How To Balance A Budget

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A recent pair of bombshell reports has made clear the severity and scope of the crises. The National Governors Association said the states' cash reserves as of June 30 had dropped to $14.5 billion, from $48.8 billion three years earlier. This new figure is 2.9% of total state spending — by that measure, the lowest cushion in a decade. Meanwhile, the National Conference of State Legislatures said two-thirds of states had collected revenue below forecasted levels through October of this year and that 26 states had lowered their revenue estimates for the rest of the fiscal year. "2003 will be a year of tough policy decisions," says Bill Pound, the group's executive director. The only states saying their budgets are on sounder footing are Florida, Hawaii, New Mexico, North Dakota, Rhode Island, Tennessee, Utah, Washington, West Virginia and Wyoming.

Everywhere else is a different story. In California, whose projected budget shortfall over the next 18 months is $21 billion — by far the largest in the land — a special session of the state legislature is set to begin Dec. 9. Governor Gray Davis has said he will give lawmakers a package of $5 billion in budget cuts to consider. Over the past few weeks, Davis has eliminated 12,000 state jobs. Contracts that have not been finalized have been canceled. New-furniture and -equipment purchases are on hold. Nonessential travel has been stopped. Showing the local impact of the state's budget woes, it was disclosed last week that the agency that runs the Golden Gate Bridge is thinking about asking pedestrians who cross the bridge to make voluntary donations, a step that was derided as a humiliating, tin-cup approach to the crisis. Although California's problems are unusually severe, the outcry is sure to build across the land. Here's a preview:

Hurry Up and Wait
Visiting the DMV is rarely a pleasant experience anywhere. But in Virginia it has got far worse. Democratic Governor Mark Warner, who inherited a $5 billion shortfall from his Republican predecessor, closed 12 service centers and cut hours at others. Motorists stand in longer lines. State G.O.P. officers charge that the closings were politically motivated, given that 10 of the shuttered DMV offices are in districts represented by Republicans. But Warner denies it, and a DMV spokesman says only "absolute business reasons" were taken into account.

Longer lines and their accompanying political football will surface widely next year as officials cut hours at or close libraries, social-services agencies and state administrative offices. In Virginia, Warner moved the opening time at state-run liquor stores to 11 a.m. from 10 a.m. After nine caseworkers were cut from the welfare office in Holyoke, Mass., cases became so backlogged that employees posted a sign asking visitors to be patient: you might have to wait to see your worker.

Give Till It Hurts
Given the resistance to tax increases, look for states to raise revenue with sneaky fees and by further targeting such "sins" as alcohol, gambling and tobacco. In Virginia the DMV levies a service charge on credit-card payments. California is expected to triple motor-vehicle — license fees, adding nearly $4 billion a year to the state's coffers. Higher income taxes for the wealthiest Californians are a possibility too, according to Democratic state senator John Burton. In New York City, Mayor Michael Bloomberg is weighing a surtax on those who earn more than $200,000 a year.

For the most part, elementary and high school programs won't be touched, but state universities will see funding cuts, driving up tuition. Virginia Commonwealth University in Richmond just raised tuition for the spring semester by several hundred dollars, a rare midyear hike.

In Nebraska, during the most recent session of the legislature, lawmakers increased taxes on retail sales (to 5.5%, up from 5%), cigarettes (to 64¢, from 34¢ a pack) and income (a new average rate of 5.1%, up from 2.36%, starting in 2003). The hikes were vetoed by Republican Governor Mike Johanns, but the veto was overridden. The sales-tax increase targets some services, including software training, pest control, automobile cleaning and roadside assistance. That tax hike is expected to raise $100 million a year.

Coming Soon: More Casinos
More states are looking at starting or expanding betting — seen as an easy way to boost revenues — by adding new casinos, state lotteries and racetrack slot machines. In New York, Governor George Pataki signed contracts to permit three more Native American casinos in the western part of the state. He expects the 13-year deal to bring in $1 billion. Indiana and Illinois have raised taxes on riverboat casinos.

In the recent election, Arizona voters approved more slot machines, as well as tables for blackjack and poker. In Tennessee, one of only three states that had no legal gambling, voters overwhelmingly accepted a state lottery for next year. Critics have long argued that gambling revenues are a mixed blessing, increasing revenue but amounting to a tax on those who can least afford it.