Almost every state is facing severe budget deficits. California's hole is particularly gruesome, equal to more than half of its total budget, but there are a bunch of states that have deficits equal to 20-30 percent of their budgets.
In the 80s and 90s, conservatives had this notion that by limiting taxes, or making it necessary to win a popular vote to raise them, you could control the size of government. (Hence Norquist's line about making government small enough to drown in a bathtub.) But it's turned out that while people hate taxes, they generally like government services, and what they really like is government services AND low taxes. With property values rising, governments could cut property tax rates, still bring in more money than before, expand services, and make everyone happy. With property values falling, and every dollar already squeezed out of gimmicks like selling off future toll revenues, there's not a lot of options other than raising taxes, cutting services, or both.
Here in Virginia, we don't seem to be doing too bad (other than the legislature's boneheaded refusal to take up the Unemployment Insurance money from the stimulus bill). Our deficit is ONLY about 11 percent of the budget. There are certainly cuts on the table, but thanks to the stimulus dollars coming down, the really ugly education cuts we were expecting were avoided. In the scheme of things, I can live with having to exit the highway and go to McDonald's to use the bathroom instead of using a public rest stop. The roads are getting bumpier, and the library hours have been cut.
In a possibly related note, I got my first ticket ever yesterday, for failure to stop before making a right on red. There were about six officers there, and they were just pulling people over one after another. Given that it was a T-intersection, with no oncoming traffic, it's hard to see this as other than a revenue measure. It's a $50 ticket -- with a $62 processing fee.