Things are looking up for state budgets

Associated Press + More

By JULIE CARR SMYTH, Associated Press

COLUMBUS, Ohio (AP) — During the darkest days of the Great Recession, Ohio didn't have enough in its rainy day fund to buy even a candy bar. It held a balance of exactly 89 cents.

Today, the emergency fund has swelled to $247 million. A nearly $8 billion state budget gap has been closed. Unemployment has fallen from a high of 10.6 percent to 7.6 percent. And all three credit rating agencies judge Ohio to be stable.

After a few rough years, Ohio and other struggling states have begun to regain their financial footing, largely through a combination of painful spending cuts, higher tax revenue because of the rebounding economy, and creative ideas such as the sale or lease of prisons, office buildings, roads or other assets.

"It's definitely coming back," said state Rep. Ron Amstutz, chairman of the Ohio House budget-writing committee. But he was quick to add: "There's still a lot of pain out there. I don't think we should be crowing."

A recent National Association of State Budget Officers survey found 43 states passed budgets for fiscal year 2012 that will spend more general revenue than the year before.

Michigan went from a decade of facing billion-dollar-plus deficits every year to having a balanced budget and even a $457 million surplus. Republican Gov. Rick Snyder achieved that in part by cutting spending on universities and schools.

Idaho sliced off roughly one-fifth of its budget during the recession. Today the state has a $130 million surplus. Minnesota, likewise, has gone from a $6.2 billion deficit to a projected surplus.

How did Ohio climb out of the hole?

Republican Gov. John Kasich and the GOP-controlled Legislature cut subsidies to local governments and school districts, shrunk the state workforce to a 25-year low, and came up with $1.5 billion in savings by streamlining Medicaid.

Ohio also sold a prison for $73 million and is considering leasing the Ohio Turnpike. And it essentially traded 25 years of future profits from Ohio's state-run liquor stores for an immediate lump sum of $1.4 billion. Similarly, Kasich's predecessor, Democrat Ted Strickland, raised $5.4 billion by selling off the state's share of the nationwide tobacco settlement.

Kasich and Strickland together oversaw six straight years of state budgets without significant tax increases.

The improving economy also played a big role: It has produced 60,000 jobs in an employment upswing over the past seven months. The comeback has been led by the health care sector, which includes heavy-hitting research hospitals such as the Cleveland Clinic and Ohio State University Medical Center, and by retail growth and a bump in auto manufacturing and oil and gas drilling.

Money coming in from taxes is still below pre-recession levels, and Kasich is proposing an interim budget that cuts an additional $30 million in spending. But he is optimistic enough that he is calling for a modest income-tax cut to be paid for by a tax increase on the gas-drilling technique known as fracking.

Altogether, the budget officers' association calculated that states have called for $667 billion more in spending in fiscal 2012 than the previous year. That remains $20 billion below what states budgeted in 2008, before the recession.

"We're beginning to see revenues grow, but they went down very, very far, so they have a long way to go to get back to pre-recession levels," said Elizabeth McNichol at the nonpartisan Center on Budget and Policy Priorities. The organization estimates that will take seven years.

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Associated Press writers Kathy Barks Hoffman in Lansing, Mich.; Brian Bakst in St. Paul, Minn.; John Miller in Boise, Idaho; and Marc Levy in Harrisburg, Pa., contributed to this report.

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