Many states consider severe cuts to budgets

SACRAMENTO, Calif. -- The nation's economic meltdown is taking state budgets down with it -- especially in California, where Gov. Arnold Schwarzenegger said Thursday he wants to close a $11.2 billion gap in part by raising sales taxes on everything from cars to Disneyland tickets.

Several other states are confronting billion-dollar deficits. Some, including Massachusetts, North Carolina and Wisconsin, have ordered broad and deep cuts in spending.

In Nevada, Gov. Jim Gibbons and the Legislature have cut spending by $1.2 billion because of declining tax revenue, but Gibbons warned lawmakers they might have to cut another 14 percent when they go into session in February.

The news got worse Monday when a panel of economic experts predicted revenues for this year will be lower than expected, creating a new $250 million shortfall this year and pushing the size of the cuts in the next two-year budget to as much as 30 percent.

Gibbons and lawmakers plan to talk about the budget crisis in a teleconferenced meeting in Reno and Las Vegas this afternoon.

Schwarzenegger wants $4.5 billion in cuts; one of his proposals would force state employees to take a day off each month without pay and give up two holidays.

But he says cuts alone aren't enough to deal with a steep drop in revenue, and he proposes $4.7 billion in tax hikes, including a three-year, 1.5-percentage-point increase in the sales tax.

"We have a dramatic situation here and it takes dramatic solutions ... and immediate action," Schwarzenegger said as he called the Legislature back into session to deal with the shortfall. "We must stop the bleeding."

California's bleak new projections come just six weeks after Schwarzenegger signed this year's budget, which made $7.1 billion in cuts to services to help close a $15.2 billion deficit.

"I'm not a believer in taxes, I'm not a believer of increasing fees. It's just under these circumstances it's necessary to do," Schwarzenegger said.

California relies heavily on capital gains taxes, which have plunged along with the stock market.

Sales taxes also have plummeted as consumers have cut off nonessential spending. And California is among the states hardest hit by falling housing prices.

The state controller issued a statement saying California runs "the very real risk" of a severe cash shortage by the end of the year and may have to resort to borrowing so it can balance its books. Its deficit is now 11 percent of general fund spending and could double by next fiscal year if not addressed immediately, the controller said.

The shortfall in Arizona is even worse, on a percentage basis, than California's. Gov. Janet Napolitano on Thursday said the state's deficit had grown to an estimated $1.2 billion, or 12 percent of general fund spending, forcing lawmakers into a likely special session by the end of the year.

The deficit in Washington state is projected at $3.2 billion, but could grow by the time officials get an update later this month.

Wisconsin's governor has ordered state agencies to trim 10 percent to cover a $3 billion hole over two years, while North Carolina's governor has ordered several departments to make do with 5 percent less. Massachusetts Gov. Deval Patrick announced last month that the state would eliminate up to 1,000 jobs and make more than $1 billion in cuts and spending controls to bridge a growing budget gap.

New York Gov. David Paterson last week asked Congress for as much as $8.6 billion from an economic stimulus measure Democrats are considering. He already has called a special session for later this month to tackle a $1.5 billion deficit for the fiscal year that ends in April and warned that New York's deficit could hit $47 billion by 2012.

California's crisis has brought a change in rhetoric from Schwarzenegger. Since taking office in 2003, he has blamed "autopilot spending" by the Legislature whenever California has confronted fiscal woes, but on Thursday he said, "It is now a revenue problem rather than a spending problem."

His proposed sales-tax increase would apply to items as varied as cars and amusement park and sporting game tickets.

Review-Journal Capital Bureau writer Sean Whaley contributed to this report.