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The Daily Tar Heel

Nearly Every State Faces Revenue Deficits, Will Have to Cut Spending

Thirty states, including North Carolina, have recently announced cuts to reduce their budget deficits. Another nine are considering budget cuts before the end of the fiscal year.

N.C. Gov. Mike Easley recently announced that the state is facing a $900 million shortfall and has ordered a series of cuts to deal with the problem.

Only five states -- Wyoming, Texas, Louisiana, West Virginia and North Dakota -- met or exceeded budgeted revenues for the upcoming fiscal year.

Arturo Perez, budget analyst for the National Conference of State Legislatures, said the revenue shortfalls follow basic economic patterns. "The economy follows a series of peaks and troughs," he said. "The early '90s was a growth period -- an almost 10- year-long peak. Now we're in the trough."

Perez said the revenue shortfalls are a direct result of the national economic recession. In tight financial situations, states receive less revenue from income, property and corporate taxes.

Scott Pattison, executive director of the National Association of State Budget Officers, said states with manufacturing- and labor-based economies were hit hardest. "The only states that are doing OK are primarily energy-producing states."

He cited Texas and Louisiana, which draw large amounts of revenue from oil, and West Virginia, which gets revenue from natural gas, as examples of states that rely heavily on energy production.

Ferrel Guillory, director of UNC's Program on Southern Politics, Media and Public Life, said natural disasters and other events have the potential to decrease already dwindling state revenues.

A large part of Florida's tax revenue stems from tourism, which has declined since Sept. 11. New York has faced skyrocketing cleanup costs after the terrorist attacks, he said.

Guillory added that North Carolina faces costs from Hurricane Floyd and the ensuing floods. Disaster relief has chipped away at the "rainy day" funds the N.C. General Assembly set aside during the recent economic boom.

Pattison said most states will address revenue shortfalls by tightening state budgets and cutting funding to state programs.

California has already seen an automatic half-cent sales tax increase, and governors in several other states have proposed increases.

But even though about 40 states are expecting budget shortfalls in the 2002-03 fiscal year, Perez said deficits will narrow when the nation's economy pulls out of the recession.

"It follows in the cyclical spirit of economics," he said. "Fortunately, the trough never lasts as long as the peak."

Pattison also said he expects to see state budget situations improve along with the national economy but added that changes might not be noticeable for some time. "We may be seeing headlines that say the recession's over, but it may be 12 to 18 months before we see healthy state revenue again."

The State & National Editor can be reached at

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