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States begin new fiscal year as cash is running out
Schwarzenegger declares fiscal crisis, and Indiana barely avoids shutdown
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Published: July 3, 2009
SACRAMENTO, Calif.
States from coast to coast began a new fiscal year yesterday with no budget plans and with cash quickly running out, sending some to the brink of shutdown and forcing others to furlough workers and cut services.
In California, Gov. Arnold Schwarzenegger declared a fiscal emergency and ordered state offices closed three days a month as the state sank deeper into dysfunction. State officials plan to pay bills with IOUs starting today.
The pain extends far beyond the West Coast. The governor of Pennsylvania is proposing a 16 percent tax increase. A budget veto by the Illinois governor left the state with no spending plan at all. Indiana barely avoided a shutdown.
In most states, the debate centers on whether states should be raising taxes to bridge the budget gaps. Schwarzenegger said he would not sign anything that raised taxes or fees beyond what he has already proposed.
"I'm proud of California, even though we have our crisis," he said. "No one can point fingers, because as you can see, there are 30 states right now that have their fiscal year starting today that also don't have a budget, so I mean let's not get carried away and just look at California as we are the only state that cannot manage the budget."
The recession has taken a devastating toll on tax revenues and state finances. States had a cumulative $121 billion budget gap in writing this year's budgets -- and the gap would be even bigger without federal stimulus money, said Todd Haggerty, a research analyst at the National Conference of State Legislatures.
"You can't look to any one region that's performing better than the others," Haggerty said. "You can see Arizona and California in the west, Ohio and Illinois in the middle and Pennsylvania and North Carolina in the east."
The NCSL says seven states -- Arizona, Connecticut, Kentucky, Mississippi, North Carolina, Ohio and Pennsylvania -- have experienced delays or had to extend their sessions to deliberate on the budget.
In California, which has a budget but one that is out of balance, the legislature will have 45 days to send Schwarzenegger a plan to close a gap now pegged at $26.3 billion. After that, they can't adjourn or act on other bills until they solve the crisis. The budget woes will lead to a third monthly furlough day for more than 200,000 state employees, bringing their total pay cut to about 14 percent. The state controller could extend $3 billion worth of IOUs for July.
Businesses that provide services to the state, taxpayers owed refunds, and college students who get state help would be given IOUs. Banks are waiting for the state to decide the interest rate, so it is unclear whether people could cash them.
Pennsylvania will delay payments to vendors after a partisan stalemate over the deficit stalled approval of the state budget. Gov. Ed Rendell stood behind his call yesteday for a 16 percent income-tax increase, saying that the budget could not be balanced without it.
Meanwhile, state workers will get only partial pay July 17 and July 24, and after that paychecks will be withheld entirely until the impasse is solved. Workers will be paid retroactively. Rendell said that 10 banks and credit unions have agreed to help 69,000 state employees by offering them low- or no-interest loans and lines of credit.
In Illinois, Gov. Pat Quinn yesterday vetoed the bare-bones budget that legislators sent him, leaving the state with no spending plan. The House and Senate are expected to meet July 14 to consider an override.
Asked how long government could operate without a budget, Quinn said, "The next few days are crucial."
Mississippi legislators left one whole agency -- the state's utility regulatory agency -- unfinanced. The Public Service Commission said it did not know how it would function, but Gov. Haley Barbour said he can run the agency by executive order.
In Connecticut, Republican Gov. M. Jodi Rell vetoed the Democrats' budget proposal, saying that it was not balanced or realistic. She signed an executive order to keep the government running without a two-year budget in place.
In Ohio, a budget impasse intensified over a proposal by Gov. Ted Strickland to put slot machines at the state's seven horse-racing tracks, all but guaranteeing that legislators would need a second temporary budget before they could resolve their differences.
Indiana narrowly averted a large-scale government shutdown after coming to terms on a budget. And Arizona, Indiana, Connecticut and Mississippi also were among the other states that raced against the clock to pass budgets.
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