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Washington deadlocked? States lead in cutting deficits

New Jersey, Ohio, and others have tackled tough budget deficits. They're addressing deficits by cutting spending, not hiking taxes, and looking at the long term.

Officer Sabrina Choat wipes a tear during a police graduation ceremony in Cleveland. These new cadets face immediate layoffs because the city can no longer afford to hire them because of cuts in state aid. States are leading the way in dealing with budget deficits, making cuts rather than raising taxes.

Tony Dejak/AP

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You might think that with all the deadlock and fiery rhetoric in Washington over the debt limit and budget deficit that Americans can't agree on how government should eliminate red ink. But as it turns out, they can.

Just look at the states.

Both red and blue states are rallying around the same fiscal mantra: Don't raise taxes, cut spending. By now, most states have squared away budgets for fiscal year 2012, and they've largely eschewed revenue-raising measures. The resulting fiscal climate, observers say, may signal how the majority of Americans will react to Washington's budget-cutting efforts.

"The states' budget actions this year represent a dramatic new direction, impossible for politicians to miss," says Bob Ward, deputy director at the Nelson A. Rockefeller Institute of Government in Albany, N.Y. Many states are tackling not only this year's shortfall but also anticipated long-term spending gaps, such as Medicaid payments, state employee benefits, and education costs.

Of the 32 states that had enacted their 2012 budgets by the end of June, three-quarters included major cuts to public services, according to a report by the Center on Budget and Policy Priorities, a liberal policy group in Washington. Some of the states with the worst debt problems, such as California, New Jersey, and Nevada are relying heavily, or entirely, on spending cuts instead of new revenue. For example:

•New Jersey: With revenues projected to fall short of 2012 spending by 36 percent – the third largest percentage shortfall among the states – the Garden State won't raise taxes, and may even cut them. Instead, it's tackling its projected $10.5 billion deficit by reducing payments to nursing homes, trimming aid to local municipalities, selling a government-owned hospital, and closing two residential treatment facilities for children.

Ohio: Instead of raising revenues, the Buckeye State will eliminate its shortfall by cutting aid to local governments and school districts, selling state prisons, and leasing out the state's liquor enterprise.

•California: With the nation's second-biggest projected shortfall after Nevada, the Golden State plans to raise revenue a little – by $0.9 billion – and cut spending a lot – by $15 billion. It plans to slash state support for public universities, cut some 5,500 state jobs, and eliminate 20 boards, commissions, task forces, offices, and departments.

Such moves mark a big change. In 2009, when the Great Recession began seriously to erode the tax base, more than half the states raised taxes and other revenues. In their budget proposals for fiscal year 2012, only 12 governors planned to increase revenues. It's not at all certain that hawkish legislatures will go along.

"In 2009, there certainly wasn't public sentiment to raise taxes, but they had no other choice," says Mandy Rafool, head of fiscal affairs at the National Conference of State Legislatures in Denver. Now, "newly elected legislators who ran on a platform of cutting spending" are in charge.

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