States of Distress

Planned Parenthood: Shasta-Diablo, which provides family planning and other services in Northern California, started getting i.o.u.’s from the state this month to pay for a program it offers to help screen low-income women for breast and cervical cancer.

The i.o.u.’s, which California began using to pay many of its bills after Gov. Arnold Schwarzenegger declared a fiscal emergency, have become a national symbol of the state’s financial distress.

But Heather Saunders Estes, president of the Planned Parenthood group, says they just added “insult to the major injury to us.” The group’s bank has been accepting them, although she’s not sure how long that will last.

The bigger problem, she says: With the General Assembly and the governor unable to agree on how to close a shortfall of more than $26-billion for fiscal year 2010, “we don’t know whether we’re going to have major cuts to our programs.”

Her group, which had been planning for four years to open a new health center in El Cerrito, has put the plans on hold even though it signed a lease for a building in June.

“It’s very challenging to try to manage, and at a time when our patient load is growing dramatically,” Ms. Estes says.

‘Never Seen the Likes of This’

While California regularly experiences budget gridlock, this year’s crisis has been particularly severe, and charities there are braced for steep cuts to social services and health care.

But California is far from the only state that is facing an especially tough time balancing its budget this year as the recession has taken a deep toll on the tax revenue that fuels state budgets.

“I’ve been in this field for 33 years,” says Nancy Ronquillo, president of Children’s Home + Aid, a social-services group in Chicago. “I lived through the Reagan cutbacks. We’ve had a recession or two. There is an ebb and flow that we understand the economy has. We’ve never seen the likes of this.”

Like California, Illinois entered the fiscal year on July 1 without a budget. Based on a bare-bones budget that the General Assembly adopted, which was vetoed by the governor, the state Human Services Department sent letters to social-service providers in June warning them that many programs would be eliminated or cut back. Children’s Home + Aid, which gets about 75 percent of its revenue from state grants and contracts, is planning measures in response to a potential shortfall — including, Ms. Ronquillo says, closing a program for troubled youths, ending pre-kindergarten services, and cutting back the hours of its “crisis nurseries” for children under 6. It has cut about $4.8-million out of its $46-million 2010 budget and notified 86 of its 750 employees that they will lose their jobs on July 17.

The governor and the Assembly were still thrashing things out in mid-July, with talk of borrowing money to temper some of the social-services cuts. But Ms. Ronquillo says that would only be a short-term fix, especially given the future impact of the economic downturn on state finances. “We aren’t out of the woods by a long shot,” she says.

Budget Theatrics

Other states, including Arizona, Ohio, and Pennsylvania, also had trouble adopting their budgets on time.

Minnesota’s Legislature adopted a two-year budget in May, but Gov. Tim Pawlenty vetoed it because it included $1-billion in tax increases. He then used an emergency power known as “unallotment” and, in a controversial move, unilaterally cut the budget, including $236-million in spending on health and human services.

Not every state’s budget process was marked by such theatrics. But all faced what the National Governors Association and National Association of State Budget Officers call “one of the worst fiscal periods in decades.” Revenue from sales, personal income, and corporate income taxes was lower than expected in 2009, they said in a June report, while taxes on investment income fell due to job losses and cuts in corporate profits.

As they put together their 2010 budgets, most of which took effect on July 1, 47 states and the District of Columbia had to try to close a collective shortfall of $166-billion, according to the Center on Budget and Policy Priorities, a liberal research group in Washington.

That compares with $80-billion in 2004, when states were feeling the worst effects of the last recession, the center says. “This is the worst ever,” says Nicholas Johnson, director of the center’s State Fiscal Project, who has worked at the center since 1996. “I feel pretty comfortable saying that.”

Plugging Gaps

To balance their budgets, the center said in late June, 30 states had raised taxes in 2009, while at least 39 had cut services for vulnerable residents, including health care and help for older adults and disabled people.

Ohio’s second temporary budget was about to expire when the state adopted a $51-billion, two-year budget July 13. It confronted the state’s $3.3-billion budget shortfall with $2.5-billion in spending cuts and hoped to make up most of the rest by allowing slot machines at the state’s horse-racing tracks.

It cut spending on drugand alcohol-addiction services by nearly 30 percent and on community mental-health services by more than 16 percent.

“These cuts are going to be devastating,” says Laura Moskow-Sigal, director of Mental Health America of Franklin County, a Columbus charity. “It’s obviously a difficult time for legislators, but our feeling is that other decisions could have been made that didn’t totally devastate the community mental-health system in Ohio.”

Ohio food banks will see a 20-percent increase in support, to $12-million a year. However, the Ohio Association of Second Harvest Foodbanks, which represents more than 3,000 programs statewide, had requested $17-million a year, given that demand for food is up 30 percent last quarter and 1.8 million Ohioans now use food pantries.

“Bottom line is that we are not going to have enough food to meet the current demand,” says Lisa Hamler-Fugitt, the association’s executive director.

In Nevada, where declining revenue from tourism and gaming contributed to a $1.2-billion budget gap, the Legislature overcame a veto by Gov. Jim Gibbons to include $1-billion in new taxes — along with spending cuts such as a 13-percent reduction in support for the state’s colleges.

Among the cuts: $365,000 to support the state’s AmeriCorps programs through 2011.

Nevada Volunteers, the Reno charity that puts dozens of AmeriCorps volunteers to work assisting homeless veterans, tutoring children, and doing other social-service tasks, now stands to lose $7.5-million in federal money for the program. The charity needs $32,000 to function for the rest of the year and $182,000 in 2010. A “Save AmeriCorps” fund-raising appeal has so far netted just over $5,000.

Shawn Lecker-Pomaville, president of the organization, hopes state lawmakers will restore the money.

“People will realize the cost of losing AmeriCorps is far greater than the modest state match required,” she says.

Stimulus Help

As bad as things are this year, they would have been much worse without the federal government’s $787-billion economic-stimulus law, budget experts and charities agree.

That legislation, adopted in February, has been funneling billions of dollars to the states in Medicaid money and other spending designed to help them avoid steep budget cuts — and has helped them close roughly 30 to 40 percent of their budget gaps, the Center on Budget and Policy Priorities says.

Some of the money has gone directly to charities, too, mitigating the impact of state budget cuts.

“Without the stimulus money, we would be in really, really worse shape,” says Elizabeth Forer, chief executive officer of the Venice Family Clinic, a free clinic in California that has been awarded about $650,000 in stimulus money earmarked for community health centers. However, she says, she expects the state budget to include cuts to health-care programs once it is adopted. The governor has proposed eliminating a variety of health-care programs, including one that provides services to low-income people without health insurance, while the assembly has proposed cutting them.

Therefore, she cannot use the federal stimulus money in the way it is intended to be spent — to hire new people to treat more patients.

Instead, she says, the clinic — which has laid off 14 people since June, partly because of the state budget uncertainty — is using the money to avoid laying off any medical assistants.

“It’s like filling a bathtub,” Ms. Forer says. “The water’s just draining through. As fast as the fed is putting money in, the state is threatening to cut indigent-care programs and take it out.”

And while fiscal 2010 is a bad year for states, 2011 is not likely to offer any relief. In fact, the report by the governors and budget officers says the weak fiscal conditions could continue into 2012.

The Center on Budget and Policy Priorities estimates the collective budget shortfalls for all states could rise to $180-billion in 2011, and by then much of the stimulus money will have been spent.

Long-Term Fixes

While an economic recovery, whenever it arrives, would make it easier for states to balance their budgets, some philanthropists are looking for longer-term fixes to state-budget problems.

For example, the California Endowment and four other foundations helped start a group called California Forward, which is pushing for changes in the state’s tax system and other measures to improve the way the state is governed.

Daniel Zingale, senior vice president of the endowment, which has awarded the group a three-year, $750,000 grant, says the foundation is interested in fixing the causes of California’s regular budget crises.

“The first response for some of the foundations is to try to backfill the gutting of the safety net,” he says.

But with the state facing a $33-billion deficit over 18 months, he adds, “we couldn’t sustain that safety net for more than a few minutes.”

Brennen Jensen contributed to this report.