Published Online: August 25, 2008
Published in Print: August 27, 2008, as Hard Times Hit Schools

Hard Times Hit Schools

States’ Budget Shortfalls Darken Start of New Year

Just two months ago, states had already racked up $40 billion in budget shortfalls so far this fiscal year—or the equivalent of the K-12 education budget for the entire state of Texas, with a couple billion left over in change.

The number only keeps rising, along with the pressure on educators at every level, as they start the 2008-09 school year.

Florida’s budget gap has risen to $1.5 billion, South Carolina’s is up by $222 million, and Washington state is looking at a $61 million increase in its shortfall—all of them having learned in the last few weeks that the tax revenue they depend on to fund everything from schools to prisons is continuing to shrink.

These hard-to-grasp dollar amounts are forcing real cuts in K-12 education at a time when the cost of fueling buses and providing school lunches is increasing and the demands of the federal No Child Left Behind Act still loom large over states and districts.

“One of the real challenges is to continue progress in light of the economy,” said Gale Gaines, the vice president for state services for the Atlanta-based Southern Regional Education Board, a nonpartisan consortium with 16 member states. “We can’t be complacent.”

Texas

The state known for its oil is expected to have a $10.7 billion budget surplus going into its next legislation session, which is a healthy 25 percent of a typical budget.

But that may be a difficult task in the dozen states—including Alabama, Kentucky, Rhode Island, and Nevada—that have made targeted cuts to certain education programs, according to a June report by the Denver-based National Conference of State Legislatures. The NCSL found that 31 states reported budget gaps, ranging from $10 million in Hawaii to $2 billion in Arizona—nearly 20 percent of that state’s general-fund budget. The report also predicted that state budget situations would get worse, and those predictions are proving to be correct.

Just this month, Virginia Gov. Tim Kaine, a Democrat, warned that education funding may be cut if the economy doesn’t turn around rapidly and help close an anticipated $1 billion deficit. Florida Gov. Charlie Crist, a Republican, is hoping to avoid more cuts to education by using rainy-day funds to deal with a nearly $1.5 billion deficit, which grew earlier this month as state economists ratcheted down their revenue expectations. And Georgia Gov. Sonny Perdue, a Republican, is recommending a 2 percent cut in K-12 funding to help close a $1.6 billion budget gap.

California, meanwhile, was in meltdown mode as of last week, with a $15.2 billion budget deficit and lawmakers at an impasse as Republican Gov. Arnold Schwarzenegger sought a new budget plan.

Economic Cycle

Many education officials who have been in the business for decades point out that the economy is cyclical, and enduring rough fiscal times is part of the job. The recession earlier this decade prompted 34 states to cut K-12 education between 2002 and 2004, according to the Washington-based Center on Budget and Policy Priorities.

Though states may have rebounded, a report by the SREB shows that, at least in southern states, growth in funding has been minimal. Adjusted for inflation and student growth, per-pupil funding in the region has only grown by 1 percent from 2000 to 2005, according to the SREB.

The early 1990s downturn, which is similar to today’s in that it was sparked by a credit crisis and drop in real estate values, prompted states such as Alabama, Florida, Mississippi, and North Carolina to cut school funding by as much as 6.5 percent, according to the SREB.

And the energy crisis in the early 1970s prompted schools in New Mexico to try something school districts are discussing now, some 30 years later—a four-day school week.

Alaska

Thanks to its oil production, the state has a giant $8.9 billion surplus, which could fund state government operations for a year and a half.

This time, however, officials point out that there are big disparities in the fiscal health of the states. While states such as Florida and California have been hit particularly hard by the housing market slump, energy-rich states such as Alaska and Wyoming are profiting from high fuel prices and socking away billions of dollars in reserves.

This downturn may also be different because no single revenue source appears to be the culprit, as many tax categories—from personal and corporate income, to gas taxes, to sales tax—are slumping, according to Corina Eckl, a fiscal expert with the Denver-based NCSL.

Also, the problem isn’t just with revenue, but with inflation, too, as the price of everything from fuel and clothing to food and textbooks is increasing, according to the most recent update of the Consumer Price Index. At the same time, teacher wages—which are driven by factors governed by contract negotiations—have not spiked as much as prices have.

Still, revenue remains the biggest problem, according to Herb Garrett, the executive director of the Georgia School Superintendents Association.

“You can always go back and raise lunch prices. You can severely curtail field trips and sub-varsity sports,” Mr. Garrett said. “The problem with this downturn is the timing—this downturn seemed to come on much faster. School districts have already set their budgets and their local revenue.”

As a result, many Georgia school districts sent out layoff notices to teachers in case the districts need to reduce their teaching staff as they scrambled to figure out how to cut about 2 percent from their budgets, as Gov. Perdue is proposing. And, Mr. Garrett added, state officials are warning that an additional 1 percent cut could come later this school year.

Ms. Gaines, of the SREB, pointed out that unlike in the early 1990s, when many states raised taxes to help with the economic downturn, legislatures seem far more reluctant to do so now.

Maryland was one of the few states to raise sales and corporate taxes last year to help deal with the budget deficit, which helped spare K-12 education from budget cuts. Approving tax increases is politically difficult at any time, but especially in a pivotal election year like this one.

Nebraska

A big agriculture state, Nebraska officials learned last month that their tax collections are still growing strong as their reserve account reaches a record $574 million. There is even some public pressure to cut taxes.

“There’s no possible way we can raise another tax,” said Maryland State Sen. Nancy J. King, a Democrat, at a July meeting of the National Conference of State Legislatures, which featured a more than hourlong session on how to fund education in tough budget times. Instead, she said, “we will just be cutting services.”

No Longer Immune

Public schools are a sacred spending category in state budgets and typically are one of the last programs to be cut. But even states that have tried to spare school districts from cuts warn that their immunity is running out.

“We have held public education harmless from the effects of the slowing economy, and as a result, school divisions are about to begin a new school year with significant increases in state funding over the prior year,” Virginia’s Gov. Kaine told legislative fiscal committees last week, referring to two previous rounds of budget cuts. “The need to engage in a third major round of budget reductions will mean, by necessity, that all programs—including those previously held harmless—and all available strategies will be on the table for review.”

West Virginia

Though its surplus has declined since 2007, this coal-producing state still has an estimated $640 million surplus, or 16.4 percent of its annual budget, one of the healthiest reserve rates in the country.

Across the country, one of the education programs that’s grown exponentially in dollars and enrollment since the last economic downturn is prekindergarten, especially for at-risk students, which is thought to save states money down the road in terms of remediation and even prison costs. For this fiscal year, 34 states increased their pre-K funding levels over fiscal 2008—and seven states were well on their way to phasing in pre-K for all students, according to the Washington-based advocacy group Pre-K Now.

With tighter budgets, pre-K funding could be a target for cuts or could see slower growth. In Tennessee, for example, Gov. Phil Bredesen, a Democrat, wanted to spend an additional $22 million this fiscal year to add prekindergarten classes, but had to back away in the face of a mounting deficit that was $468 million in June, or nearly 5 percent of the overall state budget.

As pre-K advocates see it, sometimes the best-case scenario is to maintain a program’s funding level.

“Even though state budgets are no doubt tighter this year ... the vast majority of political leadership sees pre-K as a smart investment strategy,” said Stephanie Rubin, the state program director for Pre-K Now.

Top-Down Pain

With talk of education cuts, most attention falls to their impact on school districts, but state education departments are taking a hit, too. New York, Rhode Island, and South Carolina, among others, have seen cuts in their education agency budgets over the last school year, which has translated into fewer personnel providing assistance to school districts.

North Dakota

This oil-rich state is expecting a $1.2 billion budget surplus this year as tax collections are about 29 percent higher than during the last two-year budget period.

Jim Rex, South Carolina’s superintendent of education, froze hiring and cut travel in light of the budget situation. And now he has to figure out how to cut 3 percent from K-12 school funding, as ordered by the state’s Budget and Control Board.

Mr. Rex, in a conference call to reporters earlier this month, said he’s hashing out those plans now, along with a proposal to revamp how the state funds schools overall. Regardless, he said, this year is “going to be a real struggle for our schools.”

Vol. 28, Issue 01, Pages 1,16-17

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