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Published in Print: January 8, 2003, as States Brace For Tough New Year

States Brace For Tough New Year

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Like a thunderstorm that skirted the edge of town, state budget cuts in many cases avoided elementary and secondary schools during the past 18 months.

But as legislators gather in state capitals this month and 24 new governors take the reins, states find themselves with a total of $40 billion in estimated current-year revenue shortfalls. Add to that $60 billion in projected shortfalls for the next budget year, plus the fact that many states have depleted their reserves, and the stormclouds are building right over school budgets.

"It's bound to hit K-12 education," said Jane Hannaway of the Washington-based Urban Institute, who is researching the ailing economy's impact on schools. "We're really beginning a significant, very serious period of resource trouble."

Education Week found that 38 states have cut or frozen their current-year budgets, although many shielded K-12 education from direct cuts.

Twenty-two states reported that they face budget shortfalls in the coming budget year—and in some cases the shortfalls are huge. The data suggest that K-12 schools may no longer be spared, unless states find substantial amounts of new money or make cuts elsewhere.

For educators and policymakers, the situation signals a year of turmoil, including the prospect of layoffs and of restructuring within state governments.

Yet some policy experts say that the downturn could help make state education agencies and large school districts more efficient: What organizations don't need, they'll do without.

Some critics argue that states overspent in recent years, when revenues were flowing thanks to the national economic boom. State leaders should have been more cautious, those observers contend, and now they're reaping what they have sowed. Even so, states find themselves facing a variety of new education expenses.

All states must contemplate the new requirements and uncertain costs of the federal "No Child Left Behind" Act of 2001. ("'No Child' Law Vies for Scarce State Resources," this issue.)

And the fiscal crisis also is colliding with court decisions and voter initiatives in some states.

Florida voters, for example, approved strict and expensive limits on class sizes on the November ballot, but also re-elected Republican Gov. Jeb Bush, who opposed the plan. Now, he and the GOP-controlled legislature must figure a way to pay for the estimated billion-dollar program.

In Ohio, the state supreme court has again overturned the way the Buckeye State pays for schools, which may require lawmakers to spend billions more on public schools.

Some of Oregon's schools, meanwhile, are cutting days from the school year to save money, and students in the state have held walkouts to protest.

The budget crisis also is stirring some unlikely political currents. Republican governors in Arkansas and Connecticut may push for tax increases. Some Democrats want to shrink state governments.

Despite some increased willingness to consider new revenue sources, the new demands on education stand to make budgeting difficult for a long time to come.

"It's tough everywhere," said Mike Ward, the state schools superintendent in North Carolina and the president of the Council of Chief State Schools Officers.

"In the past two years," he added, "we've lost about 13 to 14 percent of our positions and about 17 to 18 percent of our funds" for the state education agency.

Budget troubles have dominated Virginia Gov. Mark R. Warner's first year in office. In a recent interview, the Democrat, who took office in January 2002, discussed how he has chosen priorities in education and other areas while making major cuts.

"It's a land-mine-laden area in terms of real tough choices," he said. "I'm a big believer that if you can't measure something, you really can't figure out if it succeeds or not."

His state, hurt by drops in manufacturing, technology, and tourism around nearby Washington, faces a $2.1 billion shortfall in the current two-year budget cycle.

The strain has forced Mr. Warner to shift money toward programs he believes can prove their worth. He proposed last month that his state add $65 million to its $8 billion education budget, allowing no state-funded teacher raise for the second straight calendar year.

His budget plan would take money set aside for dropout prevention and technical assistance, and shift it to grants for preschools, class-size reduction, and reading instructors. "Those are all programs that can show measurable results," he said.

Elsewhere, governors are being forced to make similar decisions. That may not be so bad, though, said Dane Linn, the director of education policy studies for the National Governors Association.

"Governors are going to have to more frequently target the resources to where the needs are," Mr. Linn said at a recent forum on education and the economy held by the American Enterprise Institute, a think tank in Washington.

Still, states' chief executives have their work cut out for them.

"A lot of the new governors have come to me and said, 'Tell me how you get through this budget crisis when you've got a whole series of campaign promises you've just made,' " Gov. Warner said. "My advice has been, resist the temptation to sugar-coat it. Roll up your sleeves."

Second Thoughts

And that is exactly what governors are doing, even though it often involves unpopular choices.

In Washington state, Gov. Gary Locke contends his state does not have the money to pay for voter- approved initiatives to cut class sizes and raise teacher pay. Instead, Mr. Locke, a Democrat, is talking with backers of those measures about creating an education trust fund that would provide a steadier source of funding.

The responses to Mr. Locke's efforts have been fiery. His state's main teachers' union, for example, plans a protest at the state capitol in Olympia. The Jan. 14 rally will oppose what the union and other groups see as budget cuts, rather than what the governor says is an attempt to find a better way to pay for schools.

A couple of unlikely governors are suggesting tax increases: Republicans John Rowland of Connecticut and Mike Huckabee of Arkansas, both of whom recently won re-election. Mr. Rowland wants to raise income taxes on millionaires only, while Mr. Huckabee wants to raise sales taxes by five- eighths of a percent. A court ruling requires Arkansas to raise its education spending substantially.

In Pennsylvania and Maryland, new governors may look to gambling to raise revenue.

U.S. Rep. Robert Ehrlich, a Republican, will take over as governor of Maryland this month amid a $344 million shortfall in the state's $22 billion budget. Both Mr. Ehrlich and Gov.-elect Edward G. Rendell of neighboring Pennsylvania, a Democrat, want to allow slot machines at horse racing tracks and tax the proceeds.

"He's not taking any [funding] option off the table," said Tom Hickey, a spokesman for Mr. Rendell's transition team. Pennsylvania used up its rainy day fund to avoid major cuts in the current fiscal year, but doesn't have the same option for the new budget.

In Mississippi, lawmakers tapped a temporary source of revenue an early collection of corporate sales taxesas they drafted the current state budget

Gov. Ronnie Musgrove of Mississippi said recently that despite the lack of a new source of state revenue, he wants to propose a $270 million increase for schools in fiscal 2004, including the state's third-straight raise for teachers.

"We have to protect our schools," the Democratic governor said in a brief interview. "That message needs to be delivered over and over again."

Not-So-Golden State

California and some other states have found that their problems actually began during the boom years of the 1990s, when education budgets received large increases and big portions of those states' budget surpluses.

In 1999, near the end of the state's high- tech boom, Gov. Gray Davis, a Democrat in the first year of his tenure, sought midyear increases for education, on top of big hikes in prior years. ("New Calif. Budget Would Hike K-12 Spending," May 26, 1999.)

Now, with a budget shortfall that could surpass $30 billion in the next 18 months, California may find itself in the direst straits. Gov. Davis, who begins his second term this month, wants a 3.6 percent cut in all state programs and has warned that education may be hit hard.

The current state budget is $78 billion, $41 billion of which is devoted to K-12 education.

"We felt the across-the-board reduction was fair," said California Secretary of Education Kerry Mazzoni. "But we are willing to discuss all sorts of options."

Because the school year is half-finished, the proposed cut in California would have the effect of a 7 percent reduction for schools, said Rick Simpson, a top policy aide to Speaker of the Assembly Herb J. Wesson Jr., a Democrat. The legislature, meanwhile, may look for more targeted cuts to programs it deems less critical, such as technology or professional development, he added.

Meanwhile, the Education Coalition, a California group that includes teachers' and school employees' unions, administrator groups, and the state PTA, is warning that such cuts could lead to 35,000 teacher layoffs or force schools to shut down for two weeks, as well as derail efforts to raise student achievement.

"In the midyear, trying to make cuts of this magnitude without avoiding the classroom is simply not possible," said Kevin Gordon, the executive director of the California Association of School Business Officials, which is a coalition member. Such a crisis, he added, could also postpone new mandates such as an after-school program, approved by a state ballot initiative, and attempts to comply with the No Child Left Behind Act.

In November, state voters approved a $13 billion school facilities bond and the after-school program. The bond will not be affected by the fiscal crisis. But the after-school program, estimated to cost $500 million annually, could be postponed a year or more. The initiative stipulated state spending must grow at least $1.5 billion more than the highest level in any previous year for the program to be implemented.

Reflecting on the past few years, Secretary Mazzoni said, "During the flush times, we infused a lot of one-time money into education, and the local school districts were very grateful for that." Now, she said, those districts can't afford the raises and other spending they added.

Sustaining Improvement

Oregon faces one of the nation's most serious budget situations. The state relies heavily on income taxes to pay for schools, and education is taking a big hit with unemployment at record highs, said Nancy Hielegman, a deputy state superintendent of education.

Lawmakers in Oregon face a $1.5 billion shortfall over the next two years—even after $300 million in cuts to its $12 billion state budget for fiscal 2003. This current fiscal year alone, basic aid to schools was cut 9 percent, and the state education department's $5.2 billion biennial budget fell by 21 percent, Ms. Hielegman said.

Voters can decide Jan. 28 to raise some extra money if they approve a surcharge on income taxes. The attention to the budget shortfalls has prompted some in Oregon to call for a new sales tax to pay for education more reliably.

Like education officials in many states, Ms. Hielegman fears that the lack of funding could hinder the state's work to raise test scores and improve schools. "We're very concerned that that kind of progress can't be sustained," she said.

Mr. Ward, the North Carolina state schools chief, said that what really scares him is the new state budget, to be crafted in the next few months. He has proposed a $200 million increase for K- 12 schools, but some legislators in North Carolina have signed no-new-taxes pledges, and tax-leery Republicans control the state's lower chamber.

"I hope there's going to be some folks who step up and have the vision to make the case to raise the revenue it's going to take for our schools to keep [improving]," said Mr. Ward, a Democrat.

"To slash spending on education would be, in effect, eating our own seed corn," he said.

Vol. 22, Issue 16, Pages 1,16-18

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