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Victories in Hand, Governors Face Vast Deficits

When stumping on the campaign trail, the nation's new slate of governors could afford to make sweeping but vague promises about how they'd solve their states' massive looming budget deficits.

CNBC.com

Now as winners, they're faced with the hard reality of having to make unpopular decisions about who will feel the pain of layoffs, service cuts or even tax increases.

Some of the newly elected leaders got started right away, naming their budget directors and meeting with legislative leaders. But others immediately began tempering voters' expectations by acknowledging that tough decisions and hard work lie ahead.

"January is bearing down on us," Texas Gov. Rick Perry, a Republican elected to a state record third term, said during his victory party. "We need to be ready to make some tough decisions."

States face what could be their worst budget years ever, with combined deficits potentially topping $140 billion, according to the Center on Budget and Policy Priorities, a Washington think tank.

This comes after many states already have raised taxes and slashed spending, leaving brand-new governors with fewer examples of waste, fraud and abuse to cut.

"They're going to find the budget has already been pretty well picked over," said Nicholas Johnson, head of the center's State Fiscal Project.

Some of the newly elected governors have made their budget balancing jobs more difficult by promising tax cuts or declaring certain parts of their state's current budget safe.

Florida's Rick Scott, a tea party-backed Republican, has promised to simultaneously return spending to 2004 levels and eliminate corporate income taxes as he faces an estimated deficit of roughly $2.5 billion.

In Wisconsin, with its estimated $2.7 billion shortfall, Republican Gov.-elect Scott Walker said he planned to meet with budget analysts almost immediately and would call for an emergency legislative session to consider tax cuts.

Todd Berry, the president of the Wisconsin Taxpayers Alliance, said Walker will find that fulfilling all of his campaign promises is "like trying to fit five pounds of hamburger into a three-pound box."

Ray Scheppach, executive director of the National Governors Association, said "everything easy, medium and even difficult" has been done already to close budget gaps. Now, he said, state officials are realizing they may have to fundamentally change what government does.

That could mean getting rid of small schools through consolidation, reducing the prison population though alternative sentencing, selling government assets and more.

Few candidates in the 37 states electing governors offered detailed plans for addressing deficits. Most talked generally about cutting costs and making government more efficient.

At least two, though, proposed tax increases to fill part of the deficit.

Rhode Island independent Lincoln Chafee won his race after calling for a 1 percent sales tax on items currently exempt. He said it could raise $100 million a year toward a $250 million deficit.

And Democratic Gov. Pat Quinn of Illinois was clinging to a tiny lead Wednesday despite campaigning for a 33 percent income tax increase. The increase would generate about $2.8 billion a year for education as Illinois faces an estimated deficit that could reach $15 billion.

Pennsylvania Gov.-elect Tom Corbett, a Republican, has proposed selling the state-controlled liquor and wine business to private operators to raise $2 billion, although similar proposals in the past have died in the Legislature.

Ohio's incoming governor, Republican John Kasich, named his budget director on Wednesday and said he plans to keep his campaign promises to scrap a high-speed rail project and dismantle the state's expensive new funding system for public schools.

Kasich, who will face an estimated deficit of $4 billion to $8 billion, stopped short of threatening unionized state employees' jobs, saying he wants to avoid "declaring an enemy."

Brian Calley, the next lieutenant governor in Michigan, said he and Republican Gov.-elect Rick Snyder will look at every option for closing an estimated $1.4 billion deficit — including public-private partnerships and cutting programs that don't deliver.

"There's no silver bullet," Calley said. "We're just going to have to do the tedious and substantial work of reviewing every area of government, every activity of government for both effectiveness and necessity."

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