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Budget Troubles Overshadow Schools As the Chief Issue in StateLegislatures

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By Lonnie Harp

NASHVILLE--State budget troubles overshadowed education funding as the chief issue facing legislators over the last year, and the souring national economy will probably keep the schools in second place in lawmakers' minds in 1991, according to a new survey by the National Conference of State Legislatures.

The survey, released here last month during the NCSL's annual meeting, marked the first time since the group began its yearly report in 1982 that education funding was not found to be legislators' overriding concern.

The survey did find that education had fared relatively well in legislative action on budgets this year. State appropriations for the schools in fiscal 1991 were pegged an average of 8.4 percent above the previous year's level.

But court-ordered education-finance reforms, the swelling cost of health care and prisons, and economic downturns in many areas prompted lawmakers both to dip into reserves and to raise taxes in order to balance state budgets.

The $7.6 billion in tax increases approved by the states--the biggest total rise in levies since 1983--was surprisingly high for an election year, the study notes.

All signs point toward even greater strains on state budgets in the coming year, said Ronald K. Snell, the NCSL's fiscal director.

"It's probably going to be more difficult in fiscal 1991 than this shows," Mr. Snell warned, adding that updated figures since the July survey have shown increased spending and reduced revenues.

The most distressing trend, Mr. Snell noted, is the widespread depletion of state budget reserves.

Lawmakers usually try to stow away 5 percent of revenues in case of emergencies. But the average balance fell to 4 percent in fiscal 1990, the study shows, and is projected to dip to 2.3 percent in fiscal 1991. Moreover, more than half of the total reserves were held by 13 relatively small states, while most large states reported the smallest fiscal cushions.

"Reserves are a one-time resource," Mr. Snell said. "That's money that has been put aside for a rainy day."

"A bad year like this one forces states to find a lot of ingenuity by cutting capital expenses and maintenance, and probably means a lot of states with tax increases next year," Mr. Snell continued. "My guess is that you'll see another 10 or 15 states with fairly major tax increases next year."

In 1990, 23 states passed tax increases, the survey found, with the total gain in revenue expected to more than double tax hikes passed the previous year.

Six states accounted for 85 percent of the new taxes, the report says. Among them were Kentucky, New Jersey, and Texas, where legislatures approved major increases to fund court-ordered school-finance reforms.

The study indicates that states will get the bulk of their $7.6 billion in new revenues from increasing rates for personal- and corporate-income and sales taxes. In addition, they plan to obtain another $1.8 billion by speeding up collection of existing taxes and fees and postponing previously enacted tax cuts.

Even so, analysts expect thattates will again face shortin the year ahead.

"Next year could be a record-breaking year for tax increases," said Steven D. Gold, director of the Center for the Study of the States at the State University of New York in Albany. New taxes--and with them, the potential for citizen tax revolts--could hit a 20-year high, he said.

A report last month by Mr. Gold's research center underscored that concern by showing that tax collections are sagging in many states. Of the 43 states studied, 23 reported that tax revenues collected in fiscal 1990 were at or below the rate of inflation--a sign, it suggests, that many areas are already in or nearing a recession.

Personal-income and sales taxes, two of the three taxes that together provide almost two-thirds of state revenues, rose about 7 percent each, the study found.

But corporate-income taxes, the the other major source of funds, fell nearly 7 percent. The drop reflects weak corporate profits across much of the country, Mr. Gold noted.

Despite the fiscal pinch, however, education may fare better than other state programs, he said.

"One of the reasons I think taxes are going up is that we may have turned the corner in 1990 on the willingness to raise taxes to improve schools," Mr. Gold said, adding that many states are tying hefty tax increases to education reforms. "I can't believe it's a flash in the pan."

Even in the face of economic concerns, state spending on elementary and secondary education outpaced the inflation rate in fiscal 1990, according to the NCSL study. Outlays for higher education increased at about the same rate as inflation.

The preliminary report shows that 47 states, Puerto Rico, and the District of Columbia appropriated a total of $85 billion for elementary and secondary schools in fiscal 1991, up from $78.4 billion in fiscal 1990.

The study excludes spending figures from California, Massachusetts, and North Carolina, which had not completed budget action by the time the report was compiled.

Five states will increase elementary and secondary spending by more than 20 percent in fiscal 1991, the report indicates.

Nebraska led the nation in increasing state spending on education. As part of a finance-reform effort aimed at reducing school reliance on local property taxes, the legislature boosted education funding by 67 percent, thus enlarging the state share of school funding from 23 percent to 45 percent.

State school funding also will jump by more than 20 percent in Montana, Minnesota, Kentucky, and Oklahoma. Wyoming is the only state that will decrease education funding in fiscal 1991, according to the report.

Fiscal discussions at the NCSL meeting here were dominated by concerns over the effects on state budgets of both the weakening national economy and proposals to cut the federal deficit.

"The national economy has failed to live up to expectations," said Lee A. Daniels, the Republican leader in the Illinois House and president of the group. "We're not sure where the economic climate will take us."

Mr. Daniels and many of his colleagues called on President Bush and Congressional leaders to keep states in mind as they consider pose deficit-cutting measures. Mr. Daniels was especially critical of proposed increases in federal excise taxes on such products as beer and gasoline, warning that the increases would reduce consumption and thus cut into state revenues.

"We're saying don't solve one fiscal crisis by creating 50 others," Mr. Daniels said.

Lawmakers also criticized the federal government for increasing the states' responsibility for mandatory programs such as Medicaid, for which state costs jumped 25 percent in fiscal 1990.

States are overburdened by federal initiatives imposed on states without accompanying funding, said Speaker of the House John L. Martin of Maine.

Mr. Martin pointed specifically to the national education-goals effort launched by President Bush and the governors.

"The federal government has an education agenda, but there's no money that goes with it. That is now going to be left for the states to fund," Mr. Martin said. "That's where we're trying to say, 'Stop it."'

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