Belt-tightening States can raise taxes - or cut costs


from the Wall Street Journal

Successful gubernatorial candidates in this election face the
choice of spending cuts or tax hikes next year, say observers.

o States collectively faced some $50 billion in budget
shortfalls entering this current fiscal year.

o California alone may be facing another $12 billion-plus
deficit, New York's revenue shortfall has been estimated
as high as $10 billion, while the gap in Texas's next two-
year budget could be anywhere from $5 billion to $12

o Since state and local governments account for 12 percent
of U.S. economic output, the cost of fixing states'
problems could ripple through the entire national economy
-- delaying recovery.

o The problem is that growth in tax receipts has remained
anemic, while expensive services such as Medicaid and
public education are experiencing higher enrollment and
higher costs.

To make ends meet, some governors may have to consider selling
off state property, consolidating state agencies and privatizing
certain services. Otherwise, further rounds of tax increases may
be in store, or cuts in usually sacrosanct education programs.

Source: Andrew Caffrey and Russell Gold, "Governor, Get a Grip!"
Wall Street Journal, November 1, 2002.

For text (WSJ subscribers)

For more on State Budgets


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