New Governors face tough times.

• Author: Peirce, Neal R.
• Position: Commentary - Alice Rivlin's proposals to bolster state economies should be debated

Tuesday's victorious gubernatorial candidates may soon be wondering if the voters did them a favor.

Barring some kind of economic miracle, the fiscal outlook for the states is dreary in the extreme. And it's likely to stay that way not just for months, but for years.

The most obvious victims are those most dependent on state aid--the working poor and former welfare recipients classically the "last to hire, first to fire." But from universities to road systems to local governments denied basic state aid, there's hurt for virtually everyone.

Even worse, says former federal Budget Director Alice Rivlin, the massive budget cuts states are making are actually destabilizing the entire national economy, delaying everyone's recovery.

The total fiscal gap for the states this year was at least $57 billion. And even before recent news the economic recovery may be stalling out, the states were looking at greater budget squeezes next year.

Why?

Already, the states have resorted to the least painful cures they could find-dipping into (and sometimes exhausting) their rainy day funds, freezing new hires, delving into tobacco settlement moneys. Many have cut outlays for corrections, schools, colleges, local aid, childcare, and Medicaid--even while they and their localities face new homeland security costs.

Many have also gone for bookkeeping tricks that put off the most painful cuts to the next years--when the piper will have to be paid. And when, as the experts say, there's scant chance for a repeat of the soaring consumer demand and booming stock market of the late 1990s, which then triggered fast-rising state sales and income taxes.

Tax hikes, in this recession, have been rare. Only five states upped broad-based taxes in 2002--New Jersey, Massachusetts, Tennessee, Indiana, and Kansas. And 40 percent of those increases were for cigarette taxes.

But with the elections past, many more states will face a moment of truth in which some tax hikes--no matter what candidates promised during the campaign season--will have to be enacted.

Take Wisconsin, which faces a $2.8 billion budget gap. Mark Bugher, a 12-year veteran of former Gov. Tommy Thompson's administration, recently headed a blue-ribbon, bipartisan panel trying to figure out what the state can possibly do.

The panel's bottom line: slashing spending alone won't suffice. As Bugher recently told Stateline.org: "It would entail closing departments like corrections. It would entail shutting down major...