Published Online: December 19, 2006
Published in Print: December 20, 2006, as States to Weigh Education, Fiscal Priorities

States to Weigh Education, Fiscal Priorities

Even with good economy, caution is watchword in crafting K-12 proposals.

As governors and lawmakers—many of them newly elected—polish ambitious new K-12 spending plans on the eve of the 2007 legislative year, the latest reports about the health of state revenues and budgets suggest that policymakers should tread cautiously even though their economies remain robust.

In Arkansas, legislators want to finish rolling out their state’s prekindergarten program to all children ages 3 to 5, expanding it beyond the 75 percent the program now serves. Indiana Gov. Mitch Daniels is pushing for his state to pick up the tab for full-day kindergarten. Lawmakers in Connecticut would like to put more money into their public universities. And New York Gov.-elect Eliot Spitzer needs to find at least $2 billion to comply with a court order requiring increased funding for the New York City public schools.

But all of those initiatives carry hefty annual price tags. And the ideas will be debated at a time when state fiscal leaders are less optimistic, and states’ year-end cash balances are lower, than in the past few years.

The momentum for change is great as 11 newly elected governors and 25 who were just re-elected prepare for the new year. In January, Democrats will take over a majority of governors’ mansions and will hold the majority in both chambers in 24 legislatures as well, a dominance not seen since 1994.

In some states, lawmakers are eager to seize the initiative.

“We’ve got a huge surplus, and we have lots of new members, and they see dollar signs and want to spend it,” said Arkansas Sen. Jim Argue, a Democrat and the chairman of his chamber’s K-12 education committee. “That will be the hard part, convincing them that once the money’s gone, it might be gone for a while.”

Economic Rebound

Many policymakers have been lulled into a sense of fiscal comfort now that states’ economies have largely rebounded from the recession-driven financial troubles earlier in the decade. States, on average, are on track to end this budget year with 6.5 percent of their general-fund dollars left over, according to a report released this month by the Denver-based National Conference of State Legislatures. ("Lawmakers See Schools as Top Priority, Despite Fiscal Jitters," Dec. 13, 2006.)

It’s a healthy financial cushion, but lower than the nearly 10 percent a year ago.

Spending Breakdown

States devoted the biggest slice of fiscal 2006 general-fund spending to elementary and secondary education.

A fiscal report released jointly last week by the National Governors Association and the National Association of State Budget Officers, both based in Washington, shows that revenue is expected to grow more modestly in fiscal 2007 than in the 2006 fiscal year. Budget troubles could loom for a few reasons: Many states enacted tax cuts, which may mean less state revenue; corporate taxes aren’t expected to grow as much in the next year or two; and states still face growing expenses for Medicaid health programs, employee pensions, and infrastructure, such as roads.

Lawmakers, governors, and other policymakers are taking note.

“I don’t think we’re going to see a spending spree,” said Raymond C. Scheppach, the NGA’s executive director. But he sees K-12 education and health care as exceptions.

Still, fiscal officials will be reminding lawmakers of the last economic downturn, and the harsh spending cuts and tax increases that states had to enact, said Scott D. Pattison, the executive director of the state budget officers’ group.

Budget Pressures

Governors, too, face budget pressures as they seek to make precollegiate education a top policy priority.

Already, the state with the biggest problem on its hands seems to be Maryland, according to Corina Eckl, the fiscal-affairs director at the NCSL. Revenues are down across the board, she said. That could spell trouble for any education initiatives that Gov.-elect Martin O’Malley, a Democrat, had in mind.

On the campaign trail, as he was successfully working to defeat Gov. Robert L. Ehrlich Jr., Mr. O’Malley proposed hiring bonuses for principals in hard-to-staff areas, fully funding a school formula that seeks to equalize state aid among districts, and devoting an additional $80 million a year to school construction. At the same time, the state is facing a budget deficit that could top $1 billion a year within the next two years.

Funding the school formula and funneling more money into school construction still are priorities, said Rick Abbruzzese, a spokesman for the Maryland governor-elect. “But can it all be done in the first year? That’s what we will work with the legislature to figure out,” he said.

Improving education doesn’t come cheap. Last week, Washington Gov. Christine Gregoire, proposed spending nearly $200 million on a new math and science initiative that would reduce class sizes in those subjects, recruit more teachers, and offer them more training. At the same time, however, the Democrat has made saving money a priority by proposing a new, statewide rainy-day fund, with an initial deposit of nearly $300 million, to help during the next economic downturn.

In other states, early education is a priority. In Indiana, Gov. Mitch Daniels’ plan to begin phasing in full-day kindergarten would cost $49 million in the next budget year—a figure that would grow to $255 million annually beginning in 2012.

Even though Indiana may be able to afford to put the program on a faster track, educators have said they want more time to implement full-day kindergarten in their schools, said Jane Jankowski, the spokeswoman for the Republican governor.

Other states face pressure not because of education initiatives but because of court mandates.

Court Orders

In New York, Gov.-elect Spitzer, a Democrat, will likely propose a budget in February that contains at least $2 billion more for the New York City schools, which the state’s high court has said is required for school funding to be constitutional. ("Aid Award Cut in Suit Over N.Y.C.," Nov. 29, 2006.) The New York Court of Appeals has ruled that the state doesn’t provide enough funding for New York City students to receive a “sound basic education.”

In Texas, legislators will have to figure out how to get around state spending limits to provide an additional $5 billion to comply fully with a court-ordered rewrite of the school funding system. ("Pot of Cash May Be Out of Reach," Dec. 13, 2006.) In many states, according to the report by the governors’ and state budget officers’ associations, new spending comes as policymakers try to make up for cuts to programs earlier in the decade.

Revenue Outlook

Most states expect tax collections to come in on target in fiscal 2007, some believe they may exceed projections, and a handful worry that tax revenue may fall short.

*Click image to see the full chart.

Click to enlarge

Higher education is one example.

Legislative leaders in Connecticut likely will devote a significant amount of money to the state’s public colleges and universities, which have received cuts over the past several years because of sluggish tax revenue.

“Higher education has gotten squeezed out of our budgets,” said Rep. Denise W. Merrill, a Democrat who is the chairwoman of the House appropriations committee and will be her chamber’s chief budget-writer in 2007. Rep. Merrill, who co-chaired an NCSL commission on higher education, addressed the need for additional funding for public colleges earlier this month at an NCSL conference in San Antonio.

“We have a profound need to recommit and reinvest,” she said.

Other states are dealing with tax issues, which could significantly affect K-12 education because most states use a combination of state taxes and local property taxes to fund schools.

Lawmakers in at least six states—Indiana, Minnesota, New Jersey, South Dakota, Texas, and Vermont—report that property taxes will be among the top three issues for their 2007 sessions, according to the NCSL.

Despite indications that caution may be warranted when it comes to spending, policymakers still are upbeat about the 2007 legislative sessions.

States can cut taxes and pay for new programs now because of strong economic growth and strong revenue collections, said Mr. Scheppach of the NGA. The growth of Medicaid expenses also is slowing, he said.

“States are really in a sweet spot right now,” he said.

Vol. 26, Issue 16, Pages 18,21

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