States' New Deficits Bode Ill for Schools, Experts Predicting

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State education programs, which were largely spared from significant spending cuts in this year's austere budgets, can no longer be guaranteed immunity when the legislatures begin meeting again, fiscal experts warned last week.

The dire predictions for education funding came amid evidence in recent weeks that, after a brief rebound over the summer, the nation's economy was once again headed sharply downward, taking with it the outlook for state revenues.

As a result, many states now are facing a new round of spending cuts and tax increases that could equal or exceed the politically wrenching budget confrontations they went through just a few months ago.

Early signs of fiscal troubles have sprouted in a number of states where tax collections for the current fiscal year have fallen well below projections. Significant shortfalls in bellwether states such as California, Florida, and New York will require more than $4 billion in new revenues or spending cuts to balance this year's budgets.

And while most states that experienced budget problems last year can expect the same in the months ahead, officials of the National Governors' Association and the National Association of State Budget Officers warned last week that even more states are being drawn into the spreading fiscal quagmire.

"The likelihood is that the recovery will be slower to arrive and weaker when it does arrive than some state estimates assume," the groups noted in their semiannual report on state finances. "Fiscal 1992 may be another year of disappointing revenue collections."

Only 11 states report strong revenue collections, according to the survey. Such indicators project that last year's total of 29 states that had to make midstream cuts to balance fiscal 1991 budgets will likely rise in the year ahead.

Education's Falling Share

Perhaps an even more ominous sign for education came in the new fiscal study's finding that, for the first time since the survey began in 1977, state education spending was dropping as a percentage of state budgets.

Moreover, noted Brian Roherty, executive director of the N.A.S.B.O., the declining share occurred despite efforts by officials in many states to insulate elementary and secondary education funding from cuts.

The data indicate that education is beginning to lose out to soaring state costs for Medicaid and prisons. Combined with the need for deeper overall cuts, the pressures created by the largely uncontrollable spending demands of those programs signal much tougher sailing for education over the next year.

In California, for example, education advocates last year claimed a victory in preserving a constitutional guarantee of funding for education, although their triumph was due largely to creative accounting. But the battle there has already been rejoined, with aides to Gov. Pete Wilson hinting late last month that school aid would once again be on the cutting block.

The California situation shows that, while school funding escaped the massive cuts that hit some programs last year, it did suffer, and will likely suffer more in the year ahead, observed Ron Snell, fiscal program director for the National Conference of State Legislatures.

"There were real cuts in education budgets last year," he said, "and education will be examined [more closely] this year. It's hard to say how far it can go, but it is an area where people will take a serious look."

Worse Than Predictions

In most cases, the existing economic conditions are a far cry from what budget experts had predicted at this time last year, when many budgets were proposed, and even from the forecasts of four months ago, when most budgets were adopted.

"Everyone thought that the recession would be ending by now and that we would see recovery by next year," said Cindy Katz, assistant director of the California finance department.

The fiscal news has hit especially hard in California, where officials last year closed the largest state budget gap in the nation's history--$14 billion with a combination of drastic program cuts and huge tax hikes.

Even with that, projections released last month were showing a further shortfall of $3 billion for the current fiscal year. Of that amount, analysts said, $2 billion is due to declining tax revenues, with the remainder caused by higher costs for welfare and health care.

Similar factors are cited in New York, where state officials last week issued a mid-year budget report showing a $689-million budget gap. About half of the new projected deficit comes from tax collections that have run behind expectations, according to a spokesman for Gov. Mario M. Cuomo.

The Governor, who is expected soon to present a plan for closing the gap, said last week that he will call the legislature into special session to deal with the shortfall.

Florida Cuts at Issue

The Florida legislature, meanwhile, is awaiting a similar call from Gov. Lawton Chiles to tackle the state's new deficit.

Governor Chiles and his cabinet had sought to address the shortfall themselves, approving last month a $579-million package of spending cuts that included substantial reductions in education.

The state supreme court ruled last week, however, that the Governor did not have authority to order the cuts, which it said could only be authorized by the legislature.

Moreover, the deficit has grown another $10 million just since state executives approved the cuts.

The tense budget atmosphere has caused Commissioner of Education Betty Caster, who was one of two cabinet members to vote against the cuts, to become a leading voice for strong legislative action on taxes.

Instead of spending cuts, Ms. C aster has called for closing sales- and corporate-tax loopholes and imposing a temporary sales-tax increase.

"We can't continue to cut education," said Mary Anne Havriluk, a spokesman for Ms. Caster. "It's no secret to anybody in the state that our revenue base is too narrow."

Despite the ongoing budget troubles, Ms. Castor plans to push for a $1.5-billion increase in education funding in the state's 1993 budget.

Cutting Current Funding For many states, however, looking ahead to a new budget cycle will have to take a back seat to trying to preserve this year's scant state funds.

Budget analysts at the Southern Regional Education Board, for example, said that just among their member states fiscal 1992 budgets have been trimmed in Alabama, Arkansas, Florida, Georgia, Kentucky, Maryland, and South Carolina.

N.C.S.L. officials added that states west of the Mississippi River that had fared relatively well last year are also reporting shortfalls this year.

The N.C.S.L. has accelerated its schedule for monitoring states' budget health and expects to complete a national update this month. "We wanted to get an early start because the bad news is already rolling in," Mr. Snell said.

Analysts viewing the national budget picture note that this year's early budget cuts are a troubling sign because many states set modest revenue goals following their weak showing in fiscal 1991.

Further, said Mr. Roherty of the state budget officers, many of the states facing budget shortfalls have few places to turn in making cuts.

"We are anticipating a budget year that was harder than it was last year," he said. "The fact is that we're probably only in the middle of the economic slowdown. We're not coming out the end yet, and most of the short-term action the states can take has been exhausted."

"States are at the point where fundamental changes are going to have to occur in the basic services they provide," Mr. Roherty said.

Vol. 11, Issue 10, Pages 1, 21

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