Headline: Layoffs, Dwindling Tourism a Blow to Struggling States

Source: Washington Post, 27 September 2001; Page A13

URL: http://www.washingtonpost.com/wp-dyn/articles/A32188-2001Sep26.html

MIAMI -- State governments from Florida to Washington state, already struggling with a slumping economy and budget shortfalls, are finding that fallout from the Sept. 11 terrorist attacks has pushed them into financial emergencies -- prompting in some cases massive budget cuts and calls for special legislative sessions to deal with the crises.

Some of the ailing states, such as Florida, where Gov. Jeb Bush (R) last week announced a special legislative session to rework the budget, are dependent on tourist revenue that has dwindled since the attacks. Others, like Washington, face the consequences of massive layoffs announced by the state's largest employer, the airplane-maker Boeing Co., and the sure domino effect of those losses.

For states squeezed before the attacks by budget deficits soaring in some instances to tens and even hundreds of millions of dollars, the added uncertainty is threatening existing state programs and jobs -- and effectively halting hopes of adding anything new for perhaps a few years.

"We've been worried about our budget in Tennessee for three years, so this is another major blow," said Alexia Levison, press secretary to Gov. Don Sundquist (R), who had been forced to cut $100 million from state agencies after the legislature approved an $8.8 billion budget over Sundquist's veto in July. Since the attacks, the state budget director has estimated that the state may well face another $100 million in cuts over the coming months, Levison said.

Like Florida and Washington, Tennessee does not have a state income tax and is dependent on sales taxes for a great portion of its budget. As consumer confidence has plummeted in the past two weeks, the financial picture in those states has grown correspondingly bleaker.

State operating budgets are a fundamental, if unexciting, financial underpinning of American life. They touch everything from agriculture to state prisons, from social services to public education, and their health is connected to elements that on the surface might seem unrelated. For example, how many empty hotel rooms there are in Miami today -- where tourism officials recorded $15 million-a-day losses in the two weeks after the attacks -- may affect how much Florida social services programs have to be reduced down the road.

In the past decade of bounty, no states have gone on "spending sprees," but they have cut taxes a total of $35 billion to $40 billion over the last five years, said Ray Scheppach, executive director of the National Governors Association. Now, he said, revenue is in a nosedive and health care inflation is sky-high. Either by state law or constitution, 49 states have to have balanced budgets, and many will have no choice but to look at raising taxes and slashing programs.

Some governors already have been prompted to take action. Tuesday in Illinois, Gov. George Ryan (R) announced $50 million in cuts from the state's already-stretched $53.4 billion budget, including a freeze on most state hiring and equipment purchases. In Hawaii, where deserted beaches reflect the fact that more than 25 percent of the state's economy is fueled by tourists who travel by air, Gov. Benjamin J. Cayetano (D) has called for the convening of the third special legislative session of the year on Oct. 15. He called this "the worst economic crisis" in state history.

And in Iowa, Gov. Tom Vilsack (D) last week ordered a $108 million cut in state spending, and predicted cuts of twice as much next year.

Other states see massive budget-slashing in the near future. New York state budget analysts project a $1 billion revenue loss in the coming fiscal year, which starts in April. In California, already hit hard by the high-tech slowdown, the fallout from the attacks "just accelerates" the crunch, said Steve Mavigilio, spokesman for Gov. Gray Davis (D).

In Virginia, where budget analysts had warned that state revenue projections were too rosy, the revenue growth that averaged a mere 2.1 percent in July and August almost certainly faltered after Sept. 11. In the District, officials said diminished economic activity could cost the city as much as $80 million in revenue in the first six months of the fiscal year that starts Monday, but the city's chief economist said she did not expect a budget deficit.

And in Massachusetts, where lawmakers are still haggling over a budget for the current fiscal year, state officials already are reining in next year's proposed budget and predicting virtually no revenue growth for the next two years.

But the situation is especially urgent in Florida. The state depends on sales taxes to provide 32 percent of the $48.2 billion state budget, said David Bishop of the Governor's Office of Tourism, Trade and Economic Development -- and projections are not good for September receipts.

In Miami, where 96 percent of the visitors normally arrive by airplane, some hotels have recorded occupancy rates in the single digits, and several larger establishments have begun laying off maids and bellhops. Gov. Bush, touring the city last weekend and noting the empty restaurant tables and quiet streets, urged Floridians to "visit a part of the state you may never have seen or revisit a place of treasured memories" to make up for the shortage of out-of-state guests.

Bush's call for a special legislative session is intended to fill a $265 million gap in the state budget that was only expected to grow with the impact of the attacks. Bishop said state number crunchers had not yet figured out what the additional shortfall might be. But state House Minority Leader Lois Frankel, who also is running as a Democratic candidate for governor, said she had heard reliable projections that an additional $600 million in losses is expected. She blames Bush's cuts over the past three years of intangible taxes on stocks and bonds for much of the original problem. She said the last time the state faced a major budget deficit, in the early 1990s, social services programs sustained the heaviest cuts.

Frankel predicted, however, that the normally fractious Florida legislature may be more cooperative during the special session, following the lead of Congress. "We're going to keep our fingers crossed," she said. "Perception becomes reality, and the more you bad-mouth the situation, the worse it can become."

-- Andre Weltman (aweltman@state.pa.us), September 27, 2001

Answers

This sounds so much like other recessions, but this one is coming on so fast that it's frightening.

-- Uncle Fred (dogboy45@bigfoot.com), September 27, 2001.