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Published in Print: April 24, 2002, as States Short $27 Billion in FY 2002 Revenues, Report Says

States Short $27 Billion in FY 2002 Revenues, Report Says

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Funding for education is being slashed in several states as a sluggish economy continues to create budget headaches for lawmakers, according to a new fiscal report from the National Conference of State Legislatures.

For More Info
The report can be purchased from the NCSL for $25 by calling (303) 830-2200, ext. 160. Or, read the executive summary.

The update says that few states have avoided hits to their budgets in the current fiscal year, which ends June 30 in most states. According to the report, which was released April 16, the nation's economic stumble has caused an estimated $27 billion shortfall in fiscal 2001 budgets and forced at least 40 states to enact or consider budget cuts.

In all, 33 states report that spending has exceeded their budgeted levels during the fiscal year.

"State revenues are falling faster than golf records in the Tiger Woods era," William Pound, the executive director of the National Conference of State Legislatures, said in a statement.

"While state legislatures are meeting the challenges of the rainy-day economy," he added, "they know that more trouble lies ahead."

Underscoring the severe budget strains, the report shows that up to 17 states have or may cut K-12 education funding before the fiscal year ends.

Education funding usually is one of the last programs to face reductions, according to the Denver-based NCSL. Twenty-nine states have also considered cuts to higher education.

In Oregon, for example, the state has already held two special sessions and is likely to hold a third such session in an effort to close a $940 million budget hole for its current two-year budget.

The fallout from such reductions is already hitting local school systems.

In Portland, which is Oregon's largest district, the economic turmoil is reflected in the district's budget. The school board for the 57,000-student district approved a spending plan for the next school year that reduces the academic year by eight or nine days, freezes teachers' salaries, and increases class sizes. ("Portland Plan Would Shorten Academic Year," April 17, 2002.)

Meanwhile, Tennessee has trimmed $101 million from its budget for this fiscal year and is studying a larger, $800 million spending reduction in its fiscal 2003 budget for education, corrections, Medicaid, and other areas.

More than half the states are likely to tap "rainy day" funds to make up for budget shortfalls, according to the NCSL report. The report is based on information collected from legislative fiscal directors in early April and covers the revenue and expenditure situation through last month.

Looking Ahead

Elsewhere, lean times mean that the 1.1 million-student New York City school system must plan on filling a projected $4.5 billion budget gap in the next fiscal year. As a result of state spending reductions in this fiscal year, the city already is looking at some $558 million in cuts from its current $11.6 billion budget.

On the other side of the country, the fiscal 2002 budget in California was reduced by $2.2 billion and included cuts to K-12 and higher education. A travel ban and a hiring freeze on state employees were also instituted. Further belt-tightening is likely for fiscal 2003.

Of the 39 states and the District of Columbia that revised their revenue forecasts for fiscal 2002, 24 states reported that revenues were failing to meet even the revised levels through the end of March. Fourteen states were on target with their revisions, however, according to the report.

Medicaid was the program most often cited as being over budget. Twenty-seven states and the District of Columbia reported that costs exceeded their spending projections for Medicaid this fiscal year.

The NCSL reports that the picture for next fiscal year varies. Four states predict that 2003 funds will be lower than current-year revenues, four expect revenue growth to be less than 1 percent, and 10 states expect revenue growth above 5 percent since current revenues are so low.

With the exception of about a dozen states, lawmakers are still deliberating their budgets for the 2003 fiscal year. According to the report, 13 states ended their regular legislative sessions by April 10. Eight other states were expected to finish by the end of this month.

Several states also expect to hold special budget sessions as new fiscal problems arise.

The report concludes: "Fiscal year 2002 has been tumultuous." And it's not over yet.

Vol. 21, Issue 32, Page 29

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