.

Similarly, Schwarzenegger has proposed that the state borrow against the next three years of lottery earnings, while several states want to turn some of the installment payments they will receive under the settlement with Big Tobacco into a lump sum they can use now.

Nine states have imposed hiring freezes, according to the NCSL.

Legislators in Tennessee are hoping as many as 2,200 state employees accept voluntary buyout offers by next week, or the state will face layoffs. About 1,600 have accepted the buyout so far, Gov. Phil Bredesen said this week. The state also made cuts to higher education, pre-kindergarten and environmental programs.

A few states have been spared the tough choices this year, mostly those that rely on natural resources for much of their revenue. Rising prices for oil and gas in places like North Dakota and Alaska and booming demand for corn in the Midwest have led to surpluses in some states.

Economists are warning of further revenue losses in the months ahead that could force lawmakers in many states to reopen their budgets and make midyear cuts.

Don Boyd, a public policy researcher with the Rockefeller Institute of Government in New York, said states will face the second wave of lost revenue next year when residents and businesses file tax returns reflecting their heavy losses on the stock market.

"You should expect significant proposals from governors, certainly for spending cuts, probably for more tax increases and certainly for more gimmicks," he said. "And I'm sure you'll see hiring freezes and layoffs."

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