Budget crises swamp state after state

Alex Johnson Reporter • Profile

When the University of Southern California’s juggernaut football team opens its season in September, could the Trojans be playing at the Taco Bell Coliseum?

It’s not yet likely, but with California voters having rejected five of his six budget propositions last week, Gov. Arnold Schwarzenegger has proposed selling several famous state properties, including the iconic Los Angeles Memorial Coliseum.

The votes plunged California into a crisis that is different only in degree from the deep budget problems afflicting states across the country. Schwarzenegger and state lawmakers were left desperately seeking ways to close a deficit now projected to hit $21.3 billion in the budget year that begins July 1 and potentially as much as $42 billion by the end of the year.

Not that things would have been dramatically better had all six propositions passed — that would have reduced the projected shortfall to “only” $15.4 billion. But it would have allowed lawmakers to sidestep the state Constitution’s requirement that they pass the budget with a two-thirds’ majority, something they’ve failed to do for months.

“The voters are sending a message that they believe the budget is the job of the governor and Legislature,” said Assemblywoman Noreen Evans, D-Santa Rosa, chairwoman of the Budget Committee. “We probably need to go back and do our job.”

Schwarzenegger acknowledged that voters were “frustrated with dysfunction in our budget system,” and he said he and the Assembly got the message. They will not be able to pass the toughest decisions on to the voters.

Instead, they will have to identify “drastic” cuts to avoid “fiscal disaster,” Schwarzenegger said. Education, health care, social services and prison programs will have to be deeply cut, he said, while thousands of state workers face being laid off.

And in addition to Memorial Coliseum — the only stadium in the world to have been primary host of the Summer Olympic Games twice — Schwarzenegger is examining whether to sell off several high-profile state properties, including San Quentin State Prison; Del Mar Fairgrounds north of San Diego, home to one of the premier horseracing tracks in the country; and the Cow Palace near San Francisco, the site of national political conventions and major sports events since 1941.

A ‘cataclysmic economic decline’
In good times, California rakes in tax revenue swollen with payments from newly minted millionaires. In bad times, it suffers a proportional impact.

After the recession started in December 2007, the state lost about $20 billion in revenue in 2008 — nearly a fifth of its overall general fund — State Treasurer Bill Lockyer said.

Things have only gotten worse this year. From January through March, California collected 16 percent less in state income, corporate and sales taxes than it had in the same period last year. Then, in April alone, personal income tax receipts were $1 billion below projections, while corporate taxes came up $831 million short, the state comptroller’s office reported.

“With this cataclysmic economic decline, we just have a combination that’s unimaginably bad,” said Bruce E. Cain, director of the University of California’s political research center in Washington, D.C.

An msnbc.com-NBC News special report Alex Johnson is a reporter for msnbc.com. George Lewis of NBC News and Jane Wells of CNBC and the following NBC stations contributed to this report: KCRA of Sacramento, Calif.; KGW of Portland, Ore.; KHQ of Spokane, Wash.; KNSD of San Diego; WAND of Springfield, Ill.; WIS of Columbia, S.C.; and WTHR of Indianapolis.

California would run the seventh-largest economy in the world if it were its own country, the International Monetary Fund calculated late last year, so its financial problems can produce eye-popping numbers. But it is only a funhouse mirror distortion of what is happening in nearly all of the other states, which face critical budget gaps of their own:

• The Ohio Senate is considering a $54 billion two-year budget passed by the House that was balanced by reducing spending on charter schools, depleting the state’s reserves of $1 billion and incorporating $2.2 billion of federal stimulus money. Even then, the plan includes projected deficits of at least $2.5 billion in each of the next two years.
• The Indiana State Budget Committee last week requested a new, more accurate revenue forecast for lawmakers to use in a pending special session after April tax revenue fell $255 million short of what had been forecast just one month earlier.

“This wasn’t just an April phenomenon,” state Budget Director Chris Ruhl said. “We’ve been missing for months and months and months.”

• In Illinois, Gov. Pat Quinn is seeking a 4.5 percent state income tax increase to close a deficit of nearly $12 billion. Otherwise, he said, the state faces a “doomsday” budget that would lay off 7,000 teachers and half of the state’s troopers and eliminate health care for 650,000 people.
• Washington Gov. Christine Gregoire last week signed a two-year budget that closed a $9 billion shortfall by cutting 40 percent in state payments for low-income health coverage, raising state employees’ health care benefits by less than half the rate of inflation and reducing per-student education allocations.

“This was the toughest legislative session in nearly 30 years, and maybe the toughest since the Great Depression,” Gregoire said.

• In Oregon, where the projected shortfall of $3.8 billion is equal to nearly a third of the overall budget, Democratic lawmakers proposed a 2009-11 budget that would eliminate 1,700 state pensions, cut spending on community colleges and higher education and seek $800 million in new taxes.

“The state must make agonizing budget decisions,” said Sen. Margaret Carter, D-Portland. “The reality is that every agency and every program will feel the pain.”

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