Patrick Semansky / AP

Eighteen months after finding his way to Catholic Charities via a rehabilitation center, Antonio Hammond is clean of drugs, earning $13 an hour and paying taxes.

Antonio Hammond is the $18,000 man.

He's a success story for Catholic Charities of Baltimore, one of a multitude of organizations trying to haul people out of poverty in this Maryland port city where one of four residents is considered poor by U.S. government standards. 

Hammond says he ended up in Baltimore three years ago, addicted to crack cocaine and snorting heroin, living in abandoned buildings where "the rats were fierce," and financing his addiction by breaking into cars and stealing copper pipes out of crumbing structures. Eighteen months after finding his way to Catholic Charities via a rehabilitation center, the 49-year-old Philadelphia native is back in the work force, clean of drugs, earning $13 an hour cleaning laboratories for the Biotech Institute of Maryland and paying taxes. 

Catholic Charities, which runs a number of federally funded programs, spent $18,000 from privately donated funds to turn around Hammond's life through the organization's Christopher's Place program, which provides housing and support services to recovering addicts and former prisoners. 

Such success stories are in danger as $85 billion in federal government spending cuts begin squeezing services for the poor nationwide. The cuts started kicking in automatically on March 1 after feuding Democrats and Republicans failed to agree on a better plan for addressing the national deficit. They are hitting at a time of spiking poverty as the U.S. slowly climbs out of the deepest economic downturn since the Great Depression of the 1930s. 

"All I wanted to do was get high," Hammond said. "I didn't even know any more how to eat or clean myself." 

Now he lives with two other men in housing subsidized by the charity, got his driver's license and bought a car. What he marvels at the most is that he has been accepted after a 20-year absence by some of his nine children. That's the best part, he said. "At least I know now they might not hate me." 

The U.S. Census Bureau puts the number of Americans in poverty at levels not seen since the mid-1960s when President Lyndon B. Johnson launched the federal government's so-called War on Poverty. As President Barack Obama began his second term in January, nearly 50 million Americans — one in six — were living below the income line that defines poverty, according to the bureau. A family of four that earns less than $23,021 a year is listed as living in poverty. The bureau said 20 percent of the country's children are poor. 

Although it is far from the country's poorest city, Baltimore's poverty rate far outstrips the national average of one in six. 

Catholic Charities of Baltimore is a conduit for state and federal money for programs designed to help the poor. The charity plays a major role in administering Head Start, a federal program that provides educational services for low-income pre-school children and frees single mothers to find work without the huge expense of childcare. 

The spending cuts, known as the sequester, are going to hit Head Start especially hard. 

"Before the sequester only half of the need was being met. Now, after the cuts fully take effect, there will be 900 children already in the program who won't be able to take part," said William McCarthy, executive director of Catholic Charities. 

There is no question the national belt-tightening "will deepen and increase poverty," said McCarthy, citing the cuts in long-term care for poor seniors including assisted living and nursing care, and fewer low-income housing spaces, among other ripple effects. Under the spending cuts, Baltimore Housing Commissioner Paul T. Graziano said his agency faces a $25 million shortfall in funds to help poor people with housing. There are 35,000 people on the waiting list. He also lamented cuts that will hamper the city's efforts to clean up or demolish blighted neighborhoods. Baltimore has 15,000 vacant and abandoned structures as a result of a steep population decline over the past half century. 

Patrick Semansky / AP

Baltimore is far from the worst American city for poverty, but it faces all the problems of cities where vast numbers of the poor now live.

"It's very, very disheartening. We take a couple of steps forward and then fall back at least one. The private sector isn't going to fix these neighborhoods. I view these things as investments, not expenditures. These things are an investment in the future that bring returns many times over," he said.

While the U.S. economy is slowly recovering, improvements for those deep in poverty do not keep pace with the cuts now in place. The spending reductions going into effect will hit hardest at Americans whose prospects are not directly tied to the economy — people like Antonio Hammond and children in the Head Start pre-school programs.

Mayor Stephanie Rawlings-Blake said Baltimore depends on federal grants and funding for 12 percent of its budget. The austerity cuts "to housing programs_as well as those to public safety, health, and education_will have an adverse effect on Baltimore and throughout the country," she said.

The cuts, which will also hit U.S. defense spending, were designed two years ago as an incentive for lawmakers to avoid a standoff over the federal debt and a potential government shutdown. The measures were seen as so onerous as to force Republicans and Democrats in Congress to reach a compromise spending plan. But compromise proved impossible before the March 1 deadline, and what were once seen as unthinkable cuts automatically went into effect.

Democrats want a deficit reduction plan that includes some spending cuts and tax increases on the wealthy. Republicans balk at any more tax increases and insist the problem should be addressed solely by reigning in spending. That feud continues as the two sides battle out future fiscal issues.

Republicans want to see even more cuts in next year's budget, reductions that would, by and large, return military spending to pre-sequester levels and provide big tax benefits to wealthy Americans.

A 2014 budget plan proposed by Rep. Paul Ryan, the vice presidential candidate on the unsuccessful Republican presidential ticket last year, would be particularly tough on social safety net programs. His plan would slash $135 billion over the next decade from the program that provides food aid for low-income Americans. Nearly three-quarters of households receiving help from the program include children, who, census figures show, are the group hardest hit by poverty.

Ryan's plan would also turn the government's Medicare health insurance program for Americans age 65 and over into a voucher system, providing direct government payments to seniors who would then try to buy insurance on the private market.

Ryan defends his drive for austerity as necessary to begin shrinking the country's $16 trillion national debt.

"If we never balance the budget, if we keep adding deficit upon deficit we have a debt crisis like Europe has. That means seniors lose their health care benefit, that means the people in the safety net see the net cut and they go in the street. That means you have a recession. These are the things we prevent from happening by balancing the budget. Balancing the budget is but a means to an end. It's growing the economy, it's creating opportunity, it's getting government to live within its means," he said in an interview with Fox News.

Obama backs increasing taxes on the wealthy while instituting smaller government spending cuts, a plan that would reduce deficit spending but more slowly. He and most fellow Democrats argue that European-style austerity has not worked there and will harm the U.S. recovery from the Great Recession.

It's an ideological fight that dates back decades. Republicans work from the premise that by unleashing the private sector and removing government controls, all Americans will prosper along with the economy and benefits will flow down to lower-income earners. Democrats insist there is an essential role for government in putting a floor under the poor and helping local governments with problems that the private sector cannot or will not shoulder.

Some worry the gap between rich and poor in the U.S. will keep widening under the austerity measures.

According to a report by the non-partisan Congressional Research Service late last year, "U.S. income distribution appears to be among the most unequal of all major industrialized countries and the United States appears to be among the nations experiencing the greatest increases in measures of income."

Mary Anne O'Donnell, director of community services at Catholic Charities of Baltimore, said increasing income inequality has shown itself dramatically during the U.S. downturn.

"In the last three years, there's been a great change in the kinds of people we are serving. There are increasing numbers of people who owned a home, lost their jobs, end up living in their car and are coming with children to our soup kitchen," she said.

Her organization spent $126 million in the last fiscal year feeding the poor, helping them find jobs and housing, running nursing homes and putting men like Hammond back on their feet.

Of that figure, $98 million came from various programs funded by the city, state and federal governments. Those now face the big cuts as politicians in Washington fail to find a compromise. 

The military’s tuition assistance program will not be suspended after all.

The Department of Defense will pay for the program for all four military branches, George Little, the Pentagon’s press secretary, said Wednesday.

Citing budget constraints, the Army, Marine Corps and Air Force announced earlier this month that they would suspend paying new claims. The recently passed continuing resolution, however, prevents DoD from eliminating the funding.

The Pentagon will comply with the law and maintain the same level of funding that each service was providing before the suspensions, Little said.

Kristina Young / Handout / EPA

The USS Harry S. Truman at an undisclosed location in the Atlantic Ocean in December 2012.

Published 6:30 p.m. ET: Budget constraints are prompting the U.S. Navy to cut back the number of aircraft carriers in the Persian Gulf region from two to one, the latest example of how contentious fiscal battles in Washington are impacting the U.S. military.

According to Defense Department officials, the USS Harry S. Truman, which was set to leave for the Persian Gulf region on Friday, will now remain stateside, based in Norfolk, Virginia. 

Defense Secretary Leon Panetta ordered the change to the department’s “two-carrier policy” in the Persian Gulf region early Wednesday.

The U.S. has steadily kept two aircraft carriers in the Persian Gulf for much of the last two years. In 2010, then-Secretary of Defense Robert Gates issued a directive to keep two in the area given the volatility of the region.

The cutback is largely a result of automatic spending cuts, known as sequestration, passed by Congress during the summer of 2011. Congress has failed to pass a budget for the fiscal year, and has instead opted on passing legislation that will keep spending at the same level as last year. But that means the Pentagon has been operating with less money and is unsure of what the future holds for its bottom line.

Under sequestration, the Navy would lose $4 billion over the next six months, the last half of fiscal year 2013. The Navy was already $4.6 billion in the hole for this year because the continuing resolution for 2013 was budgeted at 2012 rates.

Navy officials say the Defense Department ordered members of their branch and all services to “prepare for sequestration,” even though it’s not yet clear the automatic budgets cuts will kick in next month. 

“We cut back to one carrier in the Gulf region to save money now, or wait until sequestration and be forced to cut back to zero carriers,” a senior defense official told NBC News.

It’s not certain whether the Defense Department or the White House would permit a zero carrier presence in the Persian Gulf, no matter what the budget constraints, given rising tensions over Iran. The Truman would still conduct exercises off the US East Coast and would be “surge ready” in the event of an emergency or disaster.

A statement from Pentagon Press Secretary George Little assured that the United States will “maintain a robust presence” in the area, but cited the pending sequestration cuts as the reason the Navy sent Panetta the request.

“This prudent decision enables the U.S. Navy to maintain these ships to deploy on short notice in the event they are needed to respond to national security contingencies,” read the statement.

Revelation of the cutbacks comes the same day as news that Panetta is recommending military pay increases be limited to one percent in 2014. Uniformed military will still get a raise, but it will be much smaller “to reflect the difficult budget decisions” facing the department, a defense official told NBC News.

At a speech Wednesday, the outgoing secretary of defense warned that the budget battles in Washington are putting America at risk.  

“The Department of Defense and other agencies across government have been living under a serious shadow -- the shadow of sequestration ... Today, with another trigger for sequestration approaching on March 1st, the Department of Defense is facing the most serious readiness crisis in over a decade,” he said to a crowd at Georgetown University.

“Make no mistake, if these cuts happen there will be a serious disruption in defense programs and a sharp decline in military readiness,” Panetta said in his speech Wednesday.

“We have begun an all-out effort to plan for how to operate under such a scenario, but it is already clear that no good options exist.”

On Tuesday, President Obama called on Congress to pass “a small package of spending cuts and tax reforms” to avoid the automated cuts set to kick in at the beginning of next month.

Republican Sens. John McCain and Kelly Ayotte – who have toured the country warning that sequestration cuts could put U.S. national defense at risk – responded on Wednesday by introducing a bill that would avoid cuts by slashing the federal workforce by 10 percent. 

Additional reporting from Courtney Kube

By Lauren Hasler
Wisconsin Center for Investigative Journalism

Donovan Richards first attempted to take his own life at age 4. The Wisconsin boy, who has bipolar disorder and autism, already had been kicked out of three day care programs, and his doctors were sure he would be in an institution before he turned 10.

To get the intensive treatment her son needed, but she could not afford, Paula Buege, Donovan’s mom, had to win approval from a review board made up of Dane County officials.

“I had 10 minutes to present his case. And my argument was, ‘If we don’t help him now, you’re going to read about him in the paper one day,’ ” said Buege, of Middleton, who now helps the parents of mentally ill children with a Madison-based nonprofit, Wisconsin Family Ties.

After years of treatment, Donovan is now a 17-year-old who plays in a band and wants to be a music teacher. While he continues to struggle, he has not been hospitalized for mental health problems in 10 years.

What saved Donovan from suicide or another tragic fate was a mother’s perseverance and taxpayer-funded mental health services.

But those public mental health systems in Wisconsin and across the nation increasingly face cuts as they compete for scarce resources, according to an investigation by the Center for Public Integrity, prepared in collaboration with the Wisconsin Center for Investigative Journalism and other nonprofit newsrooms.

States, desperate to close cavernous budget gaps, have cut $2.1 billion from their mental health budgets over the past three fiscal years, according to a study from the National Association of State Mental Health Program Directors’ Research Institute, an independent nonprofit that collects and analyzes mental health services data.

The problems go beyond money. In interviews with mental health advocates and county and state officials, the Wisconsin Center for Investigative Journalism found that Wisconsin’s public mental health system — once viewed as a national model — has become fragmented and underfunded.

And many experts fear that as Gov. Scott Walker moves to close the state’s budget deficit, the mental health system will be weakened even further. One county official predicted Walker’s changes could “devastate” taxpayer-financed mental health care in Wisconsin.

Among the problems facing the state’s public mental health system:

• The Wisconsin Council on Mental Health, the governor’s mental health planning council, estimates 232,932 adults and 106,149 children in Wisconsin have serious mental health conditions.
• Overall, 100,238 people received taxpayer-subsidized mental health services through their local county in 2009, according to the nonpartisan Legislative Fiscal Bureau.
• Walker warned in his March 1 budget address that a “serious and long-term solution” is needed for Medicaid. Demand for existing Medicaid-funded services is expected to create shortfalls of $150 million by June 30 and $1.8 billion in Wisconsin over the next two years as federal stimulus funding ends.
• The state Department of Health Services (DHS) plans to replace $1.3 billion of that gap with state funds and make up the difference with $500 million in cuts to the Medicaid program —possibly by cutting eligibility, benefits or reimbursement rates.

“Services have been underfunded with the current budget, and now we’re going to see a $500 million cut to providing essential services to vulnerable populations,” said state Rep. Sandy Pasch, D-Whitefish Bay, a member of the Assembly’s committee on public health.

Pasch estimates Medicaid cuts could leave 65,000 Wisconsin residents without subsidized health insurance to pay for mental health treatment.

Untreated mental illness isn’t just a personal hardship; it’s a major driver of Wisconsin homeless and prison populations. Nearly one-third of all inmates in the state prison system are classified as mentally ill, the state Department of Corrections estimates.

Wisconsin DHS secretary to make big changes
As part of Walker’s controversial budget-repair measure, Dennis Smith, the Republican governor’s DHS secretary, has been given a mandate to reshape Medicaid-funded services to close the budget gap.

Smith hinted that big changes may be coming. In a statement, Smith said the state will focus its mental health care dollars on models that are centered on people’s needs, are community-based and are statistically proven to work. Mental health experts say such programs are in short supply in Wisconsin.

Smith said state officials will “examine the entire continuum of care at every age” and coordinate mental health care with other medical needs —a move long sought by mental health advocates.

Integration of mental health care with physical health care would help identify and prevent mental illnesses and reduce social stigma, said William Greer, president and CEO of the Mental Health Center of Dane County, a nonprofit agency that provides mental health and substance abuse services.

“The human mind and body are one and the same,” Greer said at a February symposium, adding that treatment should be available “under one roof.”

The new health secretary vowed to work with legislators, consumers, advocates and taxpayers in an “an open and deliberative process,” to identify ideas that will improve health while controlling spending, DHS spokeswoman Beth Kaplan said.

But some advocates are still leery about how Smith will manage a $500 million cut to the state’s health services for the poor. In a previous position as a senior fellow at the Heritage Foundation, a conservative think tank in Washington, D.C., Smith encouraged states to opt out of Medicaid to save money and shed federal control over health care spending.

In one of his first moves, Smith announced on March 18 that enrollment for the BadgerCare Basic program, which covers adults without dependent children who were unable to enroll in BadgerCare Core, is now frozen.

Buege is worried about how her family may be affected by changes to Medicaid. Losing the benefit would leave her son without his medications and access to psychiatrists — the tools, she said, that have kept him mentally well instead of mentally ill.

“We’re going to still go to the hospital, we’re still going to go to the doctor,” Buege said. “People can’t afford to pay the bill. So who’s it going to impact? It’s going to impact everybody.”

Jane Pedersen of Menomonie in northwest Wisconsin has watched someone suffer needlessly because of a lack of affordable health insurance.

Pedersen has traveled to Madison seven times to protest Walker’s budget repair bill. She said she knows a person with a mental health disability and no insurance who stopped taking medication when he could no longer afford it. When he began to hallucinate, he spent several days in a hospital’s intensive care unit, she said.

“These people without health insurance tend to wait until they’re very sick to get help. ER care is the most expensive,” Pedersen said.

Counties run mental health programs
In Wisconsin, unlike in most other states, county governments run the publicly funded mental health care system, which is supported primarily by three funding streams: Federal Medicaid dollars matched by the county, state funding and local property taxes.

Walker has proposed cuts to Medicaid and funding to local governments. He also is seeking to freeze local property taxes to prevent officials from making up for the loss of state funding by raising taxes.

Some local officials are alarmed by Walker’s plan.

“This could significantly devastate mental health and substance abuse (services),” said William Orth, director of the Sauk County Department of Human Services.

While many states have cut funding in recent years, Wisconsin has maintained support for mental health services — although advocates say the system still falls far short of meeting the state’s needs.

Mental health expenditures in Wisconsin at the county level actually increased by about 16 percent between 2005 and 2009, to more than $428 million, according to the Legislative Fiscal Bureau.

But those increases may not mean more services, considering that “the cost of doing business has gone up” in health care, according to Ted Lutterman, director of research analysis for the National Association of State Mental Health Program Directors Research Institute in Alexandria, Va.

It’s not clear what’s in store for mental health care in the current budget. The few broad categories in the governor’s budget that mention mental health care, including operation of the state’s two mental health institutes, show small increases from current funding levels, but little detail is available.

“Funding is being cut everywhere and mental health is getting increases. I think that shows where Walker’s priorities are. It clearly displays he has compassion for the mental health community,” said state Sen. Mary Lazich, R-New Berlin, a member of the Senate public health committee.

But Pasch said she is “very concerned” how well services for the mentally ill will fare when local governments start cutting their budgets.

“When resources start becoming more and more scarce, my experience being a psychiatric nurse for 30 years is that mental health services are one of the first things to get cut,” Pasch said.

If fewer poor people are insured under Walker’s proposed budget, counties still will be on the hook to pay for core mental health services, including hospitalization, according to Kathy Roetter, director of Wood County Unified Services, which provides mental health care to residents in central Wisconsin. But counties would lose federal Medicaid matching funds for those newly ineligible people, she said.

DHS statement on mental health care
The Wisconsin Center for Investigative Journalism asked Smith to comment on the future of the state’s public mental health care system.

On the state's overall mental health funding: We are concerned that some individuals with mental illness are under-served in the current system or must navigate through a complex delivery system on their own. We will examine the entire continuum of care at every age. Our approach will be to identify models of care that work, support them, and replicate them. These models should be person-centered, community-based, and use evidence-based practices. Individuals will benefit from the coordination of their mental health services with other acute care medical services they need. We have already met with a variety of partners in the mental health community and have heard directly from consumers themselves. We look forward to working with everyone who is involved with improving the care to individuals in need of mental health services.

On how the governor’s plan for $500 million in cuts is reflected in the budget: The Medicaid program faces a $1.8 billion shortfall, largely because of the expiration of more than $1 billion of federal American Recovery and Reinvestment Act (ARRA) funds on July 1. We are replacing those funds for DHS with $1.3 billion in new state General Purpose Revenue (GPR). To make up the rest of this federal shortfall, we will be looking for $500 million in savings in our Medicaid program. To bend this cost curve, and reduce expenditures by the projected amount, the Department will commence an open and deliberative process with legislators, stakeholders, advocates and taxpayers to identify and implement ideas aimed at improving health outcomes and controlling spending growth.

Care for mentally ill shifts, leaving gaps
Over the past 50 years, public mental health care in the United States has moved away from locked hospitals to community-based programs. Shifting federal budget priorities, a movement that advocated for the least-restrictive environment for the mentally ill, and a new generation of drugs for psychiatric disorders allowed more people to remain in the community.

In 1955, psychiatric hospitals in the U.S. housed more than 550,000 people, according to research by Dr. E. Fuller Torrey, a research psychiatrist and founder of the nonprofit Treatment Advocacy Center, which is based in Arlington, Va. By 1994, that number had dropped by 87 percent to 71,619 people.

But as hospitals emptied out, the funding didn’t necessarily flow to those community programs. Much of it simply disappeared.

A recent study from the federal Substance Abuse and Mental Health Services Administration (SAMHSA) found that when adjusted for population and increased medical costs, the United States spent $261.7 billion in 1955 and only $30.9 billion in 2006 in funding for mental health care.

Wisconsin lacks services for young
Hugh Davis, executive director of the nonprofit Wisconsin Family Ties, says funding isn’t the only problem afflicting Wisconsin’s public mental health system. One of the greatest problems he and other advocates see is the lack of adequate mental health care for children and teenagers.

“There is ample evidence that that system has been neglected by our state for a long time,” said Davis, whose organization helps families with children who have emotional, behavioral and mental disorders.

He points to data that show Wisconsin is last among all Midwestern states in the percentage of children with serious emotional disturbance who are served by the public mental health system.

In an investigation of rural health care last year, the Wisconsin State Journal found the state has just 90 child psychiatrists, forcing some children in northern Wisconsin to wait up to two years to get counseling or medication.

System ‘just too complicated’
Lori Krinke of Madison, who has three children with disabilities, said it took her a long time to get help for her youngest son. Krinke is associate director of Wisconsin Family Ties.

Krinke said last year, it was nearly two months before she could find a bed at a state-run mental health facility for her teenager, who was no longer safe at home because he was chronically suicidal.

“Honestly, if he hadn’t gone to Winnebago (Mental Health Institute), he would not have made it to his 14th birthday,” she said.

Krinke says people with serious mental illnesses in Wisconsin have to jump through too many hoops to get the help they need.

“When it came to looking for resources for mental health for children, I didn’t even know where to turn. Frequently, the people who work within the system don’t know how to navigate the system. It’s too complicated,” Krinke said. “And the funding isn’t there.”

Smith, the new health secretary, acknowledged the complexity and gaps in the system.

“We are concerned that some individuals with mental illness are underserved in the current system or must navigate through a complex delivery system on their own,” he said.

Community-based programs underfunded
The outpatient programs that partly replaced hospitalization — including drugs, counseling, case management and day programs — are cheaper and more effective for maintaining mental health for all but the most serious cases. But in some parts of Wisconsin, they’re hard to come by.

About 30 years ago, Wisconsin was seen as having one of the top mental health systems in the country because of its strong county system, according to Shel Gross, director of public policy for Mental Health America of Wisconsin, a Milwaukee-based nonprofit advocacy group. But in recent years that system has actually become a liability, he said.

There is significant variation from county to county in the quality of mental health care because county boards decide what to offer and how many people they can afford to help.

As one measure, Shawano County spent the least on each person receiving services in 2009 at $1,534, while Jackson County spent $9,571 on each client — six times as much, according to figures provided by DHS and analyzed by the Center.

“It’s not fair that residents get different services depending on where they live,” said Roetter from Wood County.

Demand, cost up; community aid down
State funding for human services, including mental health care, comes to counties primarily in what are called community aids. While medical costs have risen and demand has increased, the state’s community aids funding has remained nearly flat for more than 20 years, according to a report by the Wisconsin Council on Mental Health.

Community aids funding for the current year is $257.6 million. If adjusted for inflation, the amount of community aids has actually fallen by more than $185 million in 20 years, according to the council.

Another stream of funding from the state to counties is shared revenue, which usually goes to pay for highways and other county services. The governor’s budget cuts shared revenues to counties by $36.5 million in calendar year 2012, from an estimated $183 million in 2011.

If the cuts in shared revenue and freeze in property taxes proposed by Walker are approved by the Legislature, counties will need to cut somewhere.

“How do you choose?” said Sarah Diedrick-Kasdorf, a senior legislative associate with the Wisconsin Counties Association. “How do you pick? Children or the elderly? Someone with a mental illness or a mother who needs help?”

Buege is glad that when her son needed it the most, the help was there.

“My kid is living proof; he would be costing us all a lot of money right now if we didn’t get those services,” she said. “And instead he’s going to be a taxpaying member of society.”

Reporter Kate Golden of the Wisconsin Center for Investigative Reporting contributed to this report. The nonprofit center (www.WisconsinWatch.org) collaborates with Wisconsin Public Television, Wisconsin Public Radio and the UW-Madison School of Journalism and Mass Communication and other news media. Lauren Hasler is at lhasler@wisconsinwatch.org.

Pew Center on the States

A pension plan is considered healthy if it is 80 percent funded. A new Pew report finds many are not.

State governments face a gap of more than $1 trillion between what they say they will provide public workers in retirement benefits and what they actually have in their coffers, according to a study released Monday.

The report, from Pew Center on the States, finds that the gap has widened considerably in recent years, as states have been slammed by investment losses stemming from the 2008 financial crisis and budget crunches caused by the recession.

As of the 2010 fiscal year, the study found that states have about $757 billion less than they need for pension obligations. The states have about $2.31 trillion set aside, the report found, but their liability is about $3.07 trillion.

In addition, the report found that states have a health care liability of about $660 billion, but have set aside only $33.1 billion for those benefits. That leaves a $627 billion gap.

The two shortfalls add up to $1.38 trillion for the 2010 fiscal year, the most recent data available. That’s an increase of $120 billion, or 9 percent, from the 2009 fiscal year.

Some say even those massive estimates fall woefully short. Josh Rauh, associate professor of finance at Northwestern University's Kellogg School of Management, estimates that states are facing a shortfall of $4.4 trillion for pension obligations alone.

Rauh said that's because most states forecast on the assumption their investments will yield an 8 percent return. As anyone who's watched their 401(k) accounts rise and fall over the past 10 years knows, that's hardly guaranteed.

"That is simply not a valid way to do financial accounting," Rauh said.

David Draine, a senior researcher with Pew Center on the States, said the financial crisis and recession have played a big role in creating the shortfall, but he noted that the problem began before that.

“Many of these states also failed to make recommended contributions when times were good,” he said.

Draine compared the situation to a person who owes a lot in credit card debt but is only making the minimum payments, if that. That can work for a while, but the balance keeps growing.

That’s how it is with many states right now. They have enough money to pay their current retiree benefits but not necessarily those due in the future.

Generally speaking, a healthy pension fund should be 80 percent funded. The report found that 34 states were below that threshold in fiscal 2010, up significantly from 22 states just two years earlier.

The states in the worst shape as of 2010 include Connecticut, Illinois, Kentucky and Rhode Island. The states in the best shape include North Carolina, South Dakota, Washington and Wisconsin.

Many states are completely unprepared to pay for future retiree health care benefits. The report found that 17 states have not set aside any money for that.

Richard Kaplan, a law professor at the University of Illinois who has studied this issue extensively, said it’s common for states to have set aside little or no money for retiree health care.

That’s partly because they aren’t obligated to, and partly because it’s very difficult to anticipate what an employee’s health care needs might be, let alone what it will cost.

Kaplan said most states have a legal or contractual obligation to make pension payments. But there are far fewer safeguards when it comes to health benefits.

“There is really nothing that is stopping a state or local government from saying this is too expensive or we’re not going to cover this anymore,” Kaplan said.

Many states are taking action to deal with these budget shortfalls. The Pew report, citing the National Conference of State Legislatures, said 43 states made benefit cuts, increased  employee contributions or both between 2009 and 2011.

Rhode Island has been among the most aggressive, with a plan to cut benefits for both current and future retirees.

Rauh, the Kellogg professor, said many state and local governments are pushing to reduce or dismiss cost of living adjustments for retirees as a way to curb costs.

He said those changes have seemed more palatable than more aggressive changes, such as moving public employees into the types of plans that most private employers now use, which are largely driven by personal investments. There's plenty of evidence that many Americans have not done enough to save for retirement on their own using such plans. 

"(The) 401(k) plans in the private sector have not exactly been a resounding success," he said.

By R. Jeffrey Smith
Center for Public Integrity

While politicians, insiders, and experts may be divided over how much the government should spend on the nation’s defense, there’s a surprising consensus among the public about what should be done: They want to cut spending far more deeply than either the Obama administration or the Republicans.

That’s according to the results of an innovative, new, nationwide survey by three nonprofit groups, including the Center for Public integrity. Not only does the public want deep cuts, it wants those cuts to encompass spending in virtually every military domain – air power, sea power, ground forces, nuclear weapons, and missile defenses.

According to the survey, in which respondents were told about the size of the budget as well as shown expert arguments for and against spending cuts, two-thirds of Republicans and nine in 10 Democrats supported making immediate cuts – a position at odds with the leaderships of both political parties.

The average total cut was around $103 billion, a substantial portion of the current $562 billion base defense budget, while the majority supported cutting it at least $83 billion. These amounts both exceed a threatened cut of $55 billion at the end of this year under so-called “sequestration” legislation passed in 2011, which Pentagon officials and lawmakers alike have claimed would be devastating.

“When Americans look at the amount of defense spending compared to spending on other programs, they see defense as the one that should take a substantial hit to reduce the deficit,” said Steven Kull, director of the Program for Public Consultation (PPC), and the lead developer of the survey. “Clearly the polarization that you are seeing on the floor of the Congress is not reflective of the American people.”

A broad disagreement with the Obama administration’s current spending approach– keeping the defense budget mostly level – was shared by seventy-five percent of men and 78 percent of women, all of whom instead backed immediate cuts. That view was also shared by at least 69 percent of every one of four age groups from 18 to 60 and older, although those aged 29 and below expressed much higher support, at 92 percent.

Disagreement with the Obama administration’s continued spending on the war in Afghanistan was particularly intense, with 85 percent of respondents expressing support for a statement that said in part, “it is time for the Afghan people to manage their own country and for us to bring our troops home.”  A majority of respondents backed an immediate cut, on average, of $38 billion in the war’s existing $88 billion budget, or around 43 percent.

Despite the public’s distance from Obama’s defense budget, the survey disclosed an even larger gap between majority views and proposals by House Republicans this week to add $3 billion for an extra naval destroyer, a new submarine, more missile defenses, and some weapons systems the Pentagon has proposed to cancel. Republican presidential candidate Mitt Romney has similarly endorsed a significant rise in defense spending.

When it comes to weapons, respondents on average favored at least a 27 percent cut in spending on nuclear weapons, a 23 percent cut for ground forces, a 17 percent cut for air power, and a 14 percent cut for missile defenses. Modest majorities also said they favored dumping some major individual weapons programs, including the costly F35 jet fighter, a new long-range strategic bomber, and construction of a new aircraft carrier.

“Surveyed Americans cut to considerably deeper levels than policymakers are willing to support in an election season,” said Matthew Leatherman, an analyst with the Budgeting for Foreign Affairs and Defense Project at the Stimson Center, a nonprofit research and policy analysis organization that helped develop the survey.

While Republicans generally favored smaller cuts, they overwhelmingly agreed with both independents and Democrats that current military budgets are too large. A majority of Republicans diverged only on cutting spending for special forces, missile defenses, and new ground force capabilities.

The survey, which was conducted in April, was designed differently than many polls on defense spending, which have asked respondents only if they support a cut. Its aim was instead to probe public attitudes more comprehensively, and so it supplied respondents with neutral information about how funds are currently being spent while exposing them to carefully-drafted, representative arguments made by advocates in the contemporary debate. The respondents then said what they wished to spend in key areas.

The survey’s methodology and the number of respondents – 665 people randomly selected to represent  the national population -- render its conclusions statistically reliable to within 5 percent, according to the Program on Public Consultation, which conducted it.

Somewhat surprisingly, all of the pro and con arguments about cutting defense spending attracted majority support, suggesting that respondents found many elements in the positions of each side that they considered reasonable. It also suggests that the survey fairly summarized contrasting viewpoints.

Sixty-one percent agreed, for example, with a statement that the U.S. has special defense responsibilities because it is an exceptional nation, while 72 percent said the country is “playing the role of military policeman too much.” Fifty-four percent agreed that cutting defense spending is problematic because it will cause job losses, while 81 percent – in one of the largest points of consensus – agreed with a statement that the budget had “a lot of waste” and that members of Congress regularly approve unneeded spending just to benefit their own supporters.

The survey suggested, in short, that most people do not see the issue in starkly black or white terms, but instead hold complex views about the appropriate relationship between defense spending and America’s role in the world. “Most Americans are able to hold two competing ideas in their mind and, unlike Congress, thoughtfully recognize the merits of both,” Kull explained. “And then [they] still come to hard and even bold decisions.”

The survey also showed that Americans react differently when given data on the current defense budget in different contexts – providing some insight into how partisans on each side of the debate might tailor their arguments to attract support.

When framed, for example, in the context of military spending by other countries, or the portion of the so-called annual discretionary budget devoted to defense, or the amount of money spent for defense during the Cold War, most respondents said they were surprised by how large the U.S. budget is now. But when compared to the overall size of the U.S. economy, or the size of the other two leviathans in the federal budget -- U.S. spending on Medicare or Social Security – most respondents said they were not surprised.

By far the most durable finding – even after hearing strong arguments to the contrary -- was that existing spending levels are simply too high. Respondents were asked twice, in highly different ways, to say what they thought the budget should be, and a majority supported the roughly the same answer each time: a cut of at least 11 to 13 percent (they cut on average 18 to 22 percent).

In one exercise, a larger group chose to cut the defense budget (62 percent supported this) than to cut non-defense spending (50 percent) or to raise taxes (27 percent).  They then chose to cut deeply as a means to address the deficit. In yet another exercise, respondents first read pro and con arguments for the nine major mission areas that now compose almost 90 percent  of the budget; then a majority of Republicans and Democrats then selected lower levels in eight of the nine areas.

For example, two-thirds of the respondents, including 78 percent of Democrats, 64 percent of Republicans, and 57 percent of independents, cut spending on nuclear arms. Respondents on average also sought to cut ground forces the largest dollar amount. The sole program that attracted average support for more spending was the Pentagon’s effort to development new capabilities for ground forces, but the suggested increase was slight and mostly embraced by Republicans and independents.

Majorities took these steps even though they expressed slightly higher support, on average, for statements in favor of these programs than critical of them. Most notably, they said they were convinced that air power is important (77 percent), special forces are valuable (79 percent), and missile defense efforts are worth pursuing (74 percent), while giving arguments for the Navy and ground forces less backing (69 percent and 57 percent, respectively).

While most programs got either a trim or a buzz cut in the public salon, several won outright support. A majority opposed cutting the controversial V-22 Osprey, an aircraft that takes off like a helicopter and flies like a plane. Even after being told its cancellation would save $1 billion, a clear majority backed its continued production. And even while most respondents favored killing the new strategic bomber, they solidly backed continuing to use bombers to carry nuclear arms as part of a “triad” of forces, alongside land and sea based missiles.

Whether the weight of public attitudes will be felt in Congress and the White House is unclear. As close students of Washington know, legislative outcomes here are often determined not by average views, but by the passionate convictions of noisy minorities. As a result, it’s worth noting which arguments attracted not just support from solid majorities but high rankings as “very convincing”:

• It is time to let the Afghanis fend for themselves (43 percent called this very convincing).
• There is a lot of waste in the defense budget (39 percent very convincing).
• Special forces are useful and effective (36 percent very convincing).
• We are playing the role of world policeman too much (29 percent very convincing).
• Missile defenses could help defend us (27 percent very convincing).
• Air power is critical (26 percent very convincing).
• Nuclear arms serve little purpose now (26 percent very convincing).
• Defense spending weakens other parts of the economy (25 percent very convincing).

“Americans’ views as expressed in this survey are a big reason why policymakers – after the election – are likely to tighten the Pentagon’s strategy and cut national defense spending more deeply,” said Leatherman, the Stimson Center analyst.

A free ride may be ending for many Illinois students, who, like others in cash-strapped school districts nationwide, may have to pay for their bus trip to school.

NBCChicago.com is reporting that the Illinois Board of Education is considering the move, offering districts in the state the options of eliminating buses altogether or having parents pay the transportation cost. The Illinois school system serves about 2.1 million students.

Nationwide, school districts struggling with massive budget shortfalls have started charging families for what had been a free service, with even more districts, including Palm Beach County in Florida, considering the idea of a pay-to-ride bus system.

Attempts by msnbc.com to contact a spokesperson with the Illinois State Board of Education or U.S. Department of Education was unsuccessful on Tuesday. But state transportation funding for Illinois schools already has been slashed by 42 percent since 2010, according to The Associated Press.

In the Dallas-Fort Worth area, most families in the Keller Independent School District started racking up bills in August, with fees up to $170 for a child each semester. Because of Texas law, special needs students continue to ride for free.

“We understand that families are monetarily strapped and people are still upset,” said Dana Chandler, general manager of transportation with the Keller Independent School District with Durham School Services. “But I am not getting 100 calls a day as I did earlier, but down to one or two from parents. Ridership has grown as the year has progressed and I can’t believe it, but it has become successful.”

Parents in Colorado's third-largest school district are in their second year paying $1 day for their kids to ride the bus to school.

"We've had several calls from other districts asking about our program," said Randy Barber, spokesman for the Douglas County School District in Castle Rock, Colo.

Each Douglas County bus is equipped with a Zonar GPS unit to track student ridership and each student is required to carry a card or a ZPass that tracks their use of the bus, Barber said. He said that has helped school officials verify the absence or attendance of a student.

"We have 13,000 students who ride the buses each day. It's been successful in many ways," Barber said.

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The pay-to-ride idea generated a healthy round of conversation among msnbc.com readers on Facebook on Tuesday. Among the comments:

• “It's not surprising given the cost of fuel. Hopefully the fee would be reasonable, and include a plan similar to free/reduced lunches for low income families, otherwise you'd likely see an increase in absent children,” Nicole Block-Flinn posted.
• “My Daughter in Law in Hawaii, would have to pay $75 a quarter to send her kids on the bus, they drive them to school. It is good they have that option. I guess the school boards don't have enough money,” Jill Pehle-Killeen wrote.
• “Dont we pay school taxes? Where does that money go? People can barely afford food & gas what makes them think we can afford to pay for anything else?!” Jeanette Allen posted.

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