May 19, 2003 – The president of the Council of State Governments, Mike Huckabee, says the Virgin Islands in facing its latest fiscal crisis has lots of company among U.S. states and other territories. For many of them, he said, there are no short-term solutions.
"There are only three states among the states and territories that are not in a very deep fiscal crisis," Huckabee, who also is the governor of Arkansas, said. "The Virgin Islands is not only in good company; it is just one of a whole crowd that's in a mess."
Huckabee was among more than 400 elected state officials who came to St. Thomas to discuss the nature and causes of their jurisdictions' financial problems and how to find a way out of them as part of the annual CSG spring meeting. They also formed a list of resolutions to present to delegates at their next meeting, in October.
Concerns about fiscal problems at the state level were so paramount that they were summarized in a 22-page publication called Trends Alert which included in the handouts to those attending the spring meeting. The executive summary of the publication, titled "State Fiscal Crisis," contains a number of observations that might sound familiar to Virgin Islanders:
For example: "In response to the current crisis, many states are now cutting spending and trying to increase revenues. Many initiative, though, are short-term reforms that may not solve the long-term issues."
The summary also points to a number of factors impacting state budgets, including federal mandates and court decisions, demographic pressures, issues involving the structure of state tax codes and the realization that tobacco settlement funds may not continue to materialize as projected.
"I think most of us realize this is not a short-term problem that is the result of a single incident," Huckabee said. "A lot of people still think that this is the aftermath of Sept. 11th and we simply haven't recovered. But what it really is — it's the debris from a huge perfect storm, the hurricane that blew our foundation away."
He used that analogy of a destructive storm to describe states struggling with outdated systems and tax codes designed for a manufacturing economy which are now failing to mesh with the new economy based on service and technology.
"So we have income is going in like a drinking straw. Expenses are going out like a fire hose," he said.
The authors of the report said state spending has risen by 25 percent since 1990, partly because of discretionary spending and partly because of federal mandates in such areas as education and health care. As they met on St. Thomas, the elected state officials faced new mandates from Washington, including education reform as part of the No Child Left Behind Act and homeland security.
But perhaps the most stunning factor for jurisdictions now facing deficits has been a failure to anticipate hard times. "Inaccurate forecasting also played a role in the states' fiscal situations," the report states. "Government officials passed budgets based on optimistic forecasts, but the revenue stream started to dry up in the early 2000s."
As a result of these and other factors, the Trends Alert report says, 45 states can expect a budget deficit this year. Two-third of the states were reporting they had exceeded their FY 2003 spending plans by the time of the CSG spring meeting.
Some of the solutions reportedly in the works include trimming budgets and cutting back programs that require state matching contributions for federal funding. States are looking at ways to restructure their government by consolidating agencies and closing offices. And they are looking at ways to raise revenues, although the Trends Alert report says many are reluctant to raise taxes.
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