Report: Lawmakers to cut state budgets even deeper

In Massachusetts, freefalling tax revenue will mean no more dental and hospice care for legal immigrants. Maryland is closing a mental health center. And Illinois has $2.9 billion in unpaid bills.

As bad as state budget-cutting was during the past year, a report issued Thursday showed it's bound to be even worse in the coming months. Despite signs of improvement in the national economy, many states' finances are still dismal.

The relentless cutbacks have become so worrisome that advocates of disability programs conducted a weeklong sit-in in the lobby of the Massachusetts governor's office.

"The cuts are going to be so deep that what it's going to mean is that thousands of people are cut loose," said Rita Harris, whose 29-year-old son has Down syndrome and had his work program cut from five days to two last year. She is afraid of what's next.

Thursday's report by the Rockefeller Institute of Government showed second-quarter tax revenues in the 50 states dropped a record 16.6 percent, or $200 billion. Every state but Vermont, which had a one-time estate tax settlement, saw sales, personal income and corporate tax receipts fall during the quarter. Thirty-six states reported double-digit declines.

Compounding the pain is that many states have already tapped their rainy day funds. Any support they have received from the federal stimulus package runs out at the end of the next fiscal year. And the easy budget cuts have already been made.

All that is bad news for governors and state legislators who have been reluctant to cut deeper for fear of angering constituents.

"They want to be able to hold to the commitments they have made, so they hold onto optimistic tax forecasts. That leads to revenue shortfalls when the reality hits," said Joe Henchman of the Tax Foundation, a nonpartisan tax policy think tank in Washington.

Some states such as Indiana used rainy day and federal stimulus money "for one-time expenses while they got their house in order," he said. "But many states used this money to maintain the status quo and put off hard choices."

Illinois, he added, "taped together a temporary budget and kicked the can down the road."

In Massachusetts, Gov. Deval Patrick announced that revenue could be as much as $600 million below projections for the entire fiscal year, forcing even greater cuts than he made last year, including eliminating dental and hospice care for immigrants who have green cards.

Illinois already has a backlog of $2.9 billion in unpaid bills. And in Maryland, the state plans to close a mental health center that serves five rural counties.

"We are fighting for our lives," said Tonya Rider, assistant to the director of the Upper Shore Community Mental Health Center in Chestertown. "We are fighting for the patients' lives. You get frustrated and tired and you just think, 'I can't fight anymore,' but you have to."

Peggy Russell, director of the Williamson County Family Crisis Center in Herrin, Ill., became alarmed last year when payments from two state grants worth $100,000 arrived months late. The grants covered two-thirds of the 22-bed homeless shelter's annual budget. She used donations to cover the gap.

"I was getting really panicky," Russell recalled. "I was really getting scared. I wrote some desperation letters, and all funding is in place now. We will be able to stay open until April."

After four rounds of budget-cutting, Massachusetts increased its sales tax by 25 percent to balance its budget this year. It didn't work. The governor has now appointed a team to develop revised revenue benchmarks for the rest of the fiscal year.

In New York, Gov. David Paterson ordered $500 million in cuts, including deep reductions in the university system and correctional services.

In Nebraska, Republican Gov. Dave Heineman has called a special legislative session next month. Lawmakers are expected to target agencies and services that are usually spared budget cuts.

"We're going to have to go everywhere, and I mean everywhere," said state Sen. Lavon Heidemann, chairman of the budget-writing Appropriations Committee. "We have taken all the easy stuff."

In Oklahoma, the director of the Office of State Finance ordered 5 percent cuts to state agencies for September and October. Now state leaders are considering tapping their $600 million rainy day fund, as well as $600 million in federal stimulus money they had been reserving for the 2011 fiscal year, which starts July 1.

"All options are on the table," Democratic Gov. Brad Henry said.

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Associated Press writers Christopher Wills in Springfield, Ill.; Caryn Rousseau in Chicago; Brian Witte in Annapolis, Md.; Nate Jenkins in Lincoln, Neb.; and Tim Talley in Oklahoma City contributed to this report.