Published Online: August 15, 2006

K-12 Spending Outpaces Medicaid in State Budgets for First Time in Six Years, Report Finds

Medicaid, which for several years was the fastest-growing line item in state budgets, has been supplanted by K-12 education, concludes a report released today.

For the first time in six years, states have managed to slow the escalating costs of Medicaid, a mandated health care program for the poor and disabled, and concentrate on increasing funding for public schools, according to a report by the National Conference of State Legislatures.

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In its survey of the 50 states, the Denver-based group found that public school funding is budgeted to jump 7.9 percent for fiscal 2007, which began July 1 in all but four states. Medicaid spending is expected to grow by 6.3 percent during the same period, according to the NCSL’s yearly report, released in conjunction with the start of the organization’s annual meeting this week in Nashville, Tenn.

K-12 education continues to be the biggest beneficiary of the rising revenue streams that are flowing into states and being used to raise teacher salaries, provide local property-tax relief, and finance other education-related costs. Higher-than-anticipated revenue over the past two years meant states had extra money to spend for the 2007 budget year.

At least 24 states boosted funding for public schools, and 25 states put more money into emergency funds. Twelve states increased K-12 spending by at least 10 percent, with Texas, Wyoming and Alabama leading the pack. Responding to a court order, Texas approved a property tax and education reform package that resulted in a 27.7 percent increase in public school funding, according to the report, which was written by Corina Eckl and Bert Waisanen of NCSL’s fiscal affairs program. Wyoming boosted K-12 spending by 14.5 percent, and Alabama by 14 percent.

‘Considerable Uncertainty’

However, the spending increases may not last for long. As early as 2008, some states are projecting budget deficits, according to the 13-page report. “Despite the good situation right now, legislative fiscal directors in many states remain concerned that state spending growth will outpace ongoing revenue growth over the longer term,” the report says.

At the end of the current fiscal year, which comes in June 2007, the states’ combined general fund balances are expected to drop 29 percent – from $57.1 billion to $40.3 billion. Arkansas and Michigan, for instance, are predicting they’ll end their budget years with zero balances in their general funds.

There’s “considerable uncertainty” about tax collections by the states in 2007 and beyond, according to the report.

Vol. 25

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