Budget woes could last years, states told

State lawmakers from across the country meeting in Atlanta this weekend got a sobering message: They will likely have to continue to cut spending for years.

Already facing a collective shortfall in the range of $70 billion this year, many states will have to deal with shortfalls well after the country’s economy begins to recover, economists and fiscal experts said.

That could force even states run by lawmakers dead set against raising taxes to eventually consider increasing cigarette, gas or sales taxes.

“It’s going to be a tough couple of years to get through here because revenues are going to be lousy and demands on spending are going to be going up,” David Wyss, chief economist at Standard & Poor’s, told lawmakers Saturday at the National Conference of State Legislatures’ fall forum.

“You’re going to have to bite the bullet. You are going to have significant budget cuts, and you may well have to see some tax increases as well because I’m not sure you’re going to be able to do it on the budget [cutting] side.”

National improvement

Wyss, a former senior staff economist with the President’s Council of Economic Advisers, said he expects the economy to start improving during the second half of next year unless oil prices spike and banks continue to not lend money.

“This recession is just getting to the worst part,” he said.

However, Corina Eckl, fiscal program director for the NCSL, noted in a panel Friday that state fiscal conditions tend to deteriorate two or three years after the end of a recession. Increased costs for services, such as the health program Medicaid, continue to rise while tax collections lag in a recovery.

That’s what happened during the recession that ended in late 2001. In state governments, the fiscal crisis lasted from 2002 through 2004.

Governors from across the country have already met with President-elect Barack Obama about the fiscal problems, and a federal stimulus package has been promised.

While that could bring money for roads and other construction projects, it may not help with rising costs for health care and education.

In Georgia, state government helps pay to educate about 2 million students and provides health care to about 1.5 million people. State government employs about 100,000 workers and pays a large portion of the salaries of more than 100,000 teachers.

Because of slow tax collections, the state of Georgia faces a budget shortfall ranging from $1.6 billion to more than $2 billion, depending on who is making the projection.

Gov. Sonny Perdue has told agencies to expect to cut spending 8 percent this year. They have been told to draw up plans for cuts in fiscal 2010, which begins July 1.

While there has been a hiring freeze at state agencies for months, there haven’t, as of yet, been large-scale layoffs.

Good by comparison

Georgia state Sen. Don Balfour (R-Snellville), who is president-elect of the NCSL this year, said the financial problems in some states seem almost hopeless.

“We’re doing bad,” Balfour said. “Compared to New York, Nevada, California, Michigan … we’re doing pretty good.”

For example, California, one of the states hit hardest by the housing meltdown, may have a shortfall reaching $40 billion over the next two years.

North Carolina state Rep. Pryor Gibson, a Democrat who serves as a House Finance Committee chairman, said his state had been a lot like Georgia in the past. Both had fast-growing populations and economies that generally outperformed the national economy.

But Charlotte is also a major center for the troubled financial sector, home to banking giants Wachovia and Bank of America.

Gibson said in a budget seminar Friday that he expects his state’s government to eventually have to lay off workers to balance the budget.

“This is new territory for us,” Gibson said. “Our anticipation is we’ll be doing a lot of cutting in North Carolina.”