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Wed, Feb 14, 2001 EST
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State Budgets Feel the Strain of Economic Slowdown
By Scott Mooneyham   Associated Press
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RALEIGH, N.C. — 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 million.

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 safety.

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 governments.

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 significant cuts.

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."

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