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When California's Republican Governor George Deukmejian took office last January, the Golden State was staggering under a projected deficit of $1.5 billion. One month later it was broke. Unemployment hovered around 11.2%. Pledged to balance the budget without tax increases, Deukmejian prodded the legislature to close porous tax loopholes on leisure activities and streamline tax-collection laws. The state finished fiscal 1983 with a comparatively manageable deficit of $462 million. That done, he blue-penciled $1.1 billion from the legislature's fiscal 1984 budget proposals. Coupled with surging revenues from the state's rebounding aerospace and defense industries, the changes have resulted in a projected 1984 surplus of $440 million and a 1985 surplus of $1.2 billion. "Ours is one of the most elastic tax bases in the country," says California Legislative Analyst William Hamm. "Our sales, income and corporate profits taxes respond directly to the economy."
Despite these success stories, the fiscal fate of many states is still uncertain. One alarm bell is the dangerously low level of reserve funds. Georgia's protective surplus stands at $9 million, the lowest level in 15 years. "That would run the state government for about six hours," says Clark Stevens, director of the Governor's office of planning and budget. In even worse shape is Mississippi, which is looking at a $120 million deficit in fiscal 1984, despite $250 million in pared spending. "We've cut all the fat we can," laments outgoing Democratic Governor William Winter. "Now we're talking about cutting out arms and legs."
The current precarious financial balance that exists in many states could be upset by a new wave of tax revolts or an economic slump caused by the huge long-term federal deficits. For now, however, the good news has raised spirits. "The national economy will lift all boats," assures Kenneth Kirkland, an official at the National Conference of State Legislatures. "But depending on local conditions, not all boats rise at the same time."
—By Susan Tifft.
Reported by Barbara B. Dolan/Detroit and Joseph J. Kane/Los Angeles, with other bureaus