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Governors paint gloomy picture for state governments


Fundamental structural problems in tax systems designed for the 1950s manufacturing economy instead of the modern information age, spiraling Medicaid costs and a middling economy have thrown states into their worst fiscal predicament since World War II, the National Governors Association warned in a report released last week.

The underlying structural problems were camouflaged during the boom period during the last five years of the 20th century, but the politically unpopular choices of tax increases or program cuts for fiscal year 2004 await lawmakers in all 50 states, said Raymond E. Scheppach, executive director of the National Governors Association. Iowa Gov. Tom Vilsack is a member of the executive committee of that organization.

According to The Fiscal Survey of States, lawmakers employed myriad strategies to balance their states’ fiscal year 2002 and 2003 budgets.

Thirty-seven states reduced their enacted budgets by about $12.8 billion in fiscal 2002, and about midway through the current fiscal year, 23 plan to reduce enacted budgets by more than $8.3 billion.

According to report, Medicaid spending grew 13.2 percent, its fastest rate ever, in fiscal year 2002. Iowa lawmakers ordered $246.2 million in cuts to Medicaid and public safety to balance the state’s fiscal 2002 budget, but did not make similar cuts for the 2003 budget year.

The nation’s governors support federal legislation to provide $9 billion in fiscal relief to states through a combination of social services block grants and federal Medicaid funds. A scaled-back, $5 billion provision negotiated by Sens. Charles Grassley, R-Iowa, and Max Barcus, D-Montana, was included in the Medicare-giveback bill, but it was stalled in the Senate Finance Committee. Scheppach said the fiscal relief package would both minimize Medicaid cuts and help offset the negative effects of state budget cuts on the overall economy.

Iowa actually has fared better than other states, said Vilsack spokesman Ron Parker.

Twenty-three states enacted tax and fee increases totaling $8.3 billion for fiscal year 2003 to make up for revenue shortfalls. Iowa lawmakers raised the filing fees for civil court cases to bring in an estimated $3.1 million in additional revenue, but did not increase taxes. Lawmakers did, however, reduce state appropriations for local government in 2003 to $148.9 million from an estimated need of $165.7 million. Local government officials will have to decide whether to increase property taxes or cut spending.

The Legislature also approved one-time transfers from other funds to the general fund; tapped the rainy-day emergency fund; fired, furloughed or allowed early retirement of employees, reducing the number of state workers from 23,891 in fiscal year 2001 to 21,625 in fiscal years 2002 and 2003; delayed salary increases; made across-the-board program cuts; reorganized programs; and established a Program Elimination Commission to review state programs for elimination.

Of the states that did hike taxes, 17 increased sales taxes to bring in $1.4 billion; 16 increased income taxes to bring in $1.073 billion; 15 increased corporate income taxes to bring in $1.235 billion; 19 increased cigarette and tobacco taxes to bring in $2.965 billion; three increased alcoholic beverage taxes to bring in $12.6 million; two increased motor fuels taxes to bring in $34.9 million; and 17 increased other taxes to bring in $658.8 million.

Parker said though the majority of states reported that revenues for the current fiscal year are not meeting projections, Iowa’s revenue collections continue to be ahead of estimates. Conservative in its revenue estimates, the state based its fiscal 2003 budget on an assumption of zero revenue growth. “This is helping keep our budget balanced, even during tough economic times,” he said.

Though many states did not meet their final revenue estimates for the 2002 fiscal year, Iowa ended the year with about $100 million more than originally projected. “As a result,” Parker said, “Iowa’s cash reserve fund is still full, which gives Iowa greater latitude than most states in the present budget year.”

On average, states reported 1.3 percent general fund budget growth for the current fiscal year. Iowa has already cut its budget by 3.1 percent, on top of a 5.7 percent budget reduction in the previous fiscal year – the largest percentage cut of any state.

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