Gov. Mike Easley resorted to emergency
powers and pulled $150 million from a state employee pension fund
to help cover a state budget shortfall that threatens to reach $791
Alabama Gov. Don Siegelman has ordered $266 million in education
cuts, about 6.2 percent of his education budget. Mississippi Gov.
Ronnie Musgrove is cutting funding from education and public
In statehouses across the nation, lawmakers who had been
counting on a continuing wave of prosperity are making similar
plans as they scramble to cut millions from their budgets as a
softening economy begins to show itself on the tax rolls.
The decline in revenue is mainly from a decrease in sales and
personal income taxes including low spending during the holidays,
a time when states usually get their strongest influx of sales tax
revenue, experts say.
"There are clearly indications out there that the economy has
shifted in a direction away from where it's been headed for eight
or nine years," said Arturo Perez, a senior policy specialist with
the National Conference of State Legislatures.
"Legislators and governors will probably be using the word
'caution' left and right because there is all of that uncertainty
out there," Perez said. "I don't think that was so much the case
in September, October and November."
In addition to the cuts in North Carolina's state employee
pension fund action immediately attacked as unfair by an
employees' association Easley has ordered a hiring freeze, told
agencies to curtail travel and stop nonessential purchases. He also
said he would pull back $95 million that would have gone to local
On Thursday, he announced plans to fill a half-billion dollar
escrow account to protect the state if the shortfall in the $14
billion state budget surpasses 5 percent as feared. In all, he is
considering $1 billion in spending cuts.
"I'm not saying we're going to use all this money, but we will
have it if needed to balance the budget," Easley said.
The last time his state faced a similar budget crisis was
following the 1990 recession.
Many states have grown accustomed to double-digit growth in
recent years and are beginning to return to reality, said Elizabeth
Davis of the Nelson A. Rockefeller Institute of Government at the
State University of New York in Albany.
"There are still some states that are doing quite well," Davis
said. "But even those states are nervous about what's coming."
In the Midwest, Ohio and Michigan are dealing with stalling
revenue brought on by a limping manufacturing sector, while Kansas,
Wisconsin, Missouri and Iowa are facing sagging tax returns
aggravated in part by a sluggish farm economy.
Tennessee and South Carolina are also revising their revenue
estimates, while Alabama and Mississippi already have called for
Even the Pacific Northwest, where states have been riding high
on the technology boom, is beginning to feel the pinch.
Washington Gov. Gary Locke, a Democrat, has proposed $236
million in cuts to social services, health and prisons.
"We will have to take some more cuts," said Republican Rep.
Barry Sehlin. "The governor's budget was the high water mark, and
the tide is going out."