Governors to Chop Spending as Deficits Loom

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Governors around the U.S. are proposing to balance their states' budgets with a long list of cuts and almost no new taxes, reflecting a goal by politicians from both parties to erase deficits chiefly by shrinking government.

On Monday, Florida Gov. Rick Scott, a newly elected Republican, is expected to issue a budget that cuts state spending by $5 billion and overhauls public-employee pensions.

A Democratic governor, John Kitzhaber of Oregon, has proposed a two-year budget that would make cuts to mental-health institutions and reduce state Medicaid reimbursements to doctors and hospitals. Cuts to Medicaid, a joint state-federal program, are some of governors' largest proposed reductions.

Among other proposed cuts: Fewer state agencies; fewer employees; and generally a smaller safety net for social services. State-funded universities would cost more. And local governments would play a bigger role in delivering services as well as paying for them.

Iowa Gov. Terry Branstad wants to cut the state's highest corporate income-tax rate in half, to 6%. "We see the growth opportunity primarily in small businesses and entrepreneurs. This makes Iowa a more competitive and more profitable place for them to locate," the Republican says. Still, he is among the few governors proposing some tax increases, as well: He would raise the tax rate casinos pay to 36% from the current range of 22% to 24%, to offset the corporate-tax cut.

Reining in spending and taxes was a central theme in the November election, helping 18 Republicans win governorships, but many Democratic governors have also pledged to avoid new taxes. A theme of cuts and consolidation has emerged in budgets released so far by governors of both parties, such as those in California and New York (Democrats) as well as Arizona and South Dakota (Republicans).

Budget proposals in most states are expected by the end of this month, to be followed by months of tussling in state legislatures. Most state fiscal years begin July 1.

Continue reading at The Wall Street Journal