State governors warn of layoffs, cuts, tax increases

With the elections now behind them, governors nationwide are suddenly talking about their states' grim financial prospects and offering harsh solutions -- program cuts, employee layoffs and the possibility of higher taxes.

Budget shortfalls that were hastily filled in recent months are opening again from California to Maine. Once-sacred programs like education are on the chopping block, as is health care. And though voters expressed little support for new or higher taxes, only a few governors are ruling them out.

In Connecticut, re-elected GOP Gov. John Rowland said he would lay off up to 3,000 state workers next month unless unions renegotiate contracts to allow early retirements and other savings. "This is not a threat, this is reality," Rowland said.

In Arkansas, GOP Gov. Mike Huckabee, also newly re-elected, stunned lawmakers last week when he proposed a sales tax increase that would generate $474 million for schools and more. Lawmakers can choose between the tax increase or budget cuts, he said.

'No easy way out'

In California, analysts say the budget deficit will hit $21 billion; options include higher taxes, higher college tuition and program cuts. "There is no easy way out of this predicament," said legislative analyst Elizabeth Hill.

Financial problems span the country, with 24 states already reporting that their pessimistic expectations for the current fiscal year were too rosy and need to be adjusted, said Scott Pattison at the National Association of State Budget Officers.

"It's not different that the fiscal situation is bad, because it has been for at least 18 months," he said. "What is different is a lot of the choices become more painful and more difficult, because the one-time things were already done."

Over the past year, many states relied on reserve funds and payments from the national tobacco settlement to cover shortfalls, hoping revenues would pick up again.

Now, with most states' fiscal year not yet half complete, at least a dozen are anticipating layoffs, Pattison said.

Raising taxes holds little appeal for voters.

During the last election, local tax initiatives died in two regions of Virginia, as did a proposed gasoline tax hike in Washington state. In Massachusetts, though the nonbinding referendum failed, 45 percent of voters supported repealing the state income tax. The anti-tax view wasn't unanimous, however: Arkansas voters declined to eliminate taxes on food and medicine, and voters in Florida's Miami-Dade County approved a half-cent sales tax for transit.

Several of the candidates elected earlier this month promised no new taxes, like Massachusetts GOP Gov.-elect Mitt Romney, New Hampshire GOP Gov.-elect Craig Benson and Oklahoma Democratic Gov.-elect Brad Henry.

"I believe that we can deal with the situation at hand without a major tax increase," Henry said. "I certainly reserve the right to change my mind."

Rowland never promised he wouldn't raise taxes, but he said taxes are the "very, very last resort." His Democratic opponent, Bill Curry, campaigned on an income tax increase.

Huckabee, too, didn't promise to hold the line on taxes and even warned voters against the initiative to eliminate the sales tax on food and medicine, saying residents would end up paying the difference. Still, he never said during the campaign that he would propose raising taxes to cover existing services.

"I guess I could have said a whole lot of things, but we're required to present the balanced budget on Nov. 14 and today's Nov. 14," he told reporters.

New York Mayor Michael Bloomberg pledged during his inauguration to avoid tax increases. But a possible $6 billion shortfall means "somebody's got to pay," Bloomberg said. He proposed reducing the city's work force by 8,000, raising property taxes and requiring suburban commuters to pay an income tax.