12 States Battle Budget Crises

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The first of July is a New Year's with little to celebrate for budget wranglers in a long list of states.

The new fiscal year began at midnight, and twelve states, many suffering record-breaking budget deficits, face hiked taxes and drastic cuts in civic programs. The nationwide economic slowdown is getting much of the blame.

Some states may begin the new year without a budget, a predicament economists say will trigger a financial catastrophe.

CBS News Correspondent Bill Whitaker reports California, the nation's most populous state, also has its most ailing economy.

Financial experts told Whitaker it would take a miracle for California legislators to pass a budget by the midnight deadline. And anxiety-ridden residents report they are steeling themselves for the axe to drop.

Without a budget, community college campuses will have no money to pay faculty members and be forced to cancel classes.

Firefighters and high way patrol officers will lose their jobs and hospital emergency rooms might suddenly find themselves understaffed.

Because the state is broke, as many as 30,000 government workers could be out of work by fall.

Nursing home residents fear they could lose the roofs over their heads if their care facilities lose out on vital state funding.

California's crisis was triggered by a monstrous $38 billion deficit and compounded by an unpopular governor and bull headed politics, reports Whitaker.

Republicans have refused to raise taxes, and Democrats refuse deeper program cuts.

"California is really facing a meltdown," said Jack Kyser, chief economist for the Los Angeles County Development Corp. "When you put it all together, budget crisis, no give, recall of a governor. That to me is a meltdown."

California may be the worst, but it's hardly alone in its financial woes. Twelve states confronted the July 1st fiscal deadline with budgets still unsettled, including: Connecticut, Hawaii, Illinois, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, North Carolina, and Washington.

The cash-strapped states have taken extreme steps in their battles to make ends meet.

Forty-five states have raised taxes or made Draconian cuts. Massachusetts may be getting out of the University business, and tomorrow the state of Washington will release 350 prison inmates to save money.

Scott Pattison, executive director of the National Association of State Budget Officers attributed the dearth of state funds to a mix of events and circumstances.

"A sluggish economy, the terrorist attacks of 9/11, the collapse of capital gains in the stock market, and they all came together in this perfect storm to cause a dramatic decline in state revenues," he said.

Financial analysts say that even in the states that are able to find, and approve, the money for the budgets they need - the outlook for the next fiscal year is grim.