New York’s $9 billion deficit no April Fool’s joke, but rather a harbinger of other states’ budget shortfalls

Jon Ward Contributor
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New York began its fiscal year Thursday with a budget that is projected to spend $9 billion more than the state brings in in revenues.

If only it were an April Fool’s joke.

New York is the only state that starts its fiscal year in April. Most start in July.

But the Empire State’s budget shortfall is a harbinger of massive deficits that many states are facing. California is projected to have a $12.3 billion gap between what they want to spend and their revenues, according to the Center on Budget and Policy Priorities.

That’s 12.5 percent of California’s current budget. But many states are looking at deficits that are much higher percentages of their annual budget.

Illinois has a projected $12.8 billion deficit, a whopping 34.3 percent of its current budget.

Maine’s deficit projection is $940 million, small in dollars compared to California or Illinois. That’s still 31.4 percent of the Pine Tree State’s annual budget.

There are 13 states that projected deficits of more than 20 percent of their current budgets.

Nevada is in a class by itself. Its $1.8 billion projected shortfall is an astronomical 59.8 percent of its budget.

“The environment we are in currently has not been experienced since the Great Depression. States are floundering in red ink,” Sujit Canagaretna, of the Council of State Governments, told ABC News.

Meanwhile, stories recounting the tough decisions now facing states are beginning to proliferate.

ABC News on Wednesday looked at all the ways in which states are trying to raise taxes on services such as shoe shines, tractor repairs and haircuts.

And the Wall Street Journal has a story Thursday about the coming clash over pensions between state governments and the unions representing state government workers:

It is tough to compare government pay to private-sector pay because many government jobs — firefighters, police officers — don’t have private counterparts. But, on average, government workers make more in wages and benefits. In December, state and local governments spent an average of $39.60 in wages and benefits per hour worked on their employees, versus an average $27.42 for private employers, the Labor Department said.

The fight over benefits represents a defining moment for public employees and their unions. Government is by far the most unionized sector of the work force, and among the few places left where blue-collar workers can retire with traditional lifetime pensions. In 2009, the nation’s 7.9 million unionized government workers eclipsed the number of private-sector union members for the first time since the Labor Department began keeping track in 1983.

“What comes out of all these negotiations will set the tone for public employees for a while,” says Ken Jacobs of the Center for Labor Research and Education at University of California, Berkeley.

In New Jersey, outrage over state deficits helped Republican Chris Christie defeat incumbent Democrat Jon Corzine last November. A few weeks after Mr. Christie’s victory, a Quinnipiac University poll found that three-fourths of state voters supported a wage freeze for state workers, and 61% favored layoffs. Last month, Gov. Christie signed a set of bills that would, among other things, cut pension benefits for future employees.

Public-employee unions argue that it’s unfair to penalize them for a financial crisis that isn’t their fault. They say cities and states are opportunistically taking advantage of a short-term crisis to gut benefit plans in place for decades.

Many private-company workers have seen their retirement accounts shrivel, while public-sector benefits have been relatively unscathed. Defined-contribution plans such as 401(k)s had $3.33 trillion in assets at the end of 2009, down 4% from $3.48 trillion in 2006, according to the Federal Reserve. Such accounts have lost value even though companies and workers contributed $100 billion over that period.

The Pew Center for the States has a wealth of information on state pension plans, but the bottom line, it says, is that states had $2.35 trillion set aside for employee pensions at the end of 2008, but were committed to pay out $3.35 trillion.

To a significant degree, the $1 trillion [gap] reflects states’ own policy choices and lack of discipline:
• failing to make annual payments for pension systems at the levels recommended by their own actuaries;
• expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
• providing retiree health care without adequately funding it.

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