WASHINGTON — State legislators discussed raising taxes, reducing pension payments, and relying on federal stimulus funds to plug budget gaps as states could face a combined $121.1 billion in budget shortfalls in fiscal year 2010.
At the National Conference of State Legislatures Spring Forum held here, elected officials brainstormed and traded war stories as their governments struggle with declining revenue amid the economic recession now in its 15th month.
But legislators did not discuss increased bond sales as a way to offset budget shortfalls, with many still unsure about the new Build America Bonds program. New Hampshire Rep. Peter Bergin, R-Hillsborough, suggested bonds might be most effective for lower-rated states, like California, and said his state was most concerned with keeping its credit rating. New Hampshire is rated Aa2 by Moody’s Investor Service and AA by Standard and Poor’s.
Ronald Snell, program director of the state services division for the NCSL, moderated a round table discussion on the “increasingly dire” state fiscal situation, he said. Snell cited a NCSL report released earlier in the day that found 42 states and Puerto Rico face budget shortfalls in fiscal 2010. The gaps could be more than 10% in 33 states, according to the report.
As states begin to write their budgets for the next fiscal year, they will be forced to make “almost unimaginable” spending cuts, he said.
Several representatives said they have proposed altering their states’ pension plans so that workers input more from their paychecks. New Mexico is considering cutting its pension contributions by 1.5% and increasing workers’ contributions by the same amount. New Hampshire lawmakers said they are considering similar measures.
A representative from Tennessee said his state offered some state employees a buyout. Utah and Illinois have considered furloughing state workers.
To combat spending cuts, some legislators said they have proposed raising taxes. In Illinois, which is facing a deficit between $4.3 billion and $5 billion, Sen. Donne E. Trotter, a Chicago Democrat and chairman of the Appropriations Committee, said the state is considering its first tax increase since 1991. He estimated the increase would bring in $3.2 billion in fiscal 2010. The cigarette tax could also be raised by $1, he said.
The relief from the federal stimulus package will be able to plug budget holes for education and health care spending, state legislators said.
A Michigan lawmaker’s pessimism was the most pronounced. He said his state has not seen net job growth since 2000 and expects to lose 300,000 jobs by the end of fiscal 2009. Declining car sales are the root of the problem, and unemployment could climb to 14%, he said.
The state’s problems are made worse by term limits, which will remove 60% of current senators and 40% of representatives in the next election.