The State Fiscal Crisis: Troubles Close to Home

When their 1990 fiscal year ended on June 30, a few states didn't close their books -- they closed their governments instead. In Connecticut and Maine, state offices were shut down, public employees got involuntary furloughs, and angry Fourth of July revelers found their favorite state parks shuttered. No matter that the closings may have reflected a measure of showy brinkmanship by Governors locked in budget fights with their legislatures: the money problems of states this year are all too real.

The recession has cut deeply into state corporate and income tax revenues while also reducing consumer spending that generates sales taxes. Meanwhile outlays have climbed for highway maintenance and the construction of prisons. Add to that the rising expenditures for Medicaid, the federal and state program of health-care assistance for the poor. Medicaid spending by the states is expected to grow 25% this year, to more than $50 billion.

Nine states (California, Connecticut, Illinois, Louisiana, Maine, Massachusetts, North Carolina, Ohio and Pennsylvania) entered the new fiscal year without adopting budgets, as Governors and lawmakers argued over painful decisions. Last year states enacted $10.3 billion in new taxes, the largest single-year increase since 1984. By April of this year, Governors had already proposed an additional $6.7 billion. But deep cuts are also being implemented in almost every area, including education, health care and welfare. And in many states, government employees by the thousands are getting pink slips instead of paychecks.