States' deficits

New York state is far from alone in the budget crisis confronting it. High unemployment, foreclosure rates and fiscal policy restraints are forcing states across the country to cut budgets this year while anticipating another difficult year ahead.

At least 10 states are in fiscal peril, according to a report by the Pew Center on the States as governors and legislatures run out of stimulus money and other one-time gimmicks to balance their budgets. They are talking about layoffs, higher taxes, reducing services and mortgaging government property.

California, which has been in the national spotlight, is the most vulnerable. Gov. Arnold Scharwzenegger predicts a $12.4 billion to $14.4 billion deficit in his 2010 spending proposal due out in January even with $60 billion in budgetary changes this year.

Its D-plus rating was matched by Rhode Island followed by C-minus grades for New Jersey and Illinois. Other states cited by Pew were Arizona, Florida, Michigan, Nevada, Oregon and Wisconsin.

New York, which wasn't on the 10 most-troubled list, earned a C-plus, although the report was based on data collected as of July 31. Since then, the state's current fiscal year deficit has grown to more than $3 billion and will balloon to almost $8 billion next year.

The ramifications go beyond state boundaries, though. The 10 states in the Pew study account for more than one-third of the country's population and economic output. Spending, reductions, layoffs and state borrowing will affect the economic recovery as they seek to bring their budgets in line.

States relied on federal stimulus money to close 30 percent to 40 percent of their budget gaps this year. While some of the money will roll over into fiscal 2011, it will fall short of what is needed. The Center on Budget and Policy Priorities expects the total deficit of the states to reach $142 billion in 2001, up from $113 billion this year after stimulus money dries up. That could be an incentive for states once again to ask the federal government for another stimulus bill to bail them out.

But as they look ahead, governors and state lawmakers are simply running out of options that allow them to avoid the more painful and politically sensitive decisions to raise taxes, lay off workers or cut services.