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Facing Budget Deficits, States Eye Stimulus Funds

BY Admin  February 17, 2009 at 12:50 PM EST

California capital; photo by flickr.com/yuan2003

Unlike the federal government, most states must produce a balanced budget every year. With many facing falling tax revenues, governors are eyeing federal money to help provide state services.

The stimulus bill’s $53.6 billion state fiscal stabilization fund aims to help states avoid slashing funding for education and other programs that lawmakers could trim to offset shortfalls.

The budget situation at the state level looks dire: 43 states reported a budget shortfall for fiscal year 2009, totaling $183 billion. That figure increases to $200 billion for fiscal year 2010, according to the National Conference of State Legislatures.

Each facing a unique situation, states are tentatively figuring in their estimated share of the stimulus.

Lawmakers in California, the most populous state and the world’s eighth-largest economy, continue to work on details to balance a budget that is $42 billion short. There may be a little relief from the federal government and state officials are looking to use the stimulus money to ease the potential program and job cuts. Reuters reported that California may get at least $9.1 billion in federal funds that it could use to trim the spending cuts and tax increases.

On Monday, California state lawmakers were unable to muster one more vote to approve a budget-balancing plan. The stalled effort prompted Gov. Arnold Schwarzenegger to make good on an earlier promise to begin a layoff process for thousands of state workers, though under the state’s process it would take months for anyone to actually lose their job.

Many governors, like Charlie Crist of Florida and Jim Doyle of Wisconsin, delayed their budgets until they can inspect the final details.

New York’s Gov. David Paterson opted not to submit an early budget on March 1 to allow more time to factor in federal money. New York faces a $14 billion deficit, larger than originally estimated. To plug the gap, the legislature is considering a higher sales tax, a bigger income tax raise for wealthy residents and cuts to school funding.

As for the federal help, Patterson encouraged the state legislature to save the money for future projected deficits instead of using it as a one-time fix for next year’s shortfall, though some may push to use it to pay off current costs.

“We’re going to have to use that money in responsible ways,” Paterson said, according to WXXI Public Radio.

But federal help will not be enough for some states to balances their budgets as they face increased demand on assistance programs for unemployed and low-income residents. The Rockefeller Institute of Government found that states’ sales and personal-income tax revenue dropped 4 percent, according to preliminary numbers from the fourth quarter in 2008.

In Washington state, this falling revenue may offset the federal stimulus money. The state’s projected budget deficit was raised from $6 billion to between $7.5 and $8.5 billion, putting many programs including K-12 education in danger of cuts.

“We need to be understanding that, as wonderful as this package is, it is not going to be the relief to the legislative budget-setting process,” Gov. Chris Gregoire said, according to the Seattle Times. “There is a lot of very difficult work to be done.”

To balance Idaho’s budget, Gov. Butch Otter requested a 4 percent across-the-board cut, totaling $150 million. The state’s entire congressional delegation opposed the stimulus and lawmakers said earlier that they are planning a budget that does not include federal funds, according to Idaho Public Television reporter Thanh Tan. But after lower January revenue threatened to force more cuts, state officials are taking a closer look at how they can use federal money.

In Pennsylvania, the stimulus is expected to help the state avoid further layoffs. Gov. Ed Rendell said the final version of the bill restored almost all of the money the state expected from the House version. Under the Senate version, the state would have had to slash nearly $500 million from the budget and cut funds to state agencies, according to WITF, the public radio station in Harrisburg, Pa.

“There will be no need for any major cuts or any additional layoffs. And that’s good news for Pennsylvania,” Rendell said about the compromise legislation.

But not all governors are readjusting their budgets to welcome the influx of federal money. Republican Govs. Haley Barbour of Mississippi, Rick Perry of Texas and South Carolina’s Mark Sanford all opposed the stimulus as wasteful spending. Sanford, the chair of the Republican Governor’s Association, has said he may not take portions of the stimulus money because it will “hurt, not help” the people.

“Historically, simply throwing government money at a struggling economy hasn’t created growth,” Sanford wrote in an opinion piece in The State newspaper.

Still, some governors who opposed the stimulus proposal don’t plan to turn away from the federal funds if they’re needed.

Minnesota Gov. Tim Pawlenty, a Republican, recently told the NewsHour that although the stimulus included “a whole array of spending initiatives that many believe are not stimulative,” his state will use the funding if needed.

“Minnesota is a major contributor to the federal government,” Pawlenty explained. “For each dollar that we send to Washington, Minnesota only gets about 73 cents back. So we’re not going to be feeling too bashful about accepting our share of the money, because we’ve paid for it and then some.”

In addition to the budget assistance, the stimulus bill includes funding for federal-state programs that are administered by the state plus money for state and local governments to launch “ready-to-go” construction projects meant to boost job growth and rebuild the nation’s infrastructure.

Editor’s Note: This story was corrected on Feb. 23 to clarify that South Carolina Gov. Mark Sanford is reported to be considering rejecting certain portions of the stimulus fund.