By David Harrison 

State and local governments from Georgia to California are cutting money for schools, universities and other services as the coronavirus-induced recession wreaks havoc on their finances.

Widespread job losses and closed businesses have reduced revenue from sales and income taxes, forcing officials to make agonizing choices in budgets for the new fiscal year, which started July 1 in much of the country.

Governments have cut 1.5 million jobs since March, mostly in education, and more reductions are likely barring a quick economic recovery. In Washington state, some state workers will take unpaid furloughs. In Idaho, Boise State University cut its baseball and swim teams in an effort to save $3 million.

Dayton, Ohio, Mayor Nan Whaley says the city may have to cut up to 8% of its general fund budget, which pays for fire, police, roads, water and trash collection.

"I'm concerned we'll have to lay folks off before the end of the year," Ms. Whaley said.

Nationwide protests sparked by the killing of George Floyd at the hands of Minneapolis police have heightened attention to municipal budgeting. In many cities, protesters are demanding that police budgets be cut or money redirected toward social services.

Across the country, the weeks before July 1 were marked by a scramble to complete spending plans. The task has been complicated by uncertainty over the economic outlook, which depends largely on unknowns such as the course of the virus and how quickly a vaccine can be developed. As a result, budgets may have to be rewritten in the coming months.

"I don't think you can overstate the amount of uncertainty that states are dealing with," said Tracy Gordon, an expert on state and local budgets at the Urban Institute in Washington. "You're asking revenue estimators basically to consult epidemiological models and public health experts and take account of all kinds of variables that are normally not part of their forecasts."

Adding to the uncertainty: Many states pushed back the income-tax-filing deadline to July 15 from April 15, following the U.S. Treasury's lead. While that should bring a short-term revenue boost, officials don't know how much revenue to expect in the months ahead.

It is also unclear whether states will get more help from Congress, which in March provided $150 billion but limited its use for pandemic response. Dayton got about $8 million and will use it to buy face masks for residents, Ms. Whaley said.

The National Governors Association says states need another $500 billion in federal aid to make up for lost revenue. The U.S. Conference of Mayors says cities need $250 billion.

The Democratic-led House in May passed a bill that included $1 trillion to help state and local governments.

But Republican senators have paused discussion on another fiscal package until later this month.

Almost all states and local governments require balanced budgets. For now, they have largely avoided raising taxes to plug budget holes, opting instead to cut spending or dip into reserves.

In Georgia, Gov. Brian Kemp signed a budget bill that reduces spending by about 10%, including a $950 million cut to the main state education fund. Some poorer school districts rely on the state to cover 70% of operating expenses, said Margaret Ciccarelli, director of legislative services for Page Inc., the state's teachers' association.

"These are challenging times and the budget reflects that reality," Mr. Kemp, a Republican, said in a signing ceremony on June 30.

Maryland imposed $412 million in cuts, of which $136 million will come from higher education, an 8% reduction. Funding was also reduced for Washington, D.C.-area transit system, neighborhood revitalization and drug treatment.

Such cuts, though painful, could have been worse, experts say. The decadelong economic expansion that ended in February allowed states to replenish rainy-day funds. The median state went into the crisis with reserves totaling a record 7.8% of its general fund budget, according to the National Association of State Budget Officers.

California lawmakers used $9 billion of their $16 billion rainy-day fund to help balance the $202 billion budget that Gov. Gavin Newsom, a Democrat, signed June 29. Even so, state employees will have to take up to two unpaid furlough days a month, and public colleges and universities face about $602 million in reductions.

Some states are putting off hard decisions. New Jersey Gov. Phil Murphy, a Democrat, signed a $7.6 billion stopgap budget for the next three months, which cuts $1.2 billion in previously allocated spending.

With an uncertain outlook, officials are trying to maintain reserves in anticipation of more lean years.

"You may need to use it in 2022 and beyond," said Brian Sigritz, director of state fiscal studies at the budget officers' association. "They're not expecting this decline to be a one-year or two-year thing."

The fiscal squeeze comes as cities face demands to cut police funding in the wake of Mr. Floyd's killing. Los Angeles redirected $150 million from the police department's nearly $2 billion budget to social services.

In New York, Mayor Bill de Blasio and the City Council struck a deal that he said would cut the police budget by about $1 billion, to $5.2 billion, and protesters are demanding even larger reductions.

The Atlanta City Council narrowly defeated a proposal to hold back some police funding until the department presented a plan to become more inclusive and transparent.

Most years, Atlanta council members hear two to three hours of public comment on the budget. This year, they listened to about 50 hours, largely about police funding, said City Council President Felicia Moore. To comply with social-distancing efforts, people called in to record their comments rather than appear in person.

"We had calls from people all over the world," Ms. Moore said.

Shrinking budgets could make it easier for city officials to heed calls to cut police funding, said the Urban Institute's Ms. Gordon.

"When revenues are constrained is exactly when you have some flexibility to look at longstanding practices and ways of doing things and potentially changing that," she said.

--Alicia Caldwell and Joseph De Avila contributed to this article.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

July 08, 2020 05:44 ET (09:44 GMT)

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