Watch CBSN Live

States In Dire Budget Straits

What do you do when your state's $105 million in the hole? Well, if you're Kentucky you turn out the lights in state buildings and release nonviolent prisoners early, reports CBS News Correspondent Cynthia Bowers.

In California, over budget by $8.5 billion, some communities are considering charging kids to ride the bus to school, and the state may start paying bills with IOUs.

In an effort to make up its $43 million shortfall, the state of Maine closed earlier this week, sending 13,000 workers on unpaid leave; three down days over the last year have saved $4.5 million.

These cutbacks may sound drastic, but consider the double whammy now facing states. Thanks to the weak economy, tax revenues are shrinking; at the same time expenses like Medicaid costs are soaring. All told across America, 27 states are in the red to the tune of $22 billion.

A report released Thursday by the National Conference of State Legislatures found that despite cuts, layoffs and tax increases, states continue to suffer severe financial difficulties for the third straight year.

And if April tax returns fail to provide a boost — which is what happened last year — "this could throw precariously balanced ... budgets into a tailspin," the new report said. States "are far from turning the corner on budget problems."

The NCSL projects that next fiscal year, states will be in the red by a total of $53.5 billion — though they've been able to reduce that from $78.4 billion in an earlier estimate. For all but four states, the fiscal year runs from July to June.

Illinois' new governor is staring down the barrel of a $5 billion deficit. One plans calls for auctioning off prestige license plate numbers that in the past were dispensed as political patronage.

"If we can raise $10, $15, $20 million from this, that's more money for schools, more money for health care, more money for public safety," said Gov. Rod Blagojevich, D-Ill.

But serious problems remain as most states face an end-of-June deadline for lawmakers and governors to pass a budget:

  • 27 states still have budget shortfalls, with 13 of them greater than 5 percent of their total state budget.
  • Spending is outpacing budget plans in 34 states; 28 of them say Medicaid or health care programs are to blame, at least in part.
  • 37 states said their already low expectations for tax and other revenue were too optimistic and they've failed to meet their goals.

    "Right now, we're hoping that we're just bumping along the bottom," said Marty Brown, Washington state's budget director. "Our forecasters say it'll be at least much of a year before we get ... an improvement in our economy."

    For the states that rely on income taxes, this month is critical. Throughout the country, personal income taxes provide 37 percent of state revenues.

    "This tends to be the sort of make-or-break, whether states reach their revenue estimates or not," said analyst Nicholas Jenny at the Nelson A. Rockefeller Institute of Government in Albany, N.Y.

    Last year's April returns were as much as 25 percent lower than the previous year's "and it essentially made a bad situation much, much worse," Jenny said.

  • View CBS News In
    CBS News App Open
    Chrome Safari Continue