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Published in Print: October 22, 2008, as States’ K-12 Efforts Feeling Budget Sting

States' K-12 Efforts Feeling Budget Sting

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States are struggling—and sometimes failing—to hold the line on education budget cuts and day-to-day disruption in the face of budget deficits, flagging tax revenues, and credit jitters that threaten their cash flow.

The situation varies around the country. In deficit-strapped California, for example, officials last week had some success in selling billions of dollars in short-term notes needed to keep the state from running out of money for schools and other state services.

But Massachusetts Gov. Deval Patrick, a Democrat, last week ordered state agencies to cut more than $1 billion to close a $1.4 billion deficit, including $3 million from kindergarten expansion and $1 million from Head Start preschool programs.

Maryland Gov. Martin O’Malley, a Democrat who is trying to plug a projected $1 billion deficit, said the state may have to weigh reductions in local school aid provided under a formula that gives extra money to areas where the cost of education is high.

And in Hawaii, the state board of education on Oct. 9 approved more than $46 million in cuts from its $2.1 billion K-12 budget on the way toward meeting Republican Gov. Linda Lingle’s instruction that each state agency trim spending by up to 20 percent.

“This situation is as bad as I’ve ever seen it,” William T. Pound, the executive director of the Denver-based National Conference of State Legislatures, said in an Oct. 13 press release. “States have been confronted with bad economic circumstances in the past, but not so many and all at once.”

Revenue Declines

Even states that previously were not expecting budget shortfalls are beginning to see lower-than-projected tax revenues and adjusting their current budgets accordingly.

An April state fiscal survey, released by the Washington-based National Association of State Budget Officers, showed that tax collections in Kansas during fiscal 2008 came in even higher than expected. But that additional income hasn’t been enough to withstand the current economic downturn.

Gov. Kathleen Sebelius, a Democrat, has taken a 2 percent midyear cut from higher education institutions in the state. And a 5 percent cut is expected for fiscal 2010.

Utah was in a similar revenue position midway through the 2008 fiscal year, according to the same report. But Gov. Jon M. Huntsman Jr., a Republican, and state lawmakers met in a special session last month to settle on reductions that would close a $272 million hole in the state’s $13 billion budget for fiscal 2009. Spending cuts of about 3 percent were taken from most state agencies, but K-12 schools were spared, at least for now.

In Maryland, the budget picture—and its potential impact on schools—is a key part of the debate over a Nov. 4 ballot measure that would allow slot machines in the state, potentially raising $650 million a year for education. Gov. O’Malley is urging voters to approve the measure. ("States Roll Dice on New Funding," Oct. 15, 2008.)

Meanwhile, the state has made education cuts that include abolishing vacant positions, delaying an assessment for two more years, and reducing school improvement funds by 25 percent, to $8.6 million.

“Maryland faces a very real budget problem, and funding reductions are necessary throughout government when tax revenues decline,” state Superintendent Nancy S. Grasmick said in a statement.

So far, schools have avoided cuts in Virginia, where Gov. Tim Kaine, a Democrat, is laying off 570 state employees in trying to close an almost $1 billion deficit in the $37 billion fiscal 2009 budget.

But he has also suggested that schools could be targeted if economic conditions don’t improve for fiscal 2010, when a $1.5 billion deficit is already projected.

“Anything you do now affects the delivery of services to children,” said Charles Maranzano Jr., the superintendent of the 4,700-student Dinwiddie County public schools in Virginia. He added that he regrets that he’s already had to tell principals to cut field trips from three per year down to one, saying, “there is only so much you can do within the four walls of the classroom.”

Last week, Mr. Maranzano and superintendents across the state met in a legislative conference to discuss how to address potential cuts for next year. They may ask the governor to relax some school achievement targets if personnel cuts need to be made.

‘Calm at the Moment’

A few states, however, have still been able to stay above the economic turmoil.

“I suspect we’re in better shape than some states,” said Debbie Ratcliffe, a spokeswoman for the Texas Education Agency. The K-12 education budget in Texas is $36.9 billion in the 2008-09 biennium, in an overall state budget of $167 billion. “Everyone is calm at the moment.”

High oil prices and an increase in natural-gas production have kept the state’s economy growing, according to Susan Combs, the state comptroller.

While the success of the federal government’s Wall Street rescue plan probably won’t be clear for some time, there were signs last week that the situation had improved somewhat in the municipal-credit market, at least where California was concerned.

Earlier this month, Gov. Arnold Schwarzenegger, a Republican, warned federal officials that the state might need a $7 billion emergency loan if it was unable to sell the tax revenue anticipation notes it needed to keep cash flowing.

As of Oct. 16, however, the state had been able to sell $5 billion of the short-term notes—most of them to individual investors—after an aggressive pitch by state officials that included advertisements by Gov. Schwarzenegger, who bought $100,000 of the notes.

“Although California feels the enormous effects of our current economic crisis, I am optimistic that these efforts to improve liquidity are moving the country toward more stable economic footing,” the governor said in an Oct. 9 letter.

While a loan from the federal government might still be in the future for California, the state controller’s office is “still continuing to make payments that are scheduled,” spokesman Jacob Roper said.

Roughly $2.3 billion is due to school districts at the end of October, but Mr. Roper said covering state services during the fall months shouldn’t be a problem.

“The end of October doesn’t pose the biggest dip in cash flow that we’re expecting,” he said. “It’s March when the largest dip in cash flow comes.”

Drawing on Reserves

The revenue fluctuations and cash flow concerns are reasons why some states have given attention to so-called “rainy day” funds.

In Virginia, Gov. Kaine noted that his plan to draw $400 million from the state’s Revenue Stabilization Fund allowed him to avoid cutting money from the state’s education budget at this point.

“This action avoids a devastating impact on classrooms with the school year already under way,” the governor said.

Gov. Schwarzenegger has said that if California lawmakers had agreed to create such a fund years ago, the state would now have reserves to fall back on.

After a record-setting delay in passing the fiscal 2009 budget in California, legislators agreed to create a fund of the kind favored by the governor. But voters will still have to approve it, probably in a special election next year. ("California Budget Passed, Signed," Oct. 1, 2008.)

Vol. 28, Issue 09, Page 17

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