WASHINGTON Jan 9 The threat of the "fiscal
cliff" has lifted, but the specter of spending cuts by the U.S.
government at the same time it hits its debt ceiling in March is
causing uncertainty for U.S. governors unveiling state budget
proposals this month.
"That's been one of the hard parts of developing my budget.
I had a meeting just this week and certainly Congress took
action last week, so we're still week by week adjusting our
budgets and our figures," said Oklahoma Governor Mary Fallin, a
Republican, after speaking at the National Press Club on
It is a January ritual performed in many states: Governors
kick off the legislative session by giving an address on their
states' conditions and then propose spending plans for
legislators to debate and finalize before the next fiscal year.
For almost all states, the fiscal year begins in July and
budgets or amendments to biennial budgets are approved months in
"We also know, come March, that those numbers could change
again and we'll be in the middle of our legislative session,"
Fallin added, saying she has asked her cabinet secretaries to
identify possible spending cuts at state agencies.
The Jan. 2 deal to avert the fiscal cliff delayed the start
of mandatory budget cuts, or sequestration, to the same month
the United States will likely again reach its limit on debt. If
sequestration takes place, state economies heavily dependent on
defense and other federal spending would be particularly hit
States are pinching pennies, keeping spending growth slow as
the economy recovers from the 2007-09 recession and the federal
government sends them less money. The National Association of
State Budget Officers found state spending likely increased only
0.1 percent in the fiscal year that ended last June, the
smallest rise since the group began tracking spending in 1987.
For most states, revenue has only recently reached
pre-recession levels, leaving them with little room if the
federal government slashes its spending and pushes costs for
public programs onto them. Governors are taking that possibility
seriously. For more than a year, they have asked Congress and
President Barack Obama not to add to their costs.
In 2011, the U.S. government hit its debt ceiling and the
resulting fight in Congress led to an agreement calling for $1.2
trillion of across-the-board spending cuts spread over a decade.
Under the deal, those cuts, along with tax increases, would kick
in at the beginning of 2013, potentially taking the U.S. economy
over a fiscal cliff and plunging the country back into
When the government last reached the ceiling, rating
agencies warned some bonds in the $3.7 trillion municipal bond
market could be downgraded.
"I think the level of uncertainty and confusion and chaos
that could be created if we hit that debt limit would be
unbelievable," said Delaware Governor Jack Markell, a Democrat.
Resulting increases in interest rates could keep businesses
from hiring, while federal spending cuts would hurt public
programs, he added.
"A lot of the attention tends to focus on what does it mean
for us who are trying to get budgets together? That is very
uncertain," he said. "But the bigger issue for me is: What does
it mean for the people in my state who may not have jobs in the