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Sagging Tax Collections Hindering State Budgets

Washington Gov. Christine Gregoire should be celebrating her state's robust economy and record exports. Yet sagging tax collections are lowering an estimated budget surplus by $400 million.

In this slow economy, states are struggling. People are spending less and state governments are taking in fewer dollars.

The financial bottom line is a top worry for many governors in discussions as their annual meeting about paying for public works and energy projects.

"Everything's been going great for us and now the national downturn has slowed us up," said Gregoire, a Democrat.

As many as 18 states have deficits, totaling $14 billion in the current budget, and 20 forecast spending shortfalls for 2009 — $34 billion when combined.

It is so bad that some governors are debating whether to pressure Congress for a second economic aid plan; this one would focus on upgrading roads, bridges and sewer systems.

"Stimulus that would focus upon infrastructure would be both great for jobs but also would really speak to a need that we're seeing around the country," Democratic Gov. Tim Kaine of Virginia said on "Fox News Sunday."

Governors cite a variety of factors for their economic woes: proposed new federal rules to limit Medicaid spending; relying too much on one-time sources of money, such as payments from the 1998 national settlement with major tobacco companies; and the sluggish economy.

"The hardest thing I'm going to have to do is face foster-care parents, disabled adults and children," said Gov. John Baldacci, D-Maine. In his state, there are back-to-back forecasts of revenue shortfalls of about $200 million.

Topping the list of troubled states is California. Republican Gov. Arnold Schwarzenegger faces a deficit as high as $16 billion.

"For a lot of the folks they're either there and it's really awful, like California, or they're worried it's going to happen to them," said Scott Pattison, executive director of the National Association of State Budget Officers.

"Tough, very tough," is how Wisconsin Gov. Jim Doyle characterized his state's problems, which include a $600 million shortfall.

"We're going to have make cuts, we're going to have to defer some things we were intending to do, put some things off that we wanted to get done," he said.

Elsewhere:

—In Rhode Island, Republican Gov. Don Carcieri is proposing reducing the state's work force by 1,000 to help address an estimated $385 million shortfall next year. He says the situation is the worst in memory.

—In Kentucky, newly elected Gov. Steve Beshear, a Democrat, entered office to a $430 million shortfall this year and an additional $930 million shortfall forecast over the two-year budget cycle beginning July 1.

—In Arizona, Democratic Gov. Janet Napolitano has proposed new borrowing to build schools and shifting some prison costs to counties to address an estimated shortfall of $1.2 billion.

Gov. Jon Corzine, D-N.J., proposed raising turnpike tolls to pay down the state debt and is suggesting budget cuts. Neither idea is popular, but Corzine says the state has to do something, especially when it comes to highway maintenance.

"We need to generate the resources that allow us to invest in our infrastructure in a way that works both for New Jersey and the national system," he said.

Not all governors are convinced that a second economic rescue plan from Congress is the right approach. Republican Gov. Mark Sanford of South Carolina, whose state has about a $120 million shortfall, dismissed the idea of states spending their way into prosperity.

"The idea of borrowing a bunch more money so we can then put it into our pockets so we can then repay it later, I don't think is a great route to go," Sanford said in an interview Sunday.

Sunday night, President Bush held a White House dinner in honor of the governors, throwing in a joke as he toasted the gathered officials.

"I've developed a unique perspective on this event," Bush said. "For six years I sat and watched the president speak. For eight years, I was the president, of course. And next year, I'll be watching it on C-SPAN."

Bush, a former Texas governor, called governors "some of the nation's foremost policy entrepreneurs" and thanked them for their service to the country.