States expect spending drop next year

WASHINGTON — In response to the economic downturn, the nation’s governors expect to trim their state budgets by about 2.5 percent through cuts in education, Medicaid and state employee salaries and benefits.

In a survey conducted by the National Governors Association and the National Association of State Budget Officers, some governors said they will recommend lower payments for health care providers serving Medicaid patients, while others indicated they may also seek reductions and benefit cuts for state employees. The new fiscal year begins July 1 for most states.

States will also consider increases in taxes and fees. For example, speeders in Georgia will face higher fines. Corporations in Illinois may have to pay higher income taxes. Smokers in Arkansas will pay higher taxes on cigarettes.

In all, states are considering or have already enacted $24 billion in tax and fee hikes, a huge jump from the current fiscal year when states recommended $726 million in tax and fee increases, the survey found.

If the governors’ recommendations become reality, the spending cuts would mark the first back-to-back decline in overall state spending in the survey’s history. The groups have conducted this survey for more than 30 years.

Generally, state spending rises about 6 percent a year.

“These are some of the worst numbers we’ve ever seen,” said Scott Pattison, executive director of the National Association of State Budget Officers.

For the current fiscal year drawing to a close, state spending is expected to decline 2.2 percent. The last drop in general fund spending was in 1983.

States are facing budget cuts because sales and income tax collections dropped about 6.1 percent this year. The worst drop occurred with corporate income taxes — down 15.2 percent.

Revenue exceeded expectations this year in only two states, Wyoming and North Dakota.

Raymond Scheppach, executive director of the National Governors Association, said the $787 billion economic stimulus package has helped states avoid more spending cuts. He estimated that about $246 billion will flow to state governments, largely through Medicaid and education.

“This downturn from a state perspective would have been a lot worse if we didn’t have a recovery package,” Scheppach said. “However, the economy has just continued to deteriorate in spite of the recovery package, which is leaving us in a deep hole.

“It’s clear we’ve got two, possibly three years more of very, very difficult times from the state perspective.”

On the Net:

National Governors Association: www.nga.org