BOSTON, Jan. 3 (UPI) -- The downturn in the nation's economy is being felt all across New England, and for 2003 top governmental decision-makers will be struggling to address a multitude of budget problems, both immediate and long-term.
Raising taxes, cutting services and financial aid to cities and towns, approving or expanding legalized gambling, and the "L" word -- layoffs -- are just some of the fixes being discussed.
All New England states -- Massachusetts, Connecticut, Maine, Rhode Island, New Hampshire and Vermont -- have budget difficulties unique to their circumstances.
All except Vermont are constitutionally required to have a balanced budget, something that's difficult to do when anticipated revenues fall well below expectations.
And many, but not all, are closer than ever to turning to gambling as a way to make up the shortfall.
The fiscal troubles appear to be at their worst, comparatively, in Massachusetts, which is facing a budget deficit of between $500 million and $600 million for the fiscal year that ends June 30, and from between $2 billion and $3 billion in the fiscal year that begins July 1.
"It's the worst fiscal crisis in at least 50 years" in Massachusetts, said Mike Widmer, president of the Massachusetts Taxpayers Association, a non-partisan watch group. "The administration has said it's the worst since the Great Depression, and I think that's probably right."
Things appear less dire in Connecticut.
"It's a difficult situation, but I wouldn't call it a crisis," said Kenneth Dautrich, associate professor of political science at the University of Connecticut. "It's certainly not as bad as it was in 1991, which was the last major fiscal crisis at the (Connecticut) statehouse."
"It's not a crisis, but it's definitely financial difficulties" in New Hampshire, said Ross Gittell, professor of management at the University of New Hampshire and an expert on the state's fiscal policies.
In Massachusetts, outgoing acting Gov. Jane Swift ordered $260 million in emergency budget cuts in recent months because of a shortfall in projected revenues.
She had promised to turn over the state in January to its new governor, fellow Republican Mitt Romney, with a balanced budget. But that was not possible because the revenue shortfall for December, $100 million, was worse than expected.
Romney, the former Winter Olympics boss who got elected for his skill as a manager, is faced with having to make more major spending cuts in the next couple of months not only to deal with this fiscal year's revenue shortfall but the next.
"We're prepared to deal with the budget challenges that await," Romney spokesman Eric Fehrnstrom said.
Romney and his lieutenant governor, Kerry Healey --- both millionaires -- announced personal sacrifices over New Year's Day to help the state confront difficult financial times. He is giving up his $135,000-a-year salary for his four-year term, and she, $120,000 a year. Some of the $255,000-a-year savings will be used for pay raises for top aides.
Halfway through the 2003 fiscal year, which ends June 30, Massachusetts has already raised taxes by more than a billion dollars and cut spending by more than a billion dollars, according to Widmer. It has also largely depleted its $2.3 billion reserve fund.
The 2004 fiscal year that begins July 1 "is going to the most difficult year in this fiscal crisis," said Widmer.
"In the end the only choices are to find new sources of revenue, like casino gambling, but that'll only be a small piece -- even if we do that -- of the solution," Widmer said. "Or new tax revenues," which doesn't appear likely. Romney and Democratic House Speaker Thomas Finneran have already said those are off the table for this fiscal year.
When the hurt trickles down to the local communities, it is particularly painful.
With the threat of a potential $100 million cut in state aid to Boston, Mayor Thomas Menino has canceled a class of 60 police recruits scheduled for the middle of January. He had hoped that class would be on hand to help provide security for the Democratic National Convention planned for July 2004 in Boston.
Other communities expressed concerns they may also face cuts of some 20 percent in state aid due to the state's fiscal dilemma.
Hence the renewed interest in gambling.
While all previous attempts to get the Legislature to expand legal gambling and authorize Indian-run casinos in Massachusetts have failed, the fiscal climate now appears to have improved chances such gambling proposals would get a more amiable reception in the upcoming legislative session.
A commission appointed by Swift reported in late December that slot machines at the state's four dog and horse racetracks and as many as three new casinos could produce significant new revenues for the state.
Romney, however, isn't jumping on the gambling bandwagon. He wants the issue studied further.
Gambling is not the answer to the current and near future fiscal problems for Massachusetts, according to Widmer.
Casino gambling "isn't really going to provide much revenue in time to deal with '04, even if we went ahead. The reality is while the fiscal crisis has given it more legs, it'll have only a minor revenue impact," Widmer said.
Widmer predicted more major spending cuts.
"If you're not going to raise taxes," Widmer said. "You have to cut spending."
Dramatic cuts have already been made in the Medicaid program in Massachusetts, including the elimination of such benefits as dentures, prosthetics and eyeglasses. Some 50,000 long-term unemployed will leave the rolls on April 1 in this fiscal year, and, Widmer said, "Who knows what additional cuts there will be in '04."
He said borrowing, such as against future tobacco settlement payments, is one way to raise needed funds. While he said many states may do just that, borrowing just puts the problem off to the future.
Massachusetts has also put off its annual appropriation for the state pension fund as a way to save money now, but, again, that only delays the more-expensive inevitable.
Connecticut is a good example of how a money-strapped state can come to see more taxes and gambling as a way out of a financial hole.
It was the budget crunch in 1991 that opened the way for the state's first income tax and casino gambling in Connecticut.
"That probably wouldn't have happened in Connecticut if there weren't this major budget crisis," Dautrich said, "and here we are with another one."
The Foxwoods and the Mohegan Sun resorts contribute 25 percent of all their slot machine revenue to Connecticut state coffers.
State income from the two casinos, while significant, hasn't been enough to fend off current grim shortfalls.
"There's a state budget deficit right now even though the casinos are contributing close to a billion in revenue," Dautrich said.
The 1991 budget crisis also led to the first income tax in Connecticut.
When Lowell Weicker was elected governor, Dautrich said, "The first thing he did in 1991 was to push through an income tax, though he said he was against an income tax in the campaign."
Gov. John Rowland, the only returning governor in New England this year, and the Connecticut Legislature agree that steps must be taken to deal with a "pretty sizeable" revenue shortfall of about $500 million this fiscal year and $1.5 billion in the next, but disagree on just how.
"The governor's plan is basically to balance the budget by doing three things," Dautrich said.
Constitutionally required to balance the state's budget, Rowland has proposed some $200 million in program cuts, $200 million in tax increases, and $100 million in state employee concessions on wages and benefit givebacks.
A recently concluded special session of the Legislature failed to resolve the issue. Rowland. a Republican, wanted immediate action, but the Democratic-controlled Legislature preferred to wait.
Because the Legislature and unions were unwilling to go along with the concessions, Rowland sent layoff notices to 3,000 state workers for mid-January and warned of more to come.
Rowland "basically is forcing their hands" by saying there's another whole round of layoffs to come if they don't give into the concessions."
Lawmakers, according to Dautrich, didn't want to do anything too quickly in the special session because there's not only a deficit situation this year to deal with but one in next year's budget as well.
"Their position is let's wait until January or February and do everything at once," Dautrich said.
"What the Democrats would prefer to do is have one massive package that deals the current year's deficit, as well as the deficit over the next year or two," Dautrich said.
"We can delay the surgery, but we cannot avoid it," Rowland has said. "This budget bleeding will not go away."
Rowland has proposed canceling $111 million in bonding projects that have already been approved by the Legislature, including $40 million for clean-water projects and $25 million for unspecified urban projects.
The governor would also postpone $400 million in already-approved school construction projects this year and another $400 million next year.
Cities around Connecticut are proposing no cuts at all, but call for a significant increase in income taxes on the rich as a way to cover the shortfall.
Taxes on millionaires could "raise a significant amount of money in the state," Dautrich said, noting Connecticut does have a lot of millionaires.
Rowland previously vetoed a plan to increase taxes by 1 percent on millionaires.
New Hampshire is also feeling the budget pinch. UNH's Gittell said revenues have come in less than estimates, and that deficit has to be addressed.
"It's not of the same size or relative scale as some other states, like California, and Massachusetts," he said, adding that New Hampshire is not in the same "crisis character" as those two states.
"In some respects New Hampshire has benefited because its main source of tax revenue, combined state and local, is the property tax, which doesn't fluctuate with the economy," Gittell said.
However, revenues from corporate profits tax, business enterprise tax, and the rooms and meals tax have come in below estimates.
To make up for the shortfall, the incoming governor, Craig Benson, has asked department heads to propose scenarios where their budgets would be cut by 7 percent.
"What they could do is look at the expense side and see where there could be cost savings. Take a real hard look at the existing expenditures, try to cut back and realize that there is this deficit that has to be addressed," Gittell said.
"That might be just to give him (Benson) some feel for where there is some give in the current expense structure of the state," he said.
Benson warned department heads they wouldn't get the increases they want, and told them to pick five programs to cut.
"I'm calling it a kitchen table priority list," the new governor said. Benson has to present a balanced budget proposal to the Legislature by Feb. 15, and faces a deficit estimated at $250 million by 2005 if nothing changes.
"Just like every New Hampshire family has to gather around their kitchen table to prioritize needs to live within their means," Benson wrote, "state government also needs a 'kitchen table budget.'"
Benson said that while this is the worst fiscal situation for New Hampshire since World War II, "We're better off than most states."
Gittell said there doesn't seem to be the same momentum in New Hampshire that exists in other New England states for casino gambling.
Raising taxes is not a popular option in New Hampshire, which has neither a statewide sales nor income tax.
"New Hampshire has resisted taxes and raising taxes," Gittell said. "The concern here is if you raise taxes particularly on businesses, that's going to be detrimental to prospects of having an economic recovery happen sooner that is strong."
Rhode Island's outgoing Gov. Lincoln Almond has dismissed expectations about a $200 million state budget deficit this fiscal year. He even held out hope for a small surplus.
That's good news for Gov.-elect Don Carcieri, who won't have to begin his term with big budget cuts. Still, he might face a more difficult time in the next fiscal year when estimates put the expected deficit at up to $140 million.
It appears Rhode Island's revenues have been holding up so far this fiscal year, unlike many other states. State revenue figures for this fiscal year appear to be about $6 million higher than expected last spring.
In Maine, the Democratic-controlled Legislature and Democratic Gov.-elect John Baldacci are facing challenges to avoid a potential budget shortfall of $1 billion in 2004-2005.
The legislators almost certainly will have to deal with proposals by Indian tribes to build a gambling casino. Backers claim they have enough signatures to put the issue on the ballot in the fall, and say such a casino in southern Maine would bring in some $75 million in state gaming taxes and $20 million for state and local governments.
Opponents, however, warn it would also bring in more crime and lead to gambling addiction.
Maine's departing Gov. Angus King addressed that issue. He said he sees a disturbing trend in Maine and other states toward casino gambling as people increasingly demand more government services while resisting taxes.
"If you are moving into an era where people want services and don't want to pay for them, you're stuck trying to find some freebie to pay (the bills), and that's why every state along the Eastern Seaboard is talking about casinos," King told the Maine Sunday Telegram. "It's a cop-out on the willingness to pay for what people demand."
The fiscal pressure on Vermont and its new governor, Republican Jim Douglas, is less in that Vermont is the only New England State that does not constitutionally require a balanced budget. That gives lawmakers more wiggle room than other states.
"We have a problem, but it's not as bad as the national average," said Steve Klein, director of the Vermont Legislative Joint Fiscal Office.
He said Vermont's budget is actually balanced for this fiscal year, because cuts were made to make up for a shortfall in revenues, but for fiscal '04, "We have a problem," a projected deficit of about $40 million.
"We need to find revenues or make reductions. On a scale of things, it's really hard, but I don't think it reaches the scale of other states," Klein said.
Right now, he said, the primary consideration is how to reduce expenditures because, "generally, taxes are not on the table at this point."
University of Vermont economics professor Art Woolf agreed.
Woolf said the new governor has pretty much said he is not going to go to new taxes, although he hasn't completely ruled it out.
He said he thinks what the state will do to address the anticipated shortfall is tap a surplus in a special fund dedicated to education, which was done in fiscal '02.
The fund is paid for in large part by a 1.1 percent tax on the market value of property in Vermont, which "is generating a lot more money than thought" because property values in Vermont are rising by from 7 to 9 percent a year.
"When they get down to the wire and they are arguing over whether they want to raise taxes or cut spending, they see this big pile of money over the horizon," he said, "they are going to gallop over there and grab it."
