STRAPPED STATES TRY TO RECOVER FROM SPENDING

The State of Missouri was feeling generous. The economy was booming; tax
dollars were pouring in and legislators decided to use some of the money to
expand a modest program that gave a stipend to grandparents acting as
foster parents to their grandchildren.

But the state did not just expand it a little.

With bipartisan support, the Legislature dropped virtually all restrictions
on who could qualify for the $386 monthly payment, scrapping a requirement
that the children be in financial need and dropping the minimum age of the
grandparent to 50 from 55. The state even opened the program to people who
were not grandparents at all -- aunts, uncles and other close relatives.

The consequences have been startling. Participation skyrocketed from 280
children in August 1999 to 2,239 children now. Expected to cost $1.4
million through the fiscal year ending in June, it will now cost $10.7
million. And $22.4 million is needed for the next fiscal year.

"Quite frankly, I voted for it," said State Representative Kenneth Legan, a
Republican. But "it's costing us about 16 times more than we thought it
would. We think it's going to cost even more if we can't figure out how to
stop it."

Mr. Legan considers himself a fiscal conservative, but a couple of years
ago he and countless other lawmakers in state capitols across the country
were showing uncharacteristically little fiscal restraint. In Louisiana,
tens of thousands of students got free tuition at state colleges; Iowa
promised school teachers thousands of dollars in bonuses; Arizona offered
millions in subsidies to help people buy cars that burned cleaner fuels.

And some lawmakers say they wish they had paid more attention to how much
it would ultimately cost. "I'm sure we weren't looking as close to fiscal
notes as we ought to be," Mr. Legan said.

Now, thrown off balance by a suddenly sluggish economy, Missouri and many
other states are finding that decisions or promises to spend money when
times were flush are coming back to haunt them.

From Connecticut to Indiana, Louisiana to Arizona, governors and
legislators are trying to rein in commitments for health, social or
environmental programs, college scholarships, prison building or teacher
bonuses. Some will have a hard time finding the money to open prisons they
are building or make good on promised raises for teachers.

As of late February, 31 states reported they were spending more than they
budgeted, according to the National Conference of State Legislatures. And,
grappling with declining tax revenues and soaring Medicaid costs, as many
as 23 states may cut budgets or reach into rainy day funds for the first
time in years.

Experts on state budgets say the experience of states that allocated money
for programs and then suddenly found they could not afford them could be
something of a cautionary tale for Congress as it considers President
Bush's proposed tax cut of $1.6 trillion over 10 years.

"Things got a little heady in that we were dealing with the longest
economic expansion in history and nobody knew how long it was going to
continue," said Arturo Perez, a budget specialist with the National
Conference of State Legislatures.

Even so, despite the troubles faced by many states -- particularly those
that rely on sales tax revenues -- estimates of federal tax revenues remain
strong, and most experts expect the government to continue to run surpluses
for years to come.

In addition, Mr. Perez said that in some ways federal budgets were more
resilient to economic rough spots than states' budgets were.

But on the state level, where governments cannot run deficits, the rising
costs of some programs are colliding head on with shrinking tax revenues.

In Louisiana, a program providing free tuition at state universities for
stu dents scoring 20 or above on the ACT has become so expensive that
several legislators want it scaled back, either by raising the minimum
score to 23 or forcing students who fail or drop out to reimburse the
state. The top ACT score is 36.

State Representative Mike Futrell, a Republican, said the tuition program
was so popular that virtually every in-state undergraduate attending
Louisiana State University gets free tuition. Statewide, more than a third
of those with ACT scores below 23 have failed or quit, Mr. Futrell said.

"Statistically, we are financing their failure," said Mr. Futrell, who
introduced a bill to give those scoring 20 to 23 tuition to two-year
community colleges only. That would be "a lot less expensive," he said,
than the $105 million projected cost of the program next year.

Missouri is looking at a $307 million budget deficit, in part because of
the exploding costs of the foster care program and also because of what Mr.
Legan calls "another boondoggle": a tax credit to help the elderly pay for
prescription drugs. When the credit was approved, it was expected to cost
$20 million a year. Mr. Legan, who voted for the program, said the current
pricetag was about $89 million.

Arizona told people last year that if they bought cars that could burn
alternative fuels, the state would pay up to half the cost. So many people
applied for reimbursement that a program expected to cost less than $5
million annually threatened to reach $800 million, more than 10 percent of
the state's budget.

"Frankly, nobody looked at the big picture when the bill was passed, and I
take my share of the blame for signing it," Gov. Jane Dee Hull, a
Republican, said last fall after calling for an emergency one-year
moratorium on the program.

"The fiscal implications were all overlooked," Governor Hull said. "No one
knew what the cost would be."

New York and New Jersey, which rely less on sales taxes and manufacturing
than other states, continue to have surpluses and have no plans to cut
budgets or tap their reserves, Mr. Perez said. But in Connecticut, one of
many states that spent millions to build prisons in recent years, Gov. John
G. Rowland's budget includes ideas that would save money by reducing the
need for new prison cells. Strikingly, the proposals by Governor Rowland, a
Republican, would also modify years of tough-on-crime policies by waiving
minimum sentencing requirements for certain nonviolent drug offenders and
allocating money so some nonviolent criminals could get mental health
treatment instead of jail.

"There are a lot of good examples of states around the country that went on
a prison-building spree and now they're saying, 'Oh, my God, we're not
going to be able to afford another prison,' " said Michael Thompson, a
criminal-justice expert for the eastern region of the Council of State
Governments.

Mr. Thompson said Mr. Rowland's proposals follow an effort last year to
save money on new prisons by exporting nearly 500 Connecticut inmates to a
Virginia prison. Problems, including inmate deaths, have fueled criticism
of that program, he said, "so Connecticut's saying, We got to rethink who
we're sending to prison or jail."

John Thomasian, director of the Center for Best Practices at the National
Governors' Association, said that in many states, "where you saw a lot of
expansions were support systems for low-income workers: transportation
subsidies, child care benefits, automobile repair costs."

In Indiana, officials started an advertising blitz to get people to enroll
in the Children's Health Insurance Program in 1998. They used television,
radio and billboards, handed out pencils and baby sippy cups, even set up
separate enrollment centers so people could avoid any stigma of going to a
welfare office, said Kathy Gifford, Indiana's Medicaid director.

The result was an extraordinary increase in enrollment -- to about 350,000
children from about 200,000, Ms. Gifford said. More children are enrolling
after officials last year raised the income level of families that qualify.
And the advertising swelled the numbers of adults on Medicaid, too.

Now, although Ms. Gifford says Medicaid needs a 9.2 percent increase next
year, the Indiana House has proposed a Medicaid budget that scarcely
increases at all.

"I don't have a way that I know today to get to a zero percent growth rate
by July," she said. "I don't know what we would do if that budget actually
passes."

And in Iowa, lawmakers decided in 1998 to give teachers who earned national
board certification a $50,000 award -- $10,000 a year for five years. But,
almost immediately nearly six times more than the projected number of
teachers became certified. The Legislature first decided to pay out the
bonus over 10 years, then cut the award to $25,000 and decided to phase out
the program.

"We were criticized for not living up to promises made," said
Representative Brad Hansen, a Republican. "But when budgets get tight, we
ask families to tighten the belt. The government should have to do the same
thing."

In Missouri, legislators are trying to figure out ways to put the runaway
programs on a leash.

The problem with the elderly tax credit, several said, was that anyone who
met the income and age criteria could qualify for a tax credit of up to
$200, whether or not they actually needed or bought prescription drugs.

"We were qualifying people for this that are in nursing homes, who haven't
spent a dime because the state pays for prescriptions in nursing homes
anyway," Mr. Legan said.

And State Representative Denny Meredith, a Democrat, is sponsoring a bill
to restrict the foster-care program to people in financial need and ensure
that expense reimbursements from the state are for necessities, not, say, a
baby sitter while foster parents "go shopping on Sunday," he said.

"It's something that we've got to do from a responsibility standpoint," Mr.
Meredith said, "to make sure we take care of the state budget."