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Budget Troubles Hit Summer Crescendo in Many States

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The fiscal troubles that have plagued many states throughout much of the year reached a crescendo this summer, as lawmakers throughout the nation scrambled to balance their budgets.

Despite declarations from federal officials that the recession is over, the continuing slump in state revenues forced many states to adopt painful tax hikes and spending cuts--often after weeks of politically explosive confrontation.

As of late last week, two states--Connecticut and Pennsylvania--had yet to work out a spending plan for the fiscal year that began July 1. Seven other states entered the new year without a budget before lawmakers reached an accord this month.

State officials admitted that they had been caught off guard by the staying power of the recession and the depths of the resulting budget gaps.

"Very few economists saw how very fast revenues were going to go down," said Gov. John R. McKernan Jr. of Maine, who shut down his state's government for nearly two weeks until a budget agreement could be reached.

"I don't think anybody can remember a much worse year," Mr. McKernan said. "It's just very hard when all of a sudden--when you are used to having increases in the double digits--the money goes flat. It puts on all kinds of pressures."

A recent survey by the Center for the Study of the States found that during the first quarter of 1991, corporate-income-tax receipts dropped in 26 states, while sales-tax revenues fell in 14. Personal-income taxes went down in only four of the 40 states with such levies, however.

The best that can be said for education is that it has fared about as well as other budget areas.

A recent survey of 24 states found the median education increase for fiscal 1992 was about 4 percent, according to Steven D. Gold, director of the center on the states.

In Kentucky, Nebraska, Utah, and Nevada, education funding rose by more than 8 percent, the survey found, while funding fell below 1991 levels in Massachusetts, New York, and Tennessee.

Moreover, even the modest education-funding increases of this year were achieved at a high price. State tax increases "will probably total $17 billion to $19 billion" in the new fiscal year, Mr. Gold said.

He also predicted that a growing number of factors, such as rising enrollments and skyrocketing state expenditures on Medicaid and prisons, will make it hard for schools to make strong financial gains once the recovery begins.

When revenues do pick up, Governor McKernan said, policy makers will probably focus on improvements rather than rebuilding programs that have been dismantled amid the current cuts.

"I hope we've used the last two years learning to live with not as much," he said. "So when the revenue returns, it should be a process of not recreating the old system."

CONNECTICUT

Impasse Over Income Tax Continues To Block Budget

Nearly a month into the new fiscal year, Connecticut lawmakers were still unable as of late last week to reach accord on a budget that must reckon with an anticipated deficit of $2.7 billion.

At the heart of the disagreement is an attempt by Gov. Lowell P. Weicker Jr. to restructure the tax system by creating an income tax.

In return for instituting an income tax, Mr. Weicker would cut the 8 percent sales tax in half, while extending it to previously untaxed items.

But the plan proposed by Mr. Weicker, a former Republican who was elected last year as an independent, has met intense opposition, particularly from members of his former party in the legislature.

Late last week, a new funding strategy was beginning to take shape after the House earlier in the week had failed to muster the two-thirds majority necessary to override the latest gubernatorial veto.

The new plan, put forth by two Democratic representatives, Ronald L. Smoko and John W. Thompson, would give the Governor some of what he is seeking. It would reduce the sales tax to 6 percent but not expand the base. Moreover, it proposes that Connecticut taxpayers pay a flat 20 percent "piggyback" of their federal tax liability.

The piggyback plan replaces one that had been shot down by the Governor. It did not provide for an income tax, but called for an increase in the sales tax, which Mr. Weicker said would further weaken the state's business climate.

Meanwhile, after the Governor shut down part of state government for a few days early in the month, agencies have been operating on two-week continuing resolutions. The second one was to expire July 28, and observers anticipated renewed squabbling over a third temporary funding measure if a final agreement had not yet been reached.--kd

PENNSYLVANIA

Prospects Rise for Accord After Lengthy Deadlock

After more than a month of negotiations, Pennsylvania lawmakers were said late last week to be close to reaching a budget agreement.

The state, already burdened with a $434-million deficit in the previous year's budget, has been without a budget plan since the new year began on July 1. The impasse left 53,000 of the state's 105,000 employees without full paychecks last week and has delayed state payments to schools, according to a spokesman for Gov. Robert P. Casey.

Observers said the slow progress of budget negotiations has stemmed in large part from political maneuvering between the Democratic Governor and House and the Republican-majority Senate.

The House in June passed a $13.8-billion spending plan that included a sizable increase in state aid for education and would have required a significant tax increase. The plan was never taken up in the Senate, however, where resistance to new taxes is strong.

A bill authorizing a $2.8-billion tax hike to fund the spending increase failed to pass the House this month.

"There'll be a huge raise in taxes needed and, of course, neither party wanted to be seen as responsible," said Tim Allwein, director of legislative services for the Pennsylvania School Boards Association.

Lawmakers said the newest proposal, which was being reviewed by Governor Casey last week, calls for a tax increase and a more modest increase in education spending.

The plan also incorporates the Governor's controversial proposal for controlling special-education costs by allocating funds on a formula basis, rather than the current "excess needs" method under which school systems essentially bill the state for the extra costs of serving students with disabilities.

The plan also includes $20 million for poorer districts--a signal that the state recognizes that there are inequities in the existing school-funding system, which is currently being challenged in court.--dv

CALIFORNIA

Fund Guarantee Spared; School Aid Squeezed

California closed the largest budget gap ever faced by a state in part through a fiscal maneuver that squeezed school funding while preserving a school-aid guarantee.

The $55.7-billion budget signed by Gov. Pete Wilson this month spared Proposition 98, which guarantees schools about 40 percent of state revenue. The constitutional amendment had been targeted by the Governor for suspension in his effort to close the budget gap.

But the survival of Proposition 98 came, ironically, at the expense of funding for schools, as the state deficit ballooned to $14.3 billion and triggered automatic school-aid reductions that made suspending the initiative unnecessary.

Based on the deficit level, it was determined that schools were over-allocated $1.2 billion last fiscal year. The new budget package termed that money as a "loan" to be carried forward into the current year, thereby alleviating the need for many state cuts in education spending while leaving districts the task of trimming their own budgets.

With school districts still an estimated $1.2 billion short of meeting their projected budget needs, the preservation of Proposition 98 was seen as a hollow victory for education organizations such as the California Teachers Association, which fought hard to protect the initiative.

Nevertheless, officials of the state education department contended, preservation of Proposition 98 will benefit schools in the long term because the initiative stipulates that the state must reimburse districts for the full amount of cost-of-living increases deferred this year.

Without the money carried over from last year, the state's general-fund education budget rose by about 3.5 percent, with most new funds earmarked to help districts keep pace with burgeoning enrollments.

The overall state budget package included about $7 billion in higher taxes and $7 billion in service cuts.

The sales tax was increased by 1.25 percent and extended to snacks, newspapers, and magazines; vehicle-registration fees were increased; and the income-tax rate was hiked from 9.3 percent to 10 percent for those earning more than $100,000, and to 11 percent for those earning more than $200,000. Many of the tax increases were resisted by most of Mr. Wilson's fellow Republicans in the legislature.

The budget also calls for more than $800 million in cuts in state operations, including layoffs of state employees and a 20 percent rise in fees for state universities.--ps

NEW YORK

Schools Hurt by Delays, $514-Million Aid Cut

After months of wrangling, Gov. Mario M. Cuomo and the New York legislature this month finally settled on a $52.4-billion budget package that included a 5 percent cut in state school aid.

The budget package, passed 65 days after the statutory deadline, contained other program cuts and several new taxes and fees as the state struggled to overcome a deficit estimated at up to $6.5 billion.

After the legislature came up with new revenue sources, Governor Cuomo agreed to restore about $650 million of the record $900 million in appropriations that he had vetoed in order to keep the budget balanced.

About $440 million in school aid was included in the restored funds, but $514 million remained cut from the budget, despite an intense lobbying effort carried out by teachers' unions and other education groups.

The final state spending plan also called for $500 tuition increases at state universities and elimination of Regents and Empire State scholarship awards.

The Governor failed in his attempt to alter the state school-aid funding formula to force wealthier districts to bear the brunt of funding cuts. His proposals fell victim to regional conflicts in the legislature.

The budget package included provisions to allow most districts to delay adoption of their budgets until the end of August to help them cope with the late arrival of state-aid estimates.

The damage to many school districts appears to have already been done, however.

A spokesman for the New York State School Boards Association said many districts have had to borrow money to offset the delayed state aid, and voter frustration with the budget process was described as a key factor in rejection this spring of 28 percent of district budgets, the most since 1980.

The overall spending plan approved by lawmakers included $1.5 billion in increased fees and taxes, including a suspension of a scheduled cut in personal-income-tax rates and a tax-rate increase on individuals and families with incomes of more than $100,000. It also was expected to result in layoffs of more than 7,000 state employees.--ps

MASSACHUSETTS

Education Programs Hit By 5 Percent Reduction

The legislature of recession-racked Massachusetts this month passed a 1992 budget that was even smaller than that proposed by Gov. William F. Weld earlier in the year.

Lawmakers adopted a $12.9-billion budget, which represented a decrease of 5.6 percent from the previous year. Elementary and secondary education took a 5 percent cut.

Nearly all state education programs will lose funding, including professional development, early-childhood education, and statewide testing. Moreover, basic state aid to education was reduced $70 million.

"Each of the lines ... have been savaged," said Commissioner of Education Harold Raynolds Jr.

Some communities may be able to recoup at least a share of funding, however, under legislation allowing them to hold a special referendum in September to seek a one-time override of Proposition 2, which places a ceiling on local revenue.

In other action, lawmakers approved a choice plan under which parents may send their children to any public school in the state that elects to participate. The plan is supposed to go into effect in September, but the Governor's Advisory Committee on School Choice has concluded there has been insufficient preparation time and suggested the program begin on a smaller scale.

Also passed was a scaled-down version of Mr. Weld's proposal for an education secretariat.--kd

ILLINOIS

Edgar Wins on Extension Of Surcharge for Schools

Illinois lawmakers this month handed Gov. Jim Edgar a significant political victory by approving a permanent extension of an expiring income-tax surcharge for education.

Weeks of partisan wrangling between the Republican Governor and the Democrat-majority legislature, however, dragged the budget process 18 days beyond its deadline.

The final budget package approved by lawmakers contained measures designed to provide property-tax relief while countering a budget gap of almost $2 billion.

Under the fiscal plan, half of the 20 percent income-tax surcharge, which was due to run out July 1, was extended permanently, thus providing an additional $395 million annually for school aid.

The other half of the surcharge was extended for two years, with revenues being equally divided between local governments and the state during the first year. In the second year, local governments would get 75 percent of surcharge revenues.

The Governor's success in getting the surcharge for education passed was credited largely to his alliance with Mayor Richard M. Daley of Chicago, whose backing helped undermine opposition by Speaker of the House Michael J. Madigan.

Other provisions in the budget package imposed a 5 percent cap on annual property-tax-rate increases in several Chicago-area counties and froze property taxes in Cook County for one year.--ps

NORTH CAROLINA

Cuts Seen as Major Blow To School-Reform Efforts

Struggling to close a deficit of more than $1 billion, North Carolina legislators have approved deep spending cuts that, educators say, will deal a major setback to the state's recent school-reform efforts.

The budget plan approved this month also raised taxes by more than $600 million and imposed reductions on a wide range of state programs.

Among recent reforms, observers said, the Basic Education Plan has been gutted and teacher-salary reforms were left unfunded.

"The reform movement was one of the casualties of this session," said Glenn Keever, communications director for the education department.

The cutbacks also will hit the basic operations of local school districts. The state anticipates saving nearly $18 million this year by eliminating funds used to help pay districts' utility bills, for example. State officials said districts are almost certain to cut payrolls to make up for the lost utility-bill funds.

But, while the blows to education are painful, educators said they were consoled by the fact that their cuts were in line with those felt in other state-funded enterprises.

"I don't think anyone feels like we were singled out or mistreated,'' said Gene Causby, executive director of the North Carolina School Boards Association. "We took a hit but everybody took a hit."--lh

NEW JERSEY

Education Funding Spared, But Cuts Already Made

Although New Jersey lawmakers were forced to agree to lay off more than 2,000 state workers and sell $400 million of highway to the New Jersey Turnpike Authority to avoid a deficit, the budget they produced late last month largely spared elementary and secondary education.

The reason, however, that the schools were insulated from June's Continued on Following Page Continued from Previous Page

budget battle was that the legislature had already decided in the spring to cut $350 million from the $1.1-billion increase in state education aid mandated by the state's 1990 finance-reform law. The measure approved in March, which was aimed at funding property-tax relief, also applied strict spending-growth caps that could redirect an additional $229 million from the schools to property taxpayers.

Because of the changes in the school-finance law, education funding was not on the table during last month's budget talks. Indeed, while layoffs will take a large toll in all other state departments, the education department could rehire some workers it had fired in the spring.

"The damage to education occurred well before this last battle," said Frank Belluscio, a spokesman for the New Jersey School Boards Association.--jw

RHODE ISLAND

Cuts in State School Aid Said To Exceed 10 Percent

The Rhode Island legislature last month passed a fiscal 1992 budget that cut deeply into state aid to education but spared most other elementary and secondary programs.

The $307-million K-12 budget represents an overall decrease of nearly 10 percent from the previous fiscal year. Other programs were frozen at 1991 funding levels.

Because funds were shifted around to meet other state obligations, local aid to education actually will realize a reduction of 11.5 percent. The state, for example, now is fully responsible for the Central Falls school district, which it took over this spring.

Education fared better than what had been proposed initially by Gov. Bruce Sundlun, who had sought an 18.5 percent cut. Cuts earmarked for education were spread around among more state departments.

The state also is withholding payment to the state-employee retirement system, which will also affect teachers' pensions.--kd

MAINE

Districts Seen Absorbing Effects of Funding Freeze

After a protracted struggle that forced a government shutdown, Maine lawmakers and Gov. John R. McKernan Jr. reached agreement this month on a $3.2-billion, two-year state budget that funds education at basically the same level as schools received after a mid-year cut in fiscal 1991.

State officials and educators said the stagnant funding will force some cuts in districts for the coming school year and promises more dire effects if the Governor and legislature are unable to intercede with increased funding for next year.

But Commissioner of Education Eve M. Bither said most districts can absorb some cuts after double-digit funding hikes in recent years. This year's flat funding, accepted "with the understanding that we would come back next year and try to find more money," should be seen as a one-time blow to school-improvement efforts, she said.

The funding freeze will force cutbacks in several districts, according to Daniel A. Calderwood, associate executive director of the Maine School Management Association.--lh

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