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Survey finds 'grueling year' and fiscal woes for states

Tax hikes and spending cuts

Many governors and lawmakers are turning to tax hikes and spending cuts in the face of weak finances.
Many governors and lawmakers are turning to tax hikes and spending cuts in the face of weak finances.

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-- Fifteen states proposed sales tax changes.
-- Fourteen states raised "sin taxes" on cigarettes, tobacco and alcohol.
-- Ten states are modifying their personal income taxes.
-- Eleven states are seeking adjustments in their corporate income taxes.
-- Seventeen states hiked taxes and fees in areas such as nursing homes, hotels and the gaming industry.
Source: Fiscal Survey of the States

WASHINGTON (CNN) -- It's been a "grueling year" financially for states, according to a survey released Thursday, which reports many of the nation's governors have turned to spending cuts and tax increases in an attempt to balance the books.

The lackluster economy continues to bedevil state governments, and many have trimmed a variety of programs in education, Medicaid and public safety, according to the Fiscal Survey of the States, released by the National Governors Association and the National Association of State Budget Officers. This is the third year in a row that the survey has painted a bleak picture of state finances.

"In this report, we find the fiscal condition in the states has not improved; balancing states budgets continues to be a difficult exercise," Scott Pattison, NASBO's executive director, said in a written statement.

In one sign of the difficult economic times, 37 states reduced already enacted budgets by almost $14.5 billion, which the organizations called the largest spending cut in the survey's 27-year history.

Also, governors in 29 states proposed tax and fee increases for fiscal year 2004, for a total tax hike of $17.5 billion. And that is the largest such hike since 1979, according to the survey. The tax and fee increases targeted, among other things, nursing homes, hotels, motor fuel, cigarettes, tobacco, alcohol and the personal incomes tax.

The survey reported that governors used a variety of tactics to keep their governments afloat.

• Twenty-eight states turned to across-the-board cuts.

• Twenty-two states drew from their rainy day funds.

• Seventeen states laid off employees

• Eight states offered early retirement.

Other states reported refinancing state debts, hiring freezes and deferred payments as a means of keeping their financial houses in order.

Overall, state spending grew by 0.3 percent in fiscal 2003 and is expected to fall to 0.1 percent next year.

One particular strain on state budgets cited by the survey was growth in Medicaid, a joint federal-state health insurance program for the poor. Governors reported increased state costs for pharmaceuticals, but, at the same time, program cuts are being made to manage state budgets

"The reality is that poor women and children are either experiencing a reduction in benefits or are being removed from the rolls altogether," Ray Scheppach, executive director of the NGA, said in a statement.

The survey was based on state budget data compiled during the spring of 2003.

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