Struggles in the States

With the economic downturn and the housing slowdown eating into tax revenue, many states are struggling to balance

their budgets — and that could mean new cuts in spending that could affect nonprofit groups, especially those that focus on social services and health care.

Seventeen states project budget shortfalls totaling $31-billion in 2009, according to a National Governors Association survey conducted in January. But that could be just the tip of the iceberg, the association’s report suggests: “If the current downturn follows the path of previous recessions, 35 to 40 states could face budget cuts in 2009.”

Unlike the federal government, most states are required by law to balance their budgets — by raising taxes, cutting spending, or tapping budget reserves. The 2001 recession prompted many states to cut services in areas like health and education.

To aggravate matters, President Bush has proposed slashing several key types of federal grants to states and cities.

The president has proposed reducing Community Development Block Grants, Child Care Development Block Grants, Social Services Block Grants, home-energy assistance, and other programs. The Center on Budget and Policy Priorities, a think tank in Washington, calculated that grants to state and local governments for all programs other than Medicaid would decline by an inflation-adjusted $18.9-billion, or 7.4 percent, in 2009.

The bad news comes as many charities report increased demand for services.

In Ohio, state officials announced in January that due to the poor economy, the state would face a shortfall of between $733-million and $1.9-billion in the 2009 fiscal year. Gov. Ted Strickland proposed cutbacks that included eliminating up to 2,700 state jobs. That worries Stephen Wertheim, director of the United Way of Greater Cleveland’s 211/ First Call for Help Program.

He says calls to his program, which refers people in need to groups that can help them, have already been on the rise — 15,000 in January, compared with 11,000 a year earlier. And the types of requests he gets could be harder to fill due to Mr. Bush’s proposed budget cutbacks — for example in the Low-Income Home Energy Assistance Program. “Our No. 1 call for assistance is for utility-bill pay assistance,” Mr. Wertheim says.

While he hopes that the state will limit its cuts mostly to personnel, rather than programs, he says even that would hurt the United Way’s ability to help people.

“You have to be able to refer people to [state] services,” he says.

Deepening Gap

In some states, the budget situation is getting progressively worse. New York’s governor, Eliot Spitzer, last week announced a budget deficit for the 2009 fiscal year of $384-million — above and beyond a $4.4-billion gap that he projected when submitting the budget in January.

He blamed stock-market losses and the subprime-mortgage crisis, which he said were curtailing tax revenue from Wall Street, as well as the general economic slowdown.

To close the gap, Mr. Spitzer proposed stemming increases in Medicaid payments for hospitals, nursing homes, and home care more than originally projected; requiring insurance companies to pay for some public-health programs; and using some money set aside for environmental protection for general spending.

Even before Mr. Spitzer proposed the newest cuts, a coalition of more than 100 social-services, religious, labor, environmental, and other groups announced that they planned to push the state Legislature to require companies and wealthy people to do more to help close the budget gap.

The Better Choice Budget Campaign, complaining that New York has pushed too much of the tax burden onto sales and property taxes, proposed remedies that include closing corporate tax loopholes, ending state contracts to high-priced consultants, increasing top marginal tax rates on the wealthiest households, and using the state’s purchasing power to negotiate lower prescription-drug prices for government health programs.

“It is time to stop using the mantra of no new taxes as a way to hide the fact that our state tax and budget policies help the rich at the expense of low- and moderate-income families,” Mark Dunlea, executive director of the Hunger Action Network of New York State, said in a statement.

California, the nation’s most populous state, faces the largest budgetary challenge: a projected $14.5-billion shortfall over the next 18 months. Gov. Arnold Schwarzenegger has declared a “fiscal emergency,” and last month released a budget with far-reaching cost-cutting measures, such as closing 48 state parks and the early release of over 20,000 inmates from state prisons.

The budget also included 10-percent cuts in spending for virtually every state agency and program. Since the needy often seek help from a variety of state sources, advocates for the poor are concerned that such cuts could have a cumulative effect on the poor.

“These across-the-board 10-percent cuts might sound equal, but they are not equitable,” says Nancy Berlin, director of the California Partnership, a Los Angeles coalition of more than 100 poverty-fighting charities. “They impact low-income people more because they affect the same families over and over again.” Her group is organizing protests against the budget at the state capitol in Sacramento for next May.

The governor proposes cutting more than $1-billion from Medi-Cal, the state’s medical-insurance program for low-income people, largely by reducing payments and reimbursements to care providers, curtailing dental benefits, and tightening eligibility requirements. Additionally, support for AIDS programs would be cut by $11-million, a move that Craig Thompson, executive director of AIDS Project Los Angeles, calls “draconian.”

Debbi Lerman, administrator at the San Francisco Human Services Network, an association of Bay Area social-service charities, has seen state budget cuts proposed in past years, but worries that this latest budget takes cost cutting to a new level. “The magnitude of the potential cuts could devastate many service categories, and threaten the viability of nonprofits that can’t absorb the loss of funding,” she says.

Ms. Lerman is hopeful that the state Legislature will restore at least some of the funding cuts, as they have previously. Meanwhile, she says, many charities find themselves in a financial limbo.

“Nonprofits and the local governments that fund community-based services face a climate of uncertainty that makes it difficult to plan for the coming year,” she says.

Special Session

Florida may be facing as much as a $2-billion budgetary shortfall over the next few years, in part due to revenue declines related to the collapse of the state’s once white-hot housing market.

Last fall, the state Legislature convened a special session to cut some $1.5-billion from the budget the state is currently operating under, mainly through reductions in the state work force and cuts in support for public schools, higher education, and the prison system.

The 2009 fiscal-year budget that Gov. Charlie Crist released last month decreased overall spending by some $800-million, though some analysts say the $70-billion budget is based on overly optimistic revenue projections and will need to be cut further. Already the governor has suggested trimming support to programs serving children, families, and the disabled by some $50-million.

Meanwhile, state lawmakers are scheduled to meet next month to propose another $600-million in cuts to the current budget, which expires in June. While social services have so far escaped the worst effects of the budget cutting, Scott Badesch, president of the United Way of Palm Beach County, is waiting for that to change.

“Cuts are coming,” Mr. Badesch says. “Future cuts are not going to be made up by private philanthropy, so we are going to see a reduction of services at a time when, for a lot of people living here, it is like a depression: They don’t have housing and they don’t have food.”

Kentucky faces a possible $900-million budget shortfall over the next two years, and Gov. Steve Beshear recently called the commonwealth’s revenue outlook “grim.”

The budget Governor Beshear released last month, which covers a two-year period starting this July, featured a 12-percent cut in support for public colleges and universities. This would follow a 3-percent drop in funds for the current academic year.

Support for programs serving the elderly would be cut 18 percent, which could harm the state’s already-busy, charity-run Meals on Wheels program.

Steve Shannon, executive director of the Kentucky Association of Regional Programs, a Lexington charity representing the state’s 14 nonprofit mental-health centers, is most worried about the proposed 13-percent drop in support for mental-health services — especially since demand for such services has grown 17 percent since 2003.

“In the face of these kinds of cuts it’s going to be a challenge to maintain seeing the people we are currently seeing, and even more so to see new people,” Mr. Shannon says. “We may have to focus on crisis response, the most costly form of treatment, as opposed to getting involved earlier on in a diagnosis.”