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Published in Print: January 9, 2008, as States May See Fiscal Squeeze on Education
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States May See Fiscal Squeeze on Education

As legislatures convene, budget pressures could dictate tough choices on school initiatives.

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The 2008 state legislative season launches this month under a fiscal cloud in a number of states, where ambitious education initiatives—including expanded pre-K programs, college- or career-preparation efforts, and improved teacher pay—may end up being balanced against gloomy revenue projections.

“It looks like we have one more decent year before things fall apart,” Julie Bell, the education program director for the National Conference of State Legislatures, said about the fiscal 2009 economic outlook, coming on the heels of a year in which 15 states have reported deficits or revenue shortfalls.

A revenue slowdown—foreshadowed last month in reports by the Denver-based NCSL and by the National Governors AssociationRequires Adobe Acrobat Reader and the National Association of State Budget Officers, in Washington—comes as states prepare to tackle such potentially costly issues as education equity and adequacy and the condition of school facilities.

California, for example, is expected to take up school governance and finance in what Gov. Arnold Schwarzenegger, a Republican, has said will be the “year of education”—even as he warns of a “fiscal emergency” facing the state, in the form of a projected deficit of up to $14 billion in the next year and a half.

“That’s more than the budget in some states,” William Pound, the executive director of the NCSL, said in a Dec. 14 Web seminar on the top 10 state legislative issues for this year nationwide.

He added that California and Florida—another state reporting a shortfall—have both been hit hard by the U.S. housing slump. As a result, education priorities could end up competing with lawmakers’ desire to help homeowners facing foreclosure. Transportation needs and rising health-care costs are also likely competitors for state attention.

Legislatures in several states, such as Florida and Georgia, also have been trying to respond to homeowners’ frustration over increasing property-tax rates. The issue will come to a head in Florida later this month when voters decide on a constitutional amendment that could save taxpayers more than $9 billion over the next five years. Education groups, firefighters, and local governments warn that the plan would severely hinder schools and other local services.

In addition, Mr. Pound said, 21 states late last year projected shortfalls in their State Children’s Health Insurance Program for fiscal 2008, which Congress voted to expand and reauthorize, a move President Bush vetoed twice. In late December, Congress extended SCHIP funding through March, though the issue remains unresolved, and some states expect shortfalls even beyond the extension period.

Despite such concerns, 16 states have told the NCSLthat K-12 education—which, along with health care, typically accounts for about half of a state’s general-fund expenditures—is among the top priorities for 2008.

Previews of Plans

By month’s end, lawmakers will be back at work in two-thirds of the states. And while most governors will wait until their State of the State addresses to announce their education initiatives for this year, a few have already previewed their top priorities.

Alabama Gov. Bob Riley, for example, has announced a proposal to build the state’s existing, but small, prekindergarten program into one that serves 21,000 4-year-olds by 2011. Growth would begin in fiscal 2009 with $30 million to serve 7,600 children from low-income and middle-class families in the Alabama First Class Pre-K program.

“There are few investments the state can make that will pay off as well in the long run as voluntary pre-K,” the Republican governor said in a Dec. 6 press release. “First Class advances a big goal while remaining fiscally responsible.”

See Also
For more stories on this topic see Finance.

In New Jersey, Gov. Jon Corzine, a Democrat, will push to expand full-day preschool to all disadvantaged 3- and 4-year-olds. But that push could be complicated by his proposal to overhaul New Jersey’s school funding formula in way that would eliminate the special-needs-district designation that funnels money to the state’s poorest districts. ("N.J. Governor Seeks to Overhaul School Financing," Dec. 12, 2007.)

Gov. Corzine has been pushing hard to have a new formula, which would link funding levels to students needs and their communities’ ability to pay for schooling, enacted in time for the 2008-09 school year. But any such formula would have to pass muster in the state courts. Funding for New Jersey’s poorest districts has been set under guidelines from the state supreme court stemming from the long-running Abbott v. Burke finance case.

Meanwhile, Ms. Bell of the NCSL said states continue to be interested in advancing the readiness of high school students for college or the job market.

“Are they the same thing? I think states struggle with that,” she said. “There is interest not in a track, but a separate pathway.”

Programs in career-technical education, for example, continue to grow in states such as California, Florida, and South Carolina, with such initiatives as career academies focused on “growth industries” and requirements that high school students declare “majors.”

Also at the high school level, Ms. Bell sees a growing emphasis on combating dropout rates through innovative approaches such as “early-commitment programs,” meaning that low-income students are guaranteed money for college if they complete high school or graduate with a certain grade point average in college-preparatory courses.

“It’s a dropout issue, but it’s also a student-aid issue,” she said.

Indiana and Oklahoma have been the leaders of that trend, with programs that target disadvantaged middle school students with a promise of financial aid for college.

“This blends need and merit, but merit not defined as being brilliant, but trying hard and taking the right courses,” said David Longanecker, the president of the Western Interstate Commission for Higher Education, a regional organization based in Denver. “At least in the West, there is much more interest in need-based financial aid.”

He added, however, that he sees less enthusiasm among state policymakers for scholarship programs that are strictly merit-based, such as Georgia’s HOPE Scholarship, because they are expensive—Georgia alone budgets more than $500 million a year for its program.

In keeping with the theme of linking high school and college, Ms. Bell said she is also seeing renewed interest in the concept of building a preschool-through-graduate-level, or P-20, education system that includes smoother transitions and stronger links between governance and finance across those levels.

Even though the idea has been around for a long time, she said, state legislators “really do want to think about this very formally.”

Colorado Gov. Bill Ritter, for example, is leading an effort to build a P-20 system that would include assigning a “unique child identifier” to children in publicly funded programs that would be used to follow their progress throughout their educational careers and unify the state’s educational data systems. Only Florida now has such a comprehensive data system.

Pay and Benefits

While discussion about alternative models of teacher compensation and efforts to aid teacher retention is likely to continue, Ms. Bell said another emerging trend involves pay packages that include not only salary and benefits, but also retirement incentives.

Teachers, she said, are both “choosier” about their compensation and nervous about whether their pension payments will be there when they need them.

According to a 2007 survey conducted by the National Association of State Retirement Administrators, pension funds for public employees are adequately funded. Their future liabilities are funded at an average level of about 86 percent, which Ronald Snell, the director of the state-services division of the NCSL, described as “perfectly acceptable.”

Greater concern, however, exists over states’ ability to pay for retiree health-insurance coverage.

“The big question will be, ‘Do we have the fiscal base in state government to do this along with the increasing cost of transportation and health care?’ ” Mr. Snell said.

He added that he expects some states to pay attention to the issue this year because of new financial-reporting requirements that are taking effect.

States, as well as federal and local government agencies, such as school districts, are now required to disclose their long-term costs for employee health and other insurance benefits under rules adopted in 2004 by the Governmental Accounting Standards Board. The independent, Norwalk, Conn.-based organization sets financial-reporting standards for government agencies. ("Accounting Rule Targets Benefits in Public Sector," March 22, 2006.)

If states haven’t been “prefunding” those obligations over the years, they will show up as liabilities under the new accounting rules, and rising health-care costs, combined with increases in life expectancy for retired public employees, will add to states’ financial burden.

“State and local governments,” Mr. Snell said, “face long-term commitments to provide health care without having the savings or the savings plans.”

State-level Concerns

While legislatures across the country have some issues in common, many will also have specific matters to confront in their own states when they convene.

In Maine, for example, lawmakers are expected to take up proposals to change—or even repeal—a controversial school consolidation plan enacted last year, which calls for the state to shrink the number of school districts to about 80 from 290 by July 2009. ("Maine Districts Take Key Step to Consolidation," Sept. 12, 2007.)

In Maryland, legislative leaders have said they may consider setting limits on the state school board’s authority to appoint the state schools superintendent, after the current board reappointed longtime Superintendent Nancy S. Grasmick, over the objections of Gov. Martin O’Malley, a Democrat.

Nationwide, the presidential race is likely to have some impact on state legislative action this year, since lawmakers may take a wait-and-see position on education issues pending at the federal level, such as the reauthorization of NCLB, Mr. Pound said.

And the future policy landscape could also be shaped by the outcome in this year’s state elections.

At the gubernatorial level, Delaware Gov. Ruth Ann Minner and North Carolina Gov. Michael F. Easley—both Democrats—will be retiring this year because of term limits, leaving open seats. In nine other states, the incumbents—four Democrats and five Republicans—will be up for re-election.

PHOTO: New Jersey Commissioner of Education Lucille E. Davy gestures during a hearing on a proposed school funding formula.
—Mel Evans/AP
PHOTO: New Jersey Commissioner of Education Lucille E. Davy, center, talks to legislators before a hearing on school funding. State lawmakers nationwide face tough budget choices amid a revenue slowdown and economic storm clouds.
—Mel Evans/AP

Vol. 27, Issue 17, Pages 1,16

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