After a bath in red ink, some state budgets begin to recover
In the trough of the national recession a year ago, state and local governments were all but drowning in a $1.9 billion pool of red ink. But now there is cause for cautious optimism. According to a survey by Morgan Guaranty Trust Co. of New York, states and localities may finish 1983 with a combined operating surplus of $16.1 billion.
The current economic recovery, which has boosted revenues through increased income and retail sales, deserves considerable credit for the rosier outlook. Just as important, however, has been a spartan regimen of tax hikes and belt-tightening. Some 38 states imposed new levies or extended temporary tax hikes during 1982 and early 1983, measures that are expected to raise some $10 billion for fiscal 1984. Fully three-quarters of the states slashed spending below the levels they had originally appropriated during the past two years. The result of these austerity measures, says David Levine, an economist with the Bureau of Economic Analysis, is "a whole lot more money than state governments expected."
Among the surprise entries on the most-improved list are several states in the nation's recession-racked industrial heartland. West Virginia, still leading the U.S. in joblessness with an unemployment rate of 15.1%, faced a projected fiscal 1983 deficit of $81.4 million as recently as last January. But thanks to the unflagging efforts of Democratic Governor John D. Rockefeller IV to ram through a $90 million package of spending cuts, the state managed to end the year with a small surplus of $12.4 million.
Michigan, its economy wedded to the unpredictable auto industry, faced a 1983 budget deficit between $800 million and $900 million last January. But the state raised personal income taxes from 4.6% to 6.35%, added 2¢ to the state gas tax, whittled the number of employees on the state payroll by 4%, and delayed and deferred payments for schools. When the 1983 books closed Sept. 30, Michigan was anticipating a budget surplus of more than $50 million.
Minnesota conquered a projected deficit for 1982 and 1983 of $767 million in part with the help of a temporary income tax surcharge enacted in March 1982. Buoyed further by larger-than-expected tax revenues, state officials have predicted a $650 million surplus by the end of fiscal 1985 and an early repeal of the surcharge. In Indiana, Republican Governor Robert Orr called the state legislature into special session last December to avert an estimated 1983 shortfall of $452 million. The result: a $1.8 billion tax hike, the largest in Indiana history, and painful delays in state payments for schools, universities and local subsidies. The state finished the fiscal year $60.4 million in the black, with forecast surpluses of $96.1 million in 1984 and $126.9 million in 1985.
In Ohio, Democratic Governor Richard Celeste helped beat back a projected 1983 deficit of $528 million by tacking an additional 90% onto the state's personal income tax. Despite the size of the hike, deficit-weary Ohioans soundly rejected a tax repeal referendum earlier this month. The state ended the fiscal year with a $43.6 million surplus and is now looking forward to a combined bonus of $80 million in fiscal 1984 and 1985.