Governors Promote ‘Fiscal Restraint’ in Writing State Budgets

In their State of the State addresses this year, many of the nation’s governors called for “fiscal restraint,” reflecting that a cooling economy, smaller revenues and greater health care expenses have created an uncertain financial picture in many states.

Holding the line on spending — after years of enjoying a fruitful economy — is a key priority for most governors this year.”Ladies and gentlemen, the cupboard is bare,” said West Virginia Gov. Bob Wise (D) in summing up his state’s economic condition. “Despite the 3 percent budget cut which I was forced to impose on the first day of my term, we are looking at a state budget with minimal growth for the next year.”

Indeed, though circumstances differ statewide, several governors painted a grim picture of their state’s fiscal condition.

North Carolina Gov. Mike Easley (D) delivered his address 10 days after declaring the state’s first budget crisis in a decade. Easley, facing a $791 million shortfall, said the state must raid its cash reserves. He has ordered a halt in payments to local governments and the state pension fund.

Indiana Gov. Frank O’Bannon (D) said a recent forecast projected a $250 million shortfall in previous estimates for the fiscal year ending in June, reducing outlays by $800 million over the next two years. O’Bannon proposed using $410 million of surplus gaming money to pay for more important spending items to “help us get through this economic slowdown.”

Rick Perry, in his first months as the Republican governor of Texas, said the cooling economy has forced him to submit a “fiscally sound and conservative budget” that grows at half the rate of the state’s previous spending plan.”Now is not the time to commit ourselves to numerous programs that we may not be able to one day sustain,” Perry said.

The same fiscal discipline was expressed in less gloomy tones by California Gov. Gray Davis (D), who is embroiled in a major energy crisis in the Golden State, and by Massachusetts Gov. Paul Cellucci (R). Despite a 10-year turnaround in his state’s economy, Cellucci still advocates controlled spending, “rainy day” investments, small targeted tax cuts, and maintenance funding only of essential state services.

But not every governor shares such a dismal outlook. Other states, including Wyoming and New Jersey, are operating with large surpluses that will enable the governors to fully fund their agendas.

Wyoming Gov. Jim Geringer (R) delivered his address one day after learning the state would have “an astonishing” surplus of $695 million. And former New Jersey Gov. Christie Todd Whitman (R), now the head of the Environmental Protection Agency, unveiled a $1 billion surplus days before leaving office.

Talk of tax cuts was popular in speeches this year, although most of it came from Republicans. Of the 47 governors who have delivered their annual addresses, 17 explicitly called for some form of tax relief.

In Pennsylvania, which last year had the largest tax cut ( million) in state history, an excited Gov. Tom Ridge (R) recommended a seventh tax cut in seven years worth $220 million. “It’s called tax forgiveness, and please forgive me if I boast about it,” Ridge said.

Reports of a slowing economy didn’t deter New York Gov. George E. Pataki (R) from pursuing a seventh straight year of tax cuts. He wants to broaden property tax relief efforts from previous years, give seniors and farmers some relief from county property taxes, and reduce business taxes. Pataki proposed a budget that will expand what he called “the most ambitious tax-cutting program in the nation.”

Other governors used their State of the State addresses as springboards to launch various tax reform plans.

Minnesota Gov. Jesse Ventura (I), for example, called for lowering the sales tax rate from 6.5 percent to 6 percent, while expanding the base to include services. In the Land of 10,000 Lakes, the sales tax is primarily imposed on transactions involving goods. Services, which account for about 60 percent of consumer spending, are not taxable. According to a report by the National Conference of State Legislatures , Minnesota’s sales tax base would be the most inclusive in the nation if implemented.

Ventura’s sweeping proposal on tax reductions included an across-the-board income tax reduction of 0.5 percent, an increase in the Working Family Credit and a cut in corporate income tax rates. Ventura also wants to cap motor vehicle registration taxes at $75, repeal wholesale prescription drug and HMO premium taxes, and eliminate the state-mandated general education property tax.