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States tighten their belts amid financial woes
They have cut budgets, frozen hiring and put projects on hold
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Published: October 10, 2008
States are cutting budgets, eliminating jobs, putting major construction projects on hold and nervously waiting to see whether their shriveled pension funds recover amid economic turmoil.
They are also considering lawsuits against Wall Street firms. And at least one state -- California -- may ask Washington to come to the rescue.
California's Gov. Arnold Schwarzenegger said he may have to beg the federal government for a short-term loan to cover operating costs for schools, nursing homes and police if California, the nation's most populous state, is unable to borrow a short-term $7 billion on the credit market.
Many states are expecting big drop-offs in revenue and dispiriting pension-fund losses, and they are making another round of emergency spending cuts on top of deep cutbacks earlier in the year when the economy began softening and the mortgage crisis started to unfold.
"I think everybody agrees: The iceberg is in sight," said Murray Levy, a Maryland state legislator.
New York, the capital of the nation's financial industry, is grappling with the highest unemployment rate since the terrorist attacks of Sept. 11, 2001, and a $1.2 billion deficit that could balloon to $2 billion by March 31, the end of the fiscal year.
"We're going to have to take drastic action," Gov. David Paterson said.
In Massachusetts, Gov. Deval Patrick may ask state legislators for the power to make midyear cuts to close a $223 million budget gap. Massachusetts also saw its pension fund shrink -- in September alone -- by nearly $4 billion to about $46 billion.
Such states as Massachusetts, Indiana, Washington, Pennsylvania and Colorado are either freezing hiring or hoping to cut their payrolls through attrition.
In Virginia, because tax revenue is expected to fall at least $2.5 billion short of previous estimates, Gov. Tim Kaine ordered 570 layoffs, cut college financing by at least 5 percent, and postponed state-employee raises from next month until next summer.
In North Carolina, Gov. Mike Easley told state agencies to plan for a 3 percent budget cut and canceled the purchase of a $9 million jet for showing off the state to executives looking for places to do business.
Transportation projects and other capital spending have taken a hit because the crisis has made it difficult to borrow money on the bond market.
In Washington, Gov. Christine Gregoire suspended the early stages of a program that would give employees paid family leave.
In Utah, more than 19,000 people who received vision, physical therapy, speech therapy and other benefits from Medicaid will lose those services.
In Missouri, plans to repair the St. Louis airport and fix 802 of the state's worst bridges have been delayed or scrapped. So has an expansion of Minnesota's 911 communication system. The economic downturn also threatens the building of new schools in Connecticut and prison construction in Iowa.
Massachusetts successfully sold $750 million in bonds to pay state bills this week, but only after twice delaying the sale because of the paralyzed credit market.
In some states, the fiscal woes have bubbled over into anger and threats of lawsuits.
New Jersey's investment chief, William Clark, said that the state pension board is considering legal action against Lehman Brothers after the state bought about $180 million of Lehman stock in June and sold it for a loss of about $100 million.
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