Struggling states put off tough cuts in hopes of a congressional rescue

June 30, 2020 is the deadline for many states to balance their budgets ahead of the new fiscal year. But some states are trying to avoid the deepest cuts -- at least for now -- until they see whether they can narrow their yawning deficits through tax payments delayed until July and a potential new round of federal relief from Congress.

Reeling from the coronavirus shutdowns, Ohio has cut $775 million in spending from its current budget. Colorado slashed $3.3 billion -- about a quarter of its general fund -- from the coming year. Washington state is forcing tens of thousands of workers to take unpaid days off through the fall.

Tuesday is the deadline for many states to balance their budgets ahead of the new fiscal year. But some states are trying to avoid the deepest cuts -- at least for now -- until they see whether they can narrow their yawning deficits through tax payments delayed until July and a potential new round of federal relief from Congress. They are delaying the adoption of a final budget or waiting to make changes to the spending plans they already passed.

The widespread shutdown of non-essential businesses wreaked havoc on states, which saw their sales, income and corporate tax revenues plummet as Americans curtailed purchases and companies laid off millions of workers. Unlike the federal government, states and municipalities have to adopt balanced budgets.

Congress is expected in coming weeks to consider additional assistance for states, businesses and the unemployed, but it's far from guaranteed that any more money will flow from Washington, DC, to state capitals.

Lawmakers already provided state and local governments with $150 billion to help cover coronavirus-related expenses as part of the $2 trillion economic relief package Congress passed in late March. They also allocated about $31 billion in funds for schools and higher education.

State and local officials, however, say that they need more federal money to get through these tight times, or a least the ability to spend the existing relief money on expenses not tied to the pandemic. The Democrat-led House of Representatives included $875 billion in aid in its latest $3 trillion relief bill, but Senate Republicans have refused to take it up.

On Monday, a coalition of seven organizations, including the National Governors Association, the National Association of Counties and the US Conference of Mayors, wrote a letter to Senate Majority Leader Mitch McConnell and Minority Leader Chuck Schumer, stressing the role state and local governments play in the economy and employment.

"More robust and direct stimulus is needed for state and local governments to both rebuild the economy and maintain essential services in education, health care, emergency operations, public safety and more," said the letter, which was signed by more than 170 businesses and groups.

Another reason why state revenue projections are particularly shaky this year: The federal government delayed tax payments to July 15, from April 15, and many states followed suit. So officials are waiting to see just how much will come into their coffers.

Two state budget watch groups recently released updated revenue forecasts for the coming years.

Moody's Analytics now says that states will need about $312 billion and municipalities about $150 billion in additional federal assistance over two years to avoid massive cuts, which could shave about 3 percentage points off the national economy and eliminate about 4 million jobs. A few months ago, the research firm estimated Congress would only need to provide states with another $240 billion in funding over two years.

"What was the severe fiscal stress scenario in March has evolved into the baseline," said Dan White, Moody's director of public sector research.

Meanwhile, the left-leaning Center on Budget and Policy Priorities trimmed its estimate of budget shortfalls to $615 billion over three years, rather than the more dire $765 billion it had projected late last month. This is largely due to an unexpected gain of 2.5 million private-sector jobs in May, which improved the economic outlook for the nation and states.

Still, states need more federal help to avoid widespread and devastating cuts to personnel and services, said Wesley Tharpe, the center's deputy director of state policy research.

Cuts to workforce and schools

While they wait for Congress, states and municipalities have slashed their workforces. In April and May alone, they furloughed or laid off more than 1.5 million workers -- about twice as many as during and immediately after the Great Recession. Local government workers, particularly those in schools, were hit the hardest, losing nearly 1.3 million positions over those two months.

More than 40,000 Washington state employees will have to take one furlough day a week through July 25 and then one day a month through the fall, Democratic Gov. Jay Inslee announced earlier this month. Plus, another 5,600 higher-paid workers will not see a 3% wage increase. Together, the moves will save about $55 million over the next year.

Governors in some states used their executive authority to reduce funding for fiscal 2020, which ends June 30 in 45 states, after revenue came up short.

Ohio's Republican Gov. Mike DeWine, for instance, cut spending by $300 million on public schools, by $210 million on Medicaid, by $110 million on higher education and by $100 million on all other agencies for the current fiscal year.

Though some of the reductions are being offset by federal funding, it will not make up all of the losses, said Wendy Patton, senior project director of Policy Matters Ohio, a left-leaning group. Schools are contending with higher costs to teach students amid the pandemic, and universities are hemorrhaging jobs, she said.

"I've seen spreadsheets that show a great number of districts showing red ink for the fall," Patton said. "They are getting less money than they anticipated."

Colorado lawmakers, who had to slice $3.3 billion out of a roughly $13 billion general fund budget for fiscal 2021, are also counting on federal funds to make up most of the deep reductions to public schools and colleges.

The fiscal 2021 budget cut about $540 million from K-12 operations, but the state received $510 million in federal relief money for schools. And they slashed 58% of state support for higher education, about $493 million, but that department was given $450 million in federal funds.

"We were able to take a little bit more [from the] general fund from both of those entities knowing that they would have some federal dollars to help see them through," said Rep. Daneya Esgar, chair of the Joint Budget Committee. "So we took some pretty big cuts there."

States are trying to buy time

Several states, however, are trying to avoid any bloodshed for now. Five states, including Pennsylvania and South Carolina, have passed temporary spending plans that will get them through the next few months at least.

Other states, however, will likely have to revise their budgets in the middle of the fiscal year to make sure they are in line with revenues, said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers.

"A large number of states are planning on revising their budgets as fiscal 2021 carries on," he said. "They'll take whatever steps are necessary to make sure it's balanced by the end of the fiscal year."

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