This week, President Bush released his proposed federal budget, which, as expected, signaled a return to deficit spending. Between a sluggish economy and increased spending on defense and “homeland security” the surplus has evaporated. But Washington is not the only government facing an economic crunch. In fact, state governments across the nation are swimming in red ink, and unlike the federal government, most states have laws that require budgets to be balanced. The National Association of State Budget Officers (NASBO) projects state shortfalls to total $40 billion for 2002.