Published Online: April 26, 2010
Published in Print: April 28, 2010, as Despite Projected Revenue Rise, States Face Slow Recovery

States Expect Revenue Rise, Though Recovery Pace Slow

The steep, recession-driven slide in state revenues—a crucial piece of the education funding infrastructure—is showing signs of easing slightly, though fiscal experts warn it will still be several years before most state budgets return to their prerecession health.

For the 2011 fiscal year, nearly every state is projecting that revenues—generated mostly from personal-income and general sales-tax collections—will exceed current-year levels, although the increases in many states will be “razor thin,” according to a new report that examines fiscal conditions in the states.

But even as revenues bottom out and begin a modest uptick, mounting spending pressures, along with the tapering-off of federal economic-stimulus aid, mean that most states are likely to be grappling with budget shortfalls for at least the next two or three years, warns the report from the National Conference of State Legislatures.

While many economists have said the national economy began recovering in the third quarter of 2009, the NCSL analysts said it will likely be several years before school districts in many states can return to “normal budgeting.”

“Schools and districts are used to planning for about a 5 or 6 percent increase in their operating budgets every year,” to pay for items such as increased teacher salaries, said Daniel G. Thatcher, an education and fiscal-policy associate at the Denver-based NCSL. “So even when the states get to a point where they can ‘level fund’ districts, it still feels like a cut.”

Projected Shortfalls

The states’ collective budget gap for fiscal 2011 is estimated at $89 billion, according to the NCSL report. For fiscal 2012, the total projected shortfall for states is $73.5 billion; for fiscal 2013, that number is $64.7 billion.

“Unemployment remains high in most states, and consumer spending is still really restrained,” said Todd Haggerty, a fiscal-policy associate with the NCSL, which just released its semiannual survey of legislative fiscal directors from each of the 50 states and Puerto Rico.

“That makes it difficult for states to recover quickly,” he said. “When people say we’re recovered from the recession, they tend to be referring to the next day after the worst day of the recession. It’s a slow and painful process.”

In a separate but similar report released earlier this month, researchers at the Nelson A. Rockefeller Institute of Government at the University at Albany, State University of New York, paint just as austere a picture. In its reportRequires Adobe Acrobat Reader, the Rockefeller Institute shows that state tax revenues dropped by 4.2 percent from a year earlier in the fourth quarter of 2009, a decline that has gone on for five straight fiscal quarters, a record.

For many school districts, the states’ glacial recovery portends more teacher layoffs, elimination of some academic and extracurricular programs, larger class sizes, and heavier reliance on local revenue sources, such as property taxes. Some districts are saving money by switching to a four-day school week or shortening the school year.

The American Association of School Administrators recently surveyed district-level officials from 45 states and found that many of them are turning to layoffs, staff furloughs, benefit cuts, and other measures to make up giant shortfalls in the coming school year. ("Pressure Building for Fresh School-Jobs Aid," April 21, 2010.)

“A majority of states have had to cut education [in their fiscal 2011 budgets], and it’s usually the last thing that they cut,” said Mr. Thatcher of the NCSL. “I imagine that is going to be the case for [fiscal] 2012 as well.”

In California, more than 22,000 teachers have already been put on notice that their jobs are at risk. In Illinois, state officials are predicting as many as 17,000 job cuts in the state’s public schools, and in New York state, as many as 15,000 teachers could be without jobs within a couple of months.

In what passes for good news for K-12 spending these days, Utah lawmakers approved a budget for fiscal 2011 that slashes public school spending by $10 million (out of a total education budget of about $1 billion) at a time when the state’s K-12 enrollment is expected to grow by 11,000 students, Mr. Thatcher said.

The American Recovery and Reinvestment Act approved last year by Congress set aside up to$100 billion for education, but the funds cover only fiscal 2009 and 2010, forcing states and districts to prepare for a “funding cliff” when those dollars are gone.

But fewer than half the states have taken specific actions to prepare for the fall-off of federal stimulus dollars, said Mr. Haggerty.

“It’s ironic, because in fiscal 2010, states said that the stimulus funds were the one silver lining protecting them from making deeper cuts,” he said. “But for the next few years, the loss of those funds are going to contribute to the states’ budget gaps.”

Vol. 29, Issue 30, Page 19

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