Budget shortfalls hammering state and local governments, nonprofits

As Congress and the Treasury Department struggle to stem the damage of the economic crisis, state and local governments are in their own world of hurt.

Unlike the federal government, state and local governments must balance their budgets every year. Nonprofits, which bolster the needy with programs that supplement government assistance, are feeling the pain too.

States are facing deficits of more than $40 billion in fiscal 2009 budgets, which are just weeks or months old. States are scrambling to find ways to get through the rest of the year without a complete disruption of vital services or raising taxes.

Plummeting home values, unemployment, and tight credit are bleeding states of the tax revenue that had been growing steadily for many years. Governors are slashing state jobs, reducing services and raising fees. And with companies laying off workers, states are being pressured to increase spending on social services, reported Stateline.org, which follows state policy developments.

The online news site said states are being hit by a triple whammy: "A Wall Street meltdown that made it more difficult and costly to borrow; a record number of home foreclosures that took a big bite out of tax revenues; and soaring oil and gas prices that squeezed budgets of all but the energy-producing states."

Forty-one states are facing budget shortfalls this fiscal year, according to the Center on Budget and Policy Priorities, a Washington, D.C., organization that studies fiscal policy and its impact on low- and moderate-income families. California and Massachusetts even thought about asking the federal government for loans due to worries about paying their monthly bills in October. Ohio may need a federal loan to cover unemployment costs, The New York Times reported.

In New York, Governor David Paterson has been faced with protests from local nonprofits and human interest groups about his proposed $572 million in cuts to Medicaid and health care programs for 2008-2009 and $1.2 billion in cuts for 2009-2010, the Utica Observer-Dispatch reported. Agencies are calling for the governor to use the rainy day fund rather than make such deep cuts. "We need to explore every revenue option," said John Furman, a member of the Better Choice Budget Campaign, a coalition of more than 100 nonprofit, labor and faith-based organizations.

Nonprofits in New York City, and elsewhere, depend on year-end gifts. The economic turmoil is forcing smaller organizations to closer their doors, Fran Barrett of the Community Resource Exchange, told The New York Times. Some 85 percent of the city's nonprofits have annual budgets under $3 million, "and most of them don't have endowments or cash reserves," she said. The organization provides management and financial help to about 300 community groups.

Other impacts across the country: California laid off 10,000 part-time and temporary state workers. Ohio shuttered two mental health facilities. Rhode Island ended a program that provided discounted electricity and heating oil to the poor. New Jersey rescinded property tax breaks. Maine charged adults enrolling in Medicaid a $25 fee. In Georgia, some library branches were set to close and some fire departments postponed plans to buy new fire trucks after the state cut local funding, according to Stateline.org.

Tax increases were levied in a handful of states and more could be coming since states are required to balance their budgets.

"Frankly, I thought 2001 was really awful," Scott D. Pattison, the executive director of the National Association of State Budget Officers, told The New York Times, referring to the last big economic downturn. "It is even worse now." He added, "This fiscal year will be really bad, and what is unfortunate is that I can't see how 2010 won't be bad too."

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