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Published in Print: December 3, 2003, as Fewer States See Red Ink, Report Finds

Fewer States See Red Ink, Report Finds

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The number of states facing budget deficits this fiscal year has decreased dramatically—from 31 states to 10—compared with fiscal 2003, according to a new report from the National Conference of State Legislatures.

Analysts say that the news released Nov. 21 is a sign that the sour economy is beginning to turn around. At the same time, they say, some states remain in deep financial trouble, and thus some education budgets are especially vulnerable.

For More Info
Further information on the fiscal report is available from the National Conference of State Legislatures. An electronic copy of the report can be purchased for $25 by calling (303) 364-7812. Print copies are $32.

"I think we've bottomed out—that the situation isn't getting any worse," said Raymond C. Scheppach, the executive director of the National Governors Association, in Washington.

Scott D. Pattison, the director of the Washington-based National Association of State Budget Officers, added that the economic climate is improving for states only in an "incremental, slow way," and that budgets will continue to be tight at least through fiscal 2005. The recovery also is unevenly distributed among states, he said.

The NCSL report says that 21 states are bringing in more revenues than expected, while 16 states have raised less revenue than had been forecast. In the remaining 13 states, revenues are on target. In addition, the budget gap of all the states combined is $2.8 billion, while it was $17.5 billion at this time last year.

See Also...

See the accompanying table, "State Budget Snapshot."

The U.S. Department of Commerce produced more good news last week when it reported that the nation's gross domestic product grew at an annual rate of 8.2 percent in the three months that ended Sept. 30. That is the fastest pace since 1984 and 1 percentage point above the preliminary estimate made in October.

Rainy-Day Funds

Arturo Pérez, a fiscal analyst for the Denver-based NCSL, warned it's hard for states not to cut K-12 spending when times get tough, because, on average, those costs make up just over a third of states' general-fund budgets.

Some states that have been struggling to cover expenses have refrained from cutting school budgets. That may no longer be possible, as some of those states have run out of reserves that helped fill gaps in previous fiscal years.

Michigan, which the NCSL lists as having the largest deficit in fiscal 2004, is in that situation. The state faces a $505 million, or 5.6 percent, deficit in its general fund and a $361 million, or 2.9 percent, deficit in its School Aid Fund.

"For the past three years, the governor and legislature have taken money out of the rainy-day fund and put it in the School Aid Fund," but that reserve has been exhausted, said Martin L. Ackley, the spokesman for the Michigan Department of Education.

The lackluster budget projections will trigger automatic spending cuts later this month that will cost Michigan school districts at least $196 in per-pupil state aid. This school year, the per-pupil allotment was supposed to be a minimum of $6,700.

State lawmakers could act to prevent the cuts, though that has appeared unlikely. ("Facing Shortfalls, Michigan Girds for School Cuts," Nov. 19, 2003.)

Indiana, meanwhile, has carried a budget deficit nearly as large as Michigan's from one year to the next since the end of fiscal 2002. Indiana has a deficit in fiscal 2004 of $800 million, or 7.1 percent of its general fund.

"We have not eliminated the budget deficit in Indiana, despite great attention and focus on doing so," said Terry Spradlin, the legislative liaison for the state department of education. In fiscal 2002, Indiana delayed payments to schools and cut technology aid to try to trim its deficit.

Mr. Spradlin said Indiana has been hit especially hard by the poor economy because it is so dependent on manufacturing jobs.

Some states have balanced their fiscal 2004 budgets only after making drastic cuts in education this year or in previous years.

Last school year, for instance, many Oregon school districts couldn't afford to provide the number of instructional hours required by state law, said Gene J. Evans, the communications director for the Oregon Department of Education. Oregon was forced to slash its education budget for fiscal years 2002 and 2003 because revenues came in much lower than expected.

Mr. Evans said that 30 of the state's 198 districts weren't able to provide the number of instructional hours required. "Sometimes you'll have one district [that doesn't meet the requirement] because there's a fire at the high school, and it is closed," he said. "To have 30 districts is just unheard of."

In addition, Mr. Evans said, Oregon schools have reduced the number of teaching positions statewide from 30,000 to 27,000.

Alabama has also maintained a balanced budget at the expense of core educational programs. "I don't think it's ever been this bad," said Rebecca Leigh White, a public information specialist for the state education department there.

For fiscal 2004, she said, which began Oct. 1, Alabama has frozen all textbook purchases, except to buy disposable workbooks for children in the lower grades.

Ms. White said that the state has been forced to "rob Peter to pay Paul" because of the increasing cost of benefits and health insurance for educators. This past fall, Alabama voters defeated a measure proposed by Gov. Bob Riley, a Republican, that would have changed the state's tax code to help raise school funds. ("Alabama Voters Reject Gov. Riley's Tax Plan," Sept. 17, 2003.)

Outlook Improves

Some other states have fared much better through the nation's economic troubles.

In Nevada, for example, the worst that happened to K-12 education was that legislators cut $10 million in funding for education technology in the last biennium, said Douglas C. Thunder, the deputy superintendent for administrative and fiscal services for the state. Now, Nevada reports that sales taxes and gaming fee revenues are $10.3 million above projections. "In another two or three months we'll have a bigger picture, but so far it's better than we thought it would be," Mr. Thunder said.

The NCSL report comes out at as many states are starting to prepare their budgets for fiscal 2005. Mr. Pérez of the state legislatures' group said it was too early to make projections about which states might experience budget gaps for that next fiscal year.

Vol. 23, Issue 14, Pages 1,20

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