State's face budget deficit of $40 billion

Sunk in the worst financial doldrums since World War II, states face a possible collective budget shortfall of $40 billion by the end of the fiscal year, the National Governors Association (NGA) said Monday.

Nor is the picture any brighter as new governors elected just weeks ago start turning to 2004 spending plans, since underlying problems are likely to cripple state budgets even if the sour economy turns around.

Washington state faces a possible $2.5 billion shortfall in its 2003-2005 budget.

“My sense is probably we have a shortfall of at least $40 billion now,” NGA Director Ray Scheppach told a news briefing, saying states were likely to cut support for higher education and health care and to raise taxes on corporation and individual incomes to make ends meet.

Sates are bound by law to balance their budgets and must therefore cut spending or raise revenues to avoid actually ending the year with a deficit.

The NGA report released Monday showed state revenues dropped 6 percent in fiscal 2002, the first time since World War II that negative revenue growth for a whole year had been recorded, Scheppach said.