Where Taxes Are Up, Services Down

Budget woes in these 10 states reflect a new austerity settling over America.

By SHARE

In California, tuition at state universities has soared, income taxes have gone up, and the governor wants to kill a noted work-to-welfare program. Arizona has raised its sales tax, slashed funding for state parks, and considered eliminating health care for more than 300,000 needy people. New Jersey has cut nearly $1 billion in school funding and put limits on property taxes that could force some local municipalities to merge.

[See our exclusive state-by-state "pain index.]

Investors and economists these days are fixated on the huge national debt and the hardships that will ensue when—or if—Washington ever starts to rein it in. But most states are already taking the drastic actions required when spending outstrips revenue. And it's transforming our expectations of government. A brutal recession and a prolonged period of joblessness have devastated state budgets and threatened many programs and services long taken for granted. Over the past three years, states have cut their budgets by nearly $50 billion—the biggest reversal of state spending since the Great Depression—and raised taxes by another $30 billion or so. More pain could be coming. Federal stimulus spending enacted in 2009 included about $250 billion in aid to states, and that largesse is beginning to wind down. If the economy doesn't pick up soon, more service cuts and tax increases are inevitable.

Cutbacks in state spending directly affect middle-class quality of life. Public schools and universities are taking a hit, since a big chunk of state spending helps fund education. Many towns and cities dependent on state aid are reducing basic services like trash pickup and trimming their fire and police departments. The needy may feel the stress most acutely, since a major portion of state spending goes toward Medicaid, welfare, and unemployment benefits. And further ruptures affecting state budgets and payrolls are one reason economists worry about a double-dip recession.

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To gauge the impact of this new austerity, I created a "pain index," based on data from the National Association of State Budget Officers, which measures the combined impact of tax and spending changes for every state. I tallied tax increases and changes in the states' general fund expenditures over the last three years, including those proposed or enacted for fiscal year 2011, which began July 1 in most states. Then I divided that figure by each state's population to derive a pain-per-person figure that represents the net change in taxes and spending. (For more detail, see this full listing.) In 39 of 50 states, the combined burden on taxpayers has gone up, with the median change amounting to $234 per person. Here are the 10 states with the highest pain index:

Alaska. New taxes since 2009: -$3 per person (which means taxes went down slightly). Spending cuts since 2009: $1,268 per person. Net change per person: $1,265.

Major changes: Cuts in education spending and a statewide hiring freeze. Alaska is an unusual state that has no statewide income or sales tax and earns most of its revenue from royalties paid on oil extraction. Falling oil prices have caused most of the state's budget hardships. To limit spending cuts, the state has drawn down a reserve fund.

California. New taxes: $312 per person. Spending cuts: $543 per person. Net change: $855 per person.

Major changes: Increases in sales and income taxes, new fees on motor vehicles, deep cuts in education spending, reduced funding for mass transportation, public assistance, public healthcare, and a variety of other things. Furloughs and pay cuts for state employees.

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Wyoming. No new taxes. Spending cuts: $698 per person. Net change: $698 per person.

Major changes: A 10 percent cut in the budgets of most state agencies, affecting education and Medicaid the most.

Rhode Island. New taxes: $91 per person. Spending cuts: $528 per person. Net change: $619 per person.

Major changes: Cuts in aid to local governments, lower pension payouts for state retirees, higher motor vehicle fees, delayed tax refunds.

New Jersey. New taxes: $6 per person. Spending cuts: $596 per person. Net change: $602 per person.

Major changes: Cuts in education spending and a sharp drop in property-tax rebates. Layoffs of state employees, skipped payments to state pension fund.

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South Carolina. New taxes: $33 per person. Spending cuts: $442 per person. Net change: $475 per person.

Major changes: Increases in the cigarette tax and some state fees. Across-the board spending cuts, plus additional cuts in education, local aid, and pension contributions.

Delaware. New taxes: $286 per person. Spending cuts: $167 per person. Net change: $453 per person.

Major changes: New taxes on cigarettes, video lottery, utilities, some businesses, and incomes over $60,000. Pay cuts for state employees, cuts in education spending.

Hawaii. New taxes: $96 per person. Spending cuts: $348 per person. Net change: $444 per person.

Major changes: Cuts in education spending. Delayed tax refunds. Layoffs of state employees. Tax increases on cigarettes and rental cars, reduced deductions for some taxpayers.

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Utah. New taxes: $28 per person. Spending cuts: $409 per person. Net change: $437 per person.

Major changes: Increase in motor-vehicle fees. Cuts in funding for education, courts, and prisons. Many state workers have also switched to a four-day workweek.

Oklahoma. New taxes: $49 per person. Spending cuts: $421 per person. Net change: $470 per person.

Major changes: Cuts in most state agencies, including education, health care, and corrections. A moratorium on income-tax credits, higher motor-vehicle fees.