State Budgets Facing Crisis

As revenues shrink, lawmakers must cut programs or raise taxes.

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Will Rogers State Park in Los Angeles is threatened by heavy budget cuts.

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More subtle money-raising schemes are also beginning to appear. Gov. Eliot Spitzer of New York, which is facing a $4.4 billion deficit, proposed $738 million in new "fees" in his budget, including tax increases on malt liquor and small cigars, a new "tax" on illegal drugs ($3.50 per gram of marijuana and $200 per gram of other drugs), and larger closing fees for home purchases over $175,000. "There are creative ways of raising revenue and not calling it a broad tax increase," says Eckl.

Budgetary gimmicks are also gaining popularity. In Arizona, which faces a $1.2 billion shortfall, legislators are considering a proposal to transfer some of the state's transportation funds—devoted to road upkeep—to pay police officers. Another proposal would bump nearly $300 million in school funding expenditures into next year's budget. There are more painful cuts on the table, too, including eliminating over 19,000 children from a children's healthcare program by raising income minimums for eligibility. "We're going to have to do a number of things we'd have preferred not to do," says Robert Burns, chairman of the appropriations committee in the state Senate. State economic experts have told him it will be two or three years before revenue growth returns to normal.

More state lawmakers, as the year progresses, will face similar choices. "They're not the federal government; they can't print money," says Mitchell of UCLA. "They're more like individual consumers: If you take away their revenue, they can borrow against their credit card for a little bit, but eventually you have to cut." Many states, it appears, will soon be forced to do just that.