By GREGORY N. HEIRES

Across the nation, state governments face their greatest budget woes in a half-century. Cutbacks in health and education are hitting the poor and middle class, and layoffs are slashing the ranks of public employees.

The crisis stems from rising health care costs and the tremendous loss of tax revenue brought on by years of unnecessary tax cutting, the economic downturn and the stock market crash, which the recent corporate scandals worsened.

“Much of the problem we face now was brought on by the irresponsible tax cuts state governments were able to implement because they were flush with revenue from the stock market boom and growing economy,” said Michael Musuraca, of the DC 37 Research and Negotiations Dept.

State governments have been hoping for relief from Washington. President George W. Bush even hinted at a $10 billion aid package in the $674 billion so-called stimulus plan he unveiled last month.

But the plan included zilch. What’s worse, its centerpiece—eliminating federal taxes on stock dividends—would put the states in a deeper hole. Most states tie their income tax systems to the federal tax structure, so canceling the dividend tax could cost the states up to $4.5 billion in revenue, according to the Center on Budget and Policy Priorities.

“The Bush plan is not going to help the economy,” said James Parrott, chief economist and deputy director of the Fiscal Policy Institute. “This is purely a huge tax break for the wealthy.”

In fiscal year 2004, the states face a combined budget shortfall of up to $80 billion, according to the CBPP. That’s after a $68 billion gap in fiscal year 2003 and $40 billion in 2002.

Forty-three states are operating in the red
California faces the biggest crisis with a $34 billion budget gap. New York has a $2 billion deficit this year, and it faces an additional deficit of $10 billion next year. So far, Gov. George E. Pataki says the state won’t raise taxes, which suggests that his administration will resort to deep service cuts and possibly layoffs to address the deficit.

Already, states have made painful cuts. Illinois slashed 3,800 jobs, including members of AFSCME Council 31, an affiliate of DC 37’s parent union, the American Federation of State, County and Municipal Employees. Republican Gov. John Roland has already axed 3,000 state jobs in Connecticut.

Thirty-six states have reduced Medicaid payments. Nineteen have cut welfare benefits, 24 have reduced college spending and six states have reduced expenditures on kindergarten to high school education.

City governments are also feeling the squeeze. Revenues from sales, income and tourism-related restaurant and hotel taxes, are growing less than expected. Meanwhile, health-care, public safety, education and infrastructure expenditures continue to rise. For the first time in a decade, municipalities are reporting that their fiscal condition is worse than in the previous year.

Around the country, county and municipal governments are resorting to cutbacks, slashing spending on education and health services and laying off teachers and other employees.

“Layoffs are increasing, health costs are skyrocketing and the president offers a $670 billion economic plan favoring the wealthiest among us,” said AFSCME President Gerald McEntee.

“We need a plan that will stimulate the economy, help people who can’t find jobs and assist fiscally-strapped states—not put hundreds of billions of dollars into the pockets of America’s richest citizens.”