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Published in Print: November 25, 1998, as NEA: Fiscal Troubles Ahead for Many States

NEA: Fiscal Troubles Ahead for Many States

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Looming fiscal trouble in a number of states could inhibit current and future efforts to improve their public schools, a report from the National Education Association concludes.

The current strong economy masks underlying problems in nearly a dozen states where anticipated tax revenues will fall well short of spending projections for the next eight years, according to the NEA, which issued its findings last week.

Those so-called structural deficits, if unaddressed, could threaten educational services, said Hal Hovey, a former budget director in Illinois and Ohio, who prepared the NEA report entitled "The Outlook for State and Local Finances: The Dangers of Structural Deficits to the Future of American Education."

The report cites 11 states where it projects problems to be the worst by 2006. In order of most severe to least severe, they are: Nevada, Alaska, Hawaii, Idaho, New Mexico, Wyoming, Arizona, Tennessee, Florida, New Hampshire, and Texas. The report says the 11 will need revenue increases of 1 percent a year for the next eight years just to maintain current services.

What's problematic in many of those states is their reliance on revenue sources--including sales taxes and gambling taxes--that fail to keep up with the costs generated as their populations grow, the report asserts.

To avoid a future crisis, it recommends that the states undertake tax reforms now that aim to broaden their revenue bases, rather than raise existing rates.

If the states enact school programs that require additional state spending, they will have trouble sustaining them over the next eight years without raising taxes, said Mr. Hovey, who is the president of State Policy Research Inc., a research firm in Hilton Head, S.C.

Tax Resistance

"The message for these states is: 'Do not expect educational spending to increase beyond inflation and enrollment increases unless you plan major tax increases,' " Mr. Hovey said in an interview. And, when states hit fiscal crises, education is often an easy target for spending cuts because it makes up such a large percentage of most state budgets, he added.

But states will likely have a hard time generating popular support for major tax changes with the economy as strong as it is now, said Gloria M. Timmer, the executive director of the National Association of State Budget Officers, located in Washington.

Raising taxes based on an eight-year projection would be a "tough sell" in many states, Ms. Timmer said. "The political situation is such that it would be a solution of last resort." Still, education has become enough of a priority in some states that politicians could consider tax increases before instituting big cuts in school spending, she added.

Government officials in many of the states identified by the report are aware of the gloomy fiscal forecast, even as they argue against new tax proposals or promote tax cuts, said Edward J. Hurley, a senior professional associate with the 2.4-million-member NEA.

Based on the current tax structure in Tennessee, for example, the state can expect a budget shortfall of 9.1 percent by 2006 if current spending levels continue, the report estimates. Even so, Gov. Don Sundquist, a Republican who was re-elected this month, and numerous state legislators pledged during this year's campaigns not to raise taxes.

Statewide resistance to any new taxes, including personal-income taxes, remains strong, said Harry A. Green, the executive director of the Tennessee Advisory Committee on Intergovernmental Relations, an agency created by the state legislature.

"I don't believe we can go another four years without having some type of funding crisis where we'll either have to cut services or raise taxes," Mr. Green said. "There is a desire to protect education as much as possible. But when it gets down to a critical time ... certainly some education programs are in jeopardy."

In January, the committee plans to present the legislature with recommendations for how Tennessee can get a handle on its projected budget shortfall.

The report also lists 10 states that can expect to have budget surpluses by 2006 under their current tax structures. Those states are: Iowa, Nebraska, North Dakota, Ohio, Kentucky, Michigan, Connecticut, New York, Maine, and Minnesota.

States with surpluses are those that rely more heavily on graduated income taxes--a revenue source that increases faster than other sources in a healthy economy, the report notes. Such states also tend to have more stable populations or declining school enrollments, the study found.

More information about the report is available on the NEA's World Wide Web site at: www.nea.org./nr/nr981118.html.

Vol. 18, Issue 13, Page 14

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