Governors and Drunken Sailors: Out in the states, they've spent themselves silly.

During the go-go 1990s, no group in America engaged in conspicuous consumption more than the nation's governors. State budgets doubled in size, as lawmakers invented new ways to dole out tax dollars. Most states now spend between $800 and $1,000 more per person than they did in 1990 -- and that's after adjusting for inflation. As a new report by the American Legislative Exchange Council says, "Governors spent tax dollars as if the good times would last forever."

Well, they didn't.

So after years of binge spending and Everest-sized budget surpluses, most states are now swimming in rivers of red ink. California, New York, and Virginia are in particular trouble: Their combined budgets are nearly $20 billion in the red. "We didn't get a rainy day," New York governor George Pataki announced in his budget message earlier this year, "we got a monsoon."

If New York is facing a monsoon, then pity California, whose residents might begin building an ark. In the history of state government, it would be hard to match Gov. Gray Davis's four-year record of financial ineptitude. When Davis took over as governor, the state had a $7 billion two-year budget surplus and was the picture of financial health. After he inflated the budget by some $30 billion -- a 32 percent budget hike in his first term in office -- the state is now combating an estimated $16 billion two-year deficit. On the Cato Institute fiscal report card on the governors, Davis earned an F.

At least half of the governors, Republicans and Democrats alike, hold out hope that they can tax their way back to prosperity. The Washington Post's David Broder recently wrote with approval that "solid, mainstream Republicans," such as Pataki, Connecticut's John Rowland, Kansas's Bill Graves, and Tennessee's Don Sundquist, want to raise "a combination of sales, cigarette, and gasoline taxes to close the budget gap." Virginia's legislature, which is dominated by Republicans, approved a voter referendum for a sales-tax hike. They were cheered on by the state and local chambers of commerce, partnered with the teachers union, who all see these new taxes as the commonwealth's salvation.

In all, eight states want to raise their income-tax rates; five states are contemplating sales-tax hikes; cigarette and/or beer taxes may rise in as many as 14 states; and the price of pumping gas may rise in nine others. "From Albany to Sacramento, this year could bring the biggest combined tax increases in at least a decade," says a new state budget analysis from A. B. Laffer Associates. The most predictable story is coming out of New Jersey, where the honeymoon of newly elected Democrat Jim McGreevey has come to a premature end: He has now disavowed his campaign promise not to raise taxes.

As a candidate, McGreevey preached a populist, Reaganite message of fiscal discipline. To keep the budget out of the red, he proposed cutting back on expenditures by streamlining government. McGreevey even criticized New Jersey Republicans -- with much accuracy -- for fiscal mismanagement, overspending, and excessive reliance on debt. Now he wants a half-billion-dollar business-tax hike ("loophole closings") and higher tobacco taxes. He had it right the first time around.

Another prominent about-face has occurred in Minnesota, where Jesse Ventura has proposed raising a series of fees and sales taxes to keep the state out of debt. This and other political miscues -- the XFL debacle, his attack on religion -- have Ventura battling anemic approval ratings.

Will the governors ever learn? During the economic downturn of the early 1990s, the states that raised taxes to try to balance their budgets dug themselves into deeper financial holes. These tax-hiking states lost businesses and taxpayers, prolonging their individual recessions. California, Connecticut, and New Jersey suffered the most painful consequences. In 1991 and 1992, these three states raised income taxes only to see tax revenues decline still further as upper- income homeowners and businesses fled to more tax-friendly climates like the Carolinas, Florida, Nevada, and Texas.

Many other states learned the lessons of the Laffer curve the hard way when they found that the higher tax burdens they imposed actually generated less revenue from taxes. In fact, after California raised its income taxes on the rich to nearly 10 percent in 1992, the state actually lost domestic population (and revenues) for the first time in its history, as tens of thousands of Californians packed up and moved to havens like Seattle and Las Vegas that don't have an income tax. New Jersey's tax receipts grew twice as fast in the two years after Christie Whitman cut the income tax as they had in the two years after her predecessor, Jim Florio, raised it.

But the most remarkable tax-cutting success story is Michigan. When John Engler was first elected governor in the early 1990s, the Rust Belt economy was in the doldrums. Engler horrified his critics by cutting income taxes during a recession, freezing state-agency spending, and chopping low-priority programs. Over the next five years, Michigan led the nation in job creation and income growth. (Alas, even Engler seems to have forgotten this fiscal lesson. This year he has advocated new fuel taxes, while leading the charge as chairman of the National Governors Association for a nationwide pact to raise Internet taxes.)

Michigan was no fiscal anomaly in the 1990s. The states that lessened their tax burdens the most over the last ten years created almost twice as many jobs as the states that increased their tax burdens. Too many of today's governors refuse to accept this economic reality and are poised to repeat the mistakes of the past.

Do states have any real options in cleaning up the fiscal mess? The tax-raising governors and most state legislators say they're plumb out of alternatives. They blame their budget crises on factors beyond their control -- the recession, terrorism, and rising health-care costs. This cop-out has prompted the governors to go begging to Washington for federal handouts. The most fashionable solution brought forward by state lawmakers and liberal think tanks is to resurrect the Nixon-era program of revenue sharing. This would be a sweet deal for the cash- strapped governors, who would get tax dollars from Washington to spend as they wished with no accountability and without the political peril of having to wrestle the money out of their own voters. In the 1970s, states used their revenue-sharing dollars for such projects as bowling alleys, statues, luxury hotels, and sports stadiums. By the mid 1980s, even liberal Democrats in Congress agreed that the program was no more than a slush fund for the states, and killed it.

Of course, there is another option available to the states: belt tightening. This solution makes the most sense, since it was loose spending that created the crisis in the first place. Not surprisingly, the states in the bleakest budget condition are the ones that binged the most in the '90s. In debt-ridden New York, for example, the research group Change NY found that if Albany had simply restricted increases in expenditures to the rate of inflation from 1995 to 2001, state spending would have totaled $10.8 billion less, resulting in a revenue surplus.

Where, one wonders, are this generation's supply-side governors? There are a few. Bill Owens of Colorado has unflinchingly enforced the state constitution's spending-limitation measure, which prevented lawmakers from spending surpluses even in the late '90s when the state was flush with cash. Thanks to Owens's tightfistedness, Coloradans will be the only Americans to receive a state tax cut this year.

The November elections -- which include 36 governor's races -- could bring in a promising new crop of young, pro-growth fiscal conservatives. Bill Simon, the GOP nominee for governor of California, wants to cut the capital-gains tax rate by half. In South Carolina, Mark Sanford is running armed with a plan to abolish the state income tax over the course of the next decade. Oklahoma's outgoing governor, Frank Keating, has a plan to slash the state income tax in half, and his likely successor, former congressman Steve Largent, promises to finish the job. If elected, these brash newcomers could be just what is needed to change the hazy thinking and profligate spending that are now the rule in state capitals.

"We're the conservative reinforcements," says Arizona's Matt Salmon, who along with Largent and Sanford makes up an impressive troika of Class of '94 former congressmen running for governor. "Look at our records. We're proven tax cutters, not tax raisers." The elections can't get here soon enough.