WASHINGTON -- The national economy may be on the mend, but the outlook for a speedy recovery in states remains gloomy despite hefty spending cuts, layoffs and early retirements among state workers and dipping into so-called "rainy-day" funds for more than $15 billion.
That's according to a survey of the states that pegs part of the problem to an unexpected increase in tax refunds this spring. Tax collections are lower than expected in 38 states. Just this week, California Gov. Gray Davis (D) blamed most of the state's $23.6 billion shortfall on decreased revenue from the wealthiest taxpayers whose earnings from capital gains and stock options evaporated during the recent downturn.
"It's the most dire situation we've seen in over 20 years," said Raymond Scheppach, executive director of the National Governor's Association (NGA), which collaborates with the National Association of State Budget Officers on the biannual report.
During the current fiscal year, the total of budget shortfalls in more than 40 states was more than $40 billion. To close those gaps, there have been cuts in public education, tax incentives for business and programs for the poor and elderly. And some states are actively considering increases in cigarette taxes and other revenue, despite the fact that 36 governors, and thousands of legislators, are up for election in November.
One of the biggest problems, the report said, is the continued rise in Medicaid spending. In the past two years alone, the report said that these costs have risen 25 percent while revenue over the same period has grown only 5 percent.
As part of a suggested solution, the NGA plans to support a proposal that would increase the federal share of Medicaid by one percentage point for each state for 18 months beginning on April 1. The group said this would provide states with nearly $4 billion in budget relief.
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