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• Recession and Recovery

An Update on State Budget Cuts
At Least 39 States Have Imposed Cuts That Hurt Vulnerable Residents; Federal Economic Recovery Funds and State Tax Increases Are Reducing the Harm

With tax revenue declining as a result of the recession and budget reserves largely drained, more than three-fourths of states are making spending cuts that hurt families and reduce necessary services. These cuts, in turn, will make the recession worse because families and businesses have less to spend in their local economies. Federal recovery act dollars and funds raised from tax increases are greatly reducing the extent, severity, and economic impact of these cuts, but only to a point.

Many cuts — including those hurting vulnerable families — will take effect July 1, 2009, the first day of the new fiscal year in most states, or soon after. For example, dental and vision services for many Medicaid recipients in California and Michigan will be eliminated. Hundreds of thousands of people with disabilities in those states and in New Mexico will experience cuts in aid. Reimburse-ment rates for some health care providers and human services agencies will decline July 1 in Minnesota, Utah, Washington, and Wyoming. In coming months, public university tuition will rise at double-digit percentage rates in Florida, Washington, and elsewhere — and school districts will absorb cuts in state aid.

The cuts enacted in at least 39 states are occurring in all major areas of state services, including health care (21 states), services to the elderly and disabled (22 states), K-12 education (24 states), higher education (32 states), and other areas. States are making these cuts because the recession has caused declining revenues from income taxes, sales taxes, and other revenue sources used to pay for these services. At the same time, the need for these services has not declined and has, in fact, risen as the number of families facing economic difficulties increases.

And these figures do not include the proposed cuts that many states still are discussing. As of June 25, some 18 states had not enacted budgets for the upcoming fiscal year. Many of those states, including Arizona, Illinois, Massachusetts, New Jersey, and North Carolina, are almost certain to enact further cuts.

Cuts to state services not only harm vulnerable residents but also worsen the recession by reducing overall economic activity. When states cut spending, they lay off employees, cancel contracts with vendors, reduce payments to businesses and nonprofits that provide services, and cut benefit payments to individuals. All of these steps remove demand from the economy. For instance, at least 41 states have reduced overall wages paid to state workers, by laying off workers, requiring them to take unpaid leave (furloughs), freezing new hires, or similar actions. Such measures not only can reduce the level or quality of service available to state residents, but also reduce the purchasing power of workers’ families, which in turn affects local businesses.

States are taking actions to mitigate the extent of these cuts. Most states are enacting or considering tax increases. At least 24 states in 2009 are addressing their budget shortfalls in part by increasing taxes. Like budget cuts, tax increases remove demand from the economy, by reducing the amount of money people have to spend. But tax increases can be less detrimental to state economies than budget cuts because some of the tax increases affect upper-income households so are likely to result in reduced saving rather than reduced consumption. Many more states will need to consider tax increases or other revenue measures, as well as such steps as tapping state rainy day funds, as a way to minimize harmful budget cuts.

The cuts in state-funded services — and resulting harm to families’ well-being and to state economies — would be much greater had not the federal government enacted the American Recovery and Reinvestment Act in February. The measure is providing roughly $140 billion over two-and-a-half years to help states pay for education, health care, public safety, and other key services. In some cases, it is possible to identify specific services that were slated for cuts but have been protected by the federal funds; these include child care in Alabama and Arizona, public safety funding in Virginia and Washington, prescription drugs for seniors and tuition assistance in New York, and education funding in a number of states. In other cases, the specific “what-if” cannot be identified. But it is indisputable that families and communities would be facing much more serious consequences from state cuts without the recovery act funds.

The Deep Recession Is Creating Widespread Deficits

The national recession is producing both declines in state and local revenues and increased need for public programs as residents lose jobs, income, and health insurance. The imbalance between available revenues and what is needed for services led most states to face budget gaps in the now ending 2009 fiscal year. The vast majority of states also faced (or are facing) additional shortfalls projected for the 2010 fiscal year, which in most states begins July 1, 2009. Even more budget gaps are projected for fiscal year 2011. Total shortfalls through 2011 have been estimated at roughly $350 billion to $370 billion, and could be even higher if job losses fail to stop soon.[2]

Virtually all states are required to balance their operating budgets each year or each biennium. Unlike the federal government, states cannot maintain services during an economic downturn by running a deficit. States had record reserves heading into this recession, but those have mostly been drawn down. Since federal economic recovery funds are closing, on average, about 40 percent of budget gaps, states must address remaining shortfalls with a combination of spending cuts and/or tax increases.

State Budget Cuts

States began cutting their budgets last spring, as the recession brought sharply weakened revenues. The cuts have intensified as the economy has worsened. At least 39 states to date have reduced services since the recession began. Service cuts with particular ramifications for vulnerable populations have occurred in the following areas:

• Public health programs: At least 21 states have implemented cuts that will restrict low-income children’s or families’ eligibility for health insurance or reduce their access to health care services. For example, Rhode Island eliminated health coverage for 1,000 low-income parents; Minnesota is cancelling a health insurance program for 29,500 low-income adults; and California and Utah are reducing services covered by their Medicaid programs.
• Programs for the elderly and disabled: At least 22 states plus the District of Columbia are cutting medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities, or significantly increasing the cost of these services. For example, Florida has frozen reimbursements to nursing homes and relaxed staffing standards, Nevada is making it harder for beneficiaries to qualify for nursing home care, and Rhode Island is requiring low-income elderly people to pay more for adult daycare. Arizona eliminated temporary health insurance for people with serious medical problems.
• K-12 education: At least 24 states are cutting aid to K-12 schools and early education programs. Arizona,Florida, and South Carolina have each cut school aid by an estimated $95 or more per pupil. Rhode Island is eliminating early education funding for 550 children, and Massachusetts is reducing funding for a number of early care programs.
• Higher education: At least 32 states have cut assistance to public colleges and universities, resulting in reduction in faculty and staff in addition to tuition increases. Tuition at all 11 public universities in Florida is increasing by 15 percent this coming year. Students in Washington and other states face significant tuition increases as well, costing families hundreds or sometimes thousands of dollars per year.
• State workforces: At least 40 states and the District of Columbia have made cuts affecting state government employees. At least 26 states and the District of Columbia have instituted hiring freezes, 11 have announced lay-offs, 17 have reduced state worker wages, and several have delayed scheduled pay increases (including cost of living adjustments).

These measures are described in more detail in the Appendix.

The Role of Revenue Increases and Federal Dollars

Several states facing large budget shortfalls have averted deep cuts in vital services by enacting temporary or permanent revenue increases.

• In late 2007 and 2008, some 10 states enacted tax increases, closed loopholes, restricted tax credits, or implemented other revenue-raising measures. Major packages were enacted in Maryland, Michigan, and New York.
• So far in 2009, at least 24 states have raised taxes, sometimes quite significantly, and another 13 states are considering tax increases. Increases have been enacted or are under consideration in personal income, business, sales, and excise taxes.

States also are using funds made available in the federal economic recovery law passed in February to avert spending cuts. The law gave states roughly $140 billion over a two-and-a-half year period to help fund ongoing programs, including K-12 education, higher education, and health care. The money is addressing approximately 40 percent of the budget shortfalls states faced. In state after state, it is abundantly clear that spending and service cuts in health care, education, human services, public safety, and other areas would have been much deeper had the federal funds not been available.

The 2009 tax measures and states’ use of federal recovery funds are detailed in separate Center on Budget and Policy Priorities analyses. [3]

AT LEAST 39 STATES HAVE CUT SERVICES
	Public Health (21)	Elderly/ Disabled (23)	K-12 Education (24)	Higher Education (32)	State Workforce (41)
Alabama		X	X	X	X
Alaska					X
Arizona	X	X	X	X	X
Arkansas
California	X	X	X	X	X
Colorado				X	X
Connecticut			X	X	X
Delaware			X		X
Dist. of Columbia		X			X
Florida	X	X	X	X	X
Georgia	X	X	X	X	X
Hawaii			X	X	X
Idaho	X		X	X	X
Illinois	X				X
Indiana
Iowa			X	X	X
Kansas		X	X	X	X
Kentucky			X	X	X
Louisiana	X	X		X	X
Maine	X	X	X	X	X
Maryland	X	X	X	X	X
Massachusetts		X	X	X	X
Michigan	X	X			X
Minnesota	X	X		X	X
Mississippi			X	X	X
Missouri
Montana
Nebraska
Nevada	X		X	X	X
New Hampshire	X				X
New Jersey	X			X	X
New Mexico		X		X	X
New York	X			X	X
North Carolina				X	X
North Dakota
Ohio		X	X		X
Oklahoma				X
Oregon			X
Pennsylvania		X		X	X
Rhode Island	X	X	X	X	X
South Carolina	X	X	X	X	X
South Dakota					X
Tennessee	X	X		X	X
Texas
Utah	X	X	X	X	X
Vermont		X		X	X
Virginia		X	X	X	X
Washington	X	X	X	X	X
West Virginia
Wisconsin					X
Wyoming	X				X

Appendix: Budget Cuts by Area

At least 39 states plus the District of Columbia have enacted budget cuts that will affect services for children, the elderly, the disabled, and families, as well as the quality of education and access to higher education.[4] Those cuts are detailed below.

Public Health Programs

At least 21 states have implemented cuts that will restrict eligibility for health insurance programs and/or access to health care services.

• Arizona is reducing its Medicaid rolls by requiring some adult beneficiaries to reapply for benefits more frequently. (Research has shown such added paperwork requirements cause many eligible people to lose coverage.) The state also cut funding for community health centers and vaccines and suspended funding for the children’s rehabilitative services program, affecting 4,700 children with chronic or disabling conditions.
• California has increased co-payments and reduced dental benefits, among other changes, in its children’s health program. The state also has cut payments to regional service providers in its Medicaid program (known as Medi-Cal) by 7 percent and suspended a scheduled cost-of-living increase for other Medi-Cal providers.
• Minnesota has eliminated funding for its General Assistance Medical Care program, which provides health care to 29,500 low-income persons between the ages of 21 and 64 who have no dependent children and do not qualify for federal health care programs.
• Rhode Island has reduced the maximum income level at which parents can receive public health insurance to 175 percent of the federal poverty line from 185 percent, eliminating coverage for approximately 1,000 parents. More than 7,800 other low-income families are paying higher monthly premiums for public health insurance.
• In Tennessee, an estimated 30,000 to 40,000 seriously ill people are expected to lose hospitalization and other needed medical services provided through TennCare, the state’s Medicaid program.
• Utah cut Medicaid funding for physical therapy, occupational therapy, and speech and hearing therapy services for adults – as well as Medicaid provider rates for hospitals, skilled nursing, and dentists.
• Washington is increasing premiums by an average of 70 percent for a health plan serving low-income residents. Premiums for the poorest plan members — those earning up to 125 percent of the poverty line — will double. The premium increase is expected to cause between 7,000 and 17,000 enrollees to leave the program.
• Several states, including California, Michigan, Nevada, and Utah, have dropped coverage of dental and/or vision services for adult Medicaid beneficiaries.
• Other states that have enacted cuts in Medicaid or CHIP includeFlorida, Georgia, Idaho, Illinois, Louisiana, Maine, Maryland, Michigan, New Hampshire, New Jersey, New York, South Carolina, and Wyoming. Cuts include reduced or frozen reimbursements to health care providers.

Programs for the Elderly and Disabled

At least 22 states and the District of Columbia have cut medical, rehabilitative, home care, or other services needed by low-income people who are elderly or have disabilities or significantly increased the amounts that such people must pay for services.

• Alabama has ended homemaker services for approximately 1,100 older adults. These services often allow people to stay in their own homes and avoid nursing home care.
• Arizona has eliminated temporary health insurance for people with disabilities who are coping with serious medical problems. The state also eliminated general assistance, a program designed to provide time-limited cash assistance to adults with physical or mental disabilities. In addition, in February 2009 the state eliminated independent living supports for 450 elderly residents and respite-care funding for 130 caregivers. It also established a waiting list for vocational rehabilitation services, affecting 2,100 disabled individuals. Furthermore, the state has eliminated early intervention services that support young children with special needs for 850 infants and toddlers at risk of developmental delay.
• In Florida, nursing homes and other providers will not receive scheduled cost-of-living adjustments in their reimbursements and staffing standards will be relaxed for one year, in the expectation that the freeze will result in staffing cuts. The state also has cut Medicaid reimbursements to hospitals and community-based services for the elderly, such as meals and homemaker services.
• Georgia has reduced such programs for the elderly as Alzheimer services, elder service centers, prescription drug assistance, and elder support.
• Louisiana will impose a limit on the number of Medicaid prescriptions it will pay for. This may affect access to prescription drugs for mentally ill or disabled individuals who rely on several medications to manage their conditions.
• In Massachusetts, the governor has ordered cuts in programs for elders, including home care, geriatric mental health services, and prescription drug assistance.
• Minnesota has capped enrollment at current levels for a program that provides expanded health services and care coordination for people with disabilities.
• New Mexico will cut cash assistance payments for low-income disabled residents by a third beginning in July. The state provides these payments to an average of 2,100 disabled individuals each month who cannot work and are not eligible for Temporary Assistance to Needy Families.
• Ohio plans to close two mental health facilities.
• In Rhode Island, low-income elderly people must pay higher rates for subsidized adult day care. This is estimated to affect more than 1,200 people with incomes below $20,000.
• Tennessee has reduced community-based services for people with intellectual disabilities and cut nursing services for some adults with serious disabilities.
• Vermont has reduced some home-based services, such as housekeeping and shopping, for people who are elderly or disabled. Such services help people stay in their own homes and possibly delay or avoid more expensive nursing home care.
• Virginia has decreased reimbursements for special hospitals serving people with needs relating to mental health, mental retardation, or substance abuse. The state also reduced pass-through grants for various aging programs and funding for local mental health providers.
• Other states that have capped or reduced funding for programs that serve people who have disabilities or are elderly includeCalifornia, the District of Columbia, Kansas, Maine, Maryland, Michigan, Pennsylvania, South Carolina, Utah, and Washington.

K-12 Education and Other Childhood Education Programs

At least 24 states have implemented cuts to K-12 education.

• Arizona enacted mid-year cuts of $96 per pupil in core K-12 funding.
• Florida cut aid to local school districts by at least $140 per pupil.
• South Carolina cut per-pupil funding by $95 this past year.
• California is reducing basic K-12 education aid to local school districts. It also is cutting a variety of other programs, such as adult literacy instruction, and is reducing funding for some grants and programs aimed at helping high-needs students.
• Georgia made a $112 million cut to the equalization component of the state’s education aid formula established to help close the gap in funding between wealthier and poorer school districts.
• Maryland cut funding for a school breakfast pilot program, professional development for principals and educators, health clinics, gifted and talented summer centers, and math and science initiatives.
• Massachusetts enacted cuts to Head Start, universal pre-kindergarten programs, and early intervention services to help special-needs children develop appropriately and be ready for school. The state also cut K-12 funding, including spending for mentoring, teacher training, reimbursements for special education residential schools, services for disabled students, and programs for gifted and talented students.
• In Nevada, the governor has ordered various cuts to K-12 education, including delaying an all-day kindergarten expansion, cutting per pupil expenditures by $400 in a pilot program, eliminating funds for gifted and talented programs and a magnet program for students who are deaf or hard of hearing, and making across-the-board cuts. Additionally, young children with developmental delays will lose more than 15,000 hours of needed services.
• Rhode Island has frozen state aid for K-12 education at last year’s levels in nominal terms and reduced the number of children who can be served by Head Start and similar services by more than 550.
• State education grants to school districts have also been cut in Alabama, Connecticut, Delaware, Hawaii, Idaho, Iowa, Kansas, Kentucky, Maine, Mississippi, Ohio, Oregon, Utah, Washington, and Virginia.

Colleges and Universities

At least 32 states have implemented cuts to public colleges and universities and/or made large increases in college tuition to make up for insufficient state funding.

• Arizona State University has addressed its loss of state funds by eliminating over 550 staff positions and 200 faculty associate positions, imposing employee furloughs ranging from 10 to 15 days, consolidating several schools and almost two dozen academic departments, and limiting enrollment in its nursing school. Tuition in Arizona this year rose 9.5 percent in response to funding cuts.
• As a direct result of state budget cuts, the California State University system is cutting enrollment by 10,000 students. The University of California system is reducing California resident freshman enrollment by 2,300 students for next year.
• Florida has cut university budgets and community college funding. The University of Florida has announced it will eliminate 150 positions for the coming year, resulting in 49 staff and nine faculty layoffs. Florida State University plans to lay off up to 200 faculty and staff members. Tuition at all 11 Florida public universities will rise by 15 percent next year.
• At the State University of New York, resident undergraduate tuition increased by 14 percent (over $600 per year) between the fall and spring semester of this past academic year.
• When Rhode Island cut higher education funding, the University of Rhode Island, Rhode Island College, and the Community College of Rhode Island all increased tuition for this past academic year. Each of these institutions went one step further by increasing tuition further mid-year, by 6.7 percent, 8.2 percent, and 4.3 percent respectively.
• Budget cuts reduced state funding for the University of Washington by 26 percent for the coming biennium. The budget authorizes the university to increase tuition up to 14 percent to compensate for this funding loss.
• Other states cutting higher education operating funding include Alabama, California, Colorado, Connecticut, Georgia, Hawaii, Idaho, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, Nevada , New Mexico, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Utah, Vermont, and Virginia.

Cuts in Other Services

States also are making cuts in a variety of other programs, including those for very poor families and other vulnerable populations.

• Arizona is reducing TANF cash assistance grants for 38,500 low-income families, eliminating substance abuse services for 1,400 parents and guardians, and decreasing homeless shelter capacity by 1,100 individuals.
• California is suspending cost-of-living adjustments to cash assistance programs for low-income families and cutting child care subsidies.
• In Connecticut, the governor has ordered budget cuts to programs that help prevent child abuse and provide legal services for foster children.
• The District of Columbia has reduced its cash assistance payments to needy families. It also cut funding for services that help low-income residents stay in their own homes and communities.
• Illinois has reduced funding for child welfare, mental health, youth services, and other programs.
• In Maine, the governor has cut funding for homeless shelters.
• Maryland has cut reimbursement rates for institutions that provide services to abused and neglected children.
• Minnesota’s governor has announced he will cut the state’s renter’s credit by 27 percent, an average of $129. The credit provides a tax refund to over 270,000 low- and moderate-income Minnesota renters.
• The Nevada welfare agency will make it harder for low-income families to receive cash assistance and health insurance, with the expected result that fewer families will receive those benefits. For instance, the state will require some families that have lost benefits to wait longer before reapplying.
• Rhode Island has cut funds for affordable housing, eliminated health insurance for home-based child care providers, restricted TANF cash assistance for children, reduced health insurance for retired state workers, and cut support to localities by $10 million.
• The South Carolina Department of Juvenile Justice has lost almost one-fourth of its state funding since July, resulting in over 260 layoffs and the closing of five group homes, two dormitories, and 25 after-school programs.
• To operate within a reduced budget, the Chief Justice in Vermont ordered the court system to close for half a day each week.
• Some states, such as Delaware, Maryland, Michigan, Minnesota, New Jersey, New York, Rhode Island, and Virginia, have implemented cuts to localities, leading to local concerns about reductions in funding for policing, meals for the elderly, hospice care, services for veterans and seniors, and other services.

Cuts in State Government Workforces

At least 40 states plus the District of Columbia are eliminating or not filling various state jobs, imposing mandatory furloughs (time off without pay), or making other cuts affecting their state workforce. Such steps can make it more difficult for residents to obtain state services. Cutting staff — whether on a permanent or temporary basis — also may contribute to increased unemployment.

• A number of states are imposing furloughs and/or pay cuts for some state employees. These include Arizona,California, Georgia, Hawaii,Idaho, Iowa, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New Mexico, Nevada, Ohio, North Carolina, South Carolina, and Utah.
• To deal with budget cuts in Kentucky, the Department of Public Advocacy (which defends clients in the criminal justice system) instituted a strict hiring freeze, gave early retirement to 25 employees, and furloughed remaining employees.
• New Jersey has eliminated 2,000 state positions by encouraging early retirement, leaving vacancies unfilled, and laying off staff.
• The Ohio governor has announced plans to eliminate as many as 2,700 positions, about 4.5 percent of the state workforce, through a combination of early retirements, layoffs, and leaving vacancies unfilled. In the Department of Jobs and Family Services — which oversees disability services, child care, child support, health care, child welfare, and other services — fully 14 percent of positions will be eliminated or left unfilled. Overall, the Ohio state workforce declined by 3,000 between March 2007 and December 2008.
• Rhode Island plans to reduce the state workforce by 2,000 or more. The state is encouraging early retirement but has announced that it will lay off workers if needed.
• The Tennessee governor has announced elimination of over 2,000 state positions, about 5 percent of the state workforce. Some 1,500 employees accepted buy-outs for early retirement.
• In Washington, a hiring freeze imposed by the governor in August caused the state’s workforce to decline by more than 1,400. In early January the state replaced the freeze with a cap on the number of budgeted positions at each state agency; the state’s workforce is expected to fall by another 2,600 under the cap.
• Virginia’s governor has eliminated 800 currently unfilled positions, laid off 567 state workers, and delayed a 2 percent salary increase scheduled for November 2008.
• Hiring freezes have also been ordered in Alabama, Arizona, California, Colorado, Connecticut,Delaware, the District of Columbia, Florida, Georgia,Hawaii, Iowa, Kansas, Louisiana, Maine, Michigan,Minnesota, Mississippi, New Hampshire, New Mexico, New York, North Carolina, Pennsylvania, South Dakota, Vermont, Wisconsin, and Wyoming.
• Additional states — such as Arizona, Florida, Illinois, Maine, Massachusetts, Michigan, andSouth Carolina, plus the District of Columbia — have laid off or announced plans to lay off state employees.
• As noted above, a number of state colleges and universities in states such as Alabama, Arizona, Florida, Kentucky, and New Jersey are responding to budget cuts by cutting faculty and staff positions.

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