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Educators Prod Lawmakers To Loosen Hold on Cash Reserves

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States with surplus cash are stashing it in "rainy day" accounts or moving it to next year's ledgers, raising complaints from some education leaders that the money should go to schools.

Revenues flowing to many state coffers have outpaced expectations this year, thanks to conservative budgeting and the economic boom in many areas of the country. While some of this money is finding its way into school budgets and other programs, many states are setting aside most of the cash as insurance against the lean times they see ahead.

Michigan, for example, is sitting on budget reserves of about $1.1 billion, a record high for that state and the largest amount this year in the country, state officials say.

Meanwhile, Ohio lawmakers this year added $535.2 million to the state's rainy-day fund, pumping the total to $828.3 million in a $33.8 billion budget.

Plump Kitties

States' cash reserves are at their highest levels since 1980, according to a recent survey by the National Conference of State Legislatures and the National Association of State Budget Officers. (See related story)

Educators in some states have targeted these kitties as a potential source of revenue for schools--if only lawmakers would agree.

In Oklahoma, for example, Democrats and Republican Gov. Frank Keating clashed over whether the state's rainy-day fund could be earmarked for school districts with expanding enrollments. (See related story.)

In Ohio, the plaintiffs in a school-funding suit have lobbied to siphon the state's plump reserves for low-wealth districts in the state. The legislature is filling the state's rainy-day fund simply because "it's the 'in' political thing to do," asserted William L. Phyllis, the executive director of the coalition of school districts that have sued the state.

And in Pennsylvania, as budget surpluses in the past two years have topped more than $850 million, Philadelphia has cut school-reform plans for lack of funding.

"That just stuck in our throat," said Gail Tomlinson, the executive director of the Citizens Committee on(See Education in Philadelphia, a local advocacy group. "We have cut teachers and reading programs while the state has saved up all this money."

New Fiscal Conservatism

Lawmakers' fiscal conservatism is relatively new, budget analysts and school-finance experts say. In the late 1970's, states often finished their fiscal years with lots of cash on hand. That money usually was plowed back into state programs, with schools getting a big share of the windfall.

But as antitax sentiment swelled in the 1980's, lawmakers worked harder to balance state budgets without running up big surpluses, according to David Liebschutz, the associate director of the Center for the Study of the States in Albany, N.Y.

The economic downturn of the early 1990's also made lawmakers more cautious. Legislatures had to make drastic cuts to close recession-induced budget deficits, and those painful memories linger, said Stacey Mazer, a senior staff associate with the National Association of State Budget Officers.

The budget officers' group has not surveyed legislators' attitudes, Ms. Mazer said, but those cuts taught them that "you get yourself into trouble when you use one-time revenues for things like teacher salaries that are ongoing programs."

But some states have continued to turn over chunks of their surplus funds to schools. In West Virginia, for example, up to $30 million of an estimated $84 million surplus could go to a school-construction fund, said Roger L. Smith, the state budget director.

A Buffer for Hard Times

However, in most states, any extra cash is being diverted to reserve accounts as a buffer against hard times.

Gov. John Engler of Michigan pushed for a big rainy-day fund in part to protect the state against an economic downturn that might result from auto-industry troubles.

In Pennsylvania, school funding was increased by about 4.4 percent, but the legislature ignored Philadelphia's pleas to tap the budget surplus. Lawmakers gave away about half of the state's $567 million surplus in tax relief and set aside most of the rest for next year, when the state economy is expected to sour, said George Riddle, a budget analyst for the Republican-controlled Senate.

Many states have insisted on bulking up their rainy-day funds as a hedge against expected changes in federal programs that could cut federal aid.

Such changes could leave many states with a big budget shortfall, Mr. Smith of West Virginia said. "Whatever cuts are made at the federal level," he said, "states aren't going to be able to make up the difference."

In some states, lawmakers no longer send surpluses to schools because education is not a priority, statehouse observers say. In Mississippi, for example, while state revenues are expected to increase about $130 million more than projected, the legislature this year approved only two bills to increase school funding, according to Gary Johnson, a professor of educational leadership at Mississippi State University.

The state's "school-finance policy and the reform of Mississippi's K-12 school-finance system are not only on the back burner of the legislative stove," Mr. Johnson said in a recent study of legislative action on education spending, "but they are also not even in the kitchen at the present time."

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