Published Online: June 22, 2011

States Battling Over Education Budgets at Fiscal Year's End

After months of public feuding and failed negotiations, lawmakers and governors in several states remain deadlocked over how to close daunting budget shortfalls and pay for education and other services, with some Democrats calling for tax hikes and Republicans countering with demands for deep cuts to state government.

The ideological standoffs, which mirror the partisan split at the federal level, have left school districts in some states with only a vague sense of how much money will be available to them next year. In at least one state, Minnesota, the budget standstill has created the possibility of a state government shutdown, with uncertain consequences for schools.

With the fiscal year coming to a close on June 30 in the majority of states, about 15 have yet to approve budgets for the coming year or the biennium, said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers, in Washington.

A number of volatile political and economic factors have contributed to the impasse in state capitals.

More than 40 states entered this year’s legislative sessions facing budget shortfalls. While state tax revenues have climbed back somewhat from the depths of the recent recession, many financial analysts predict that the money flow will not recover to pre-downturn levels for at least a few years.

Many Republican state officeholders, who made historic gains in last fall’s legislative elections and won control of a majority of governor’s offices, have vowed to not support any tax increases, which they argue will stifle economic growth and nourish government programs and services that they believe have grown too large.

“The anti-tax attitude, in particular, is very widespread,” said Donald J. Boyd, a senior fellow at the Nelson A. Rockefeller Institute of Government, at the University at Albany, State University of New York. “Clearly, we are testing the anti-tax fervor, because people are going to have to decide if they really meant it when they said, ‘no new taxes.’”

Unusual Fiscal Response

The opposition to taxes is reflected in what Mr. Boyd notes has been policymakers’ unusual response to the recession, at least by recent historical standards.

States typically have reacted to sharp drops in revenue during recessions by raising taxes, as they did during the downturns of the early 1980s and early 1990s. But despite the budget chaos created by the recent recession—widely considered the most painful downturn since the Great Depression—states have imposed fewer tax increases, cumulatively, than they did during either of those earlier periods, according to Mr. Boyd’s recent analysis.

And despite the wave of budget-cutting activity around the country—which in some states has included significant reductions to K-12 education—Mr. Boyd said he did not yet see evidence of the political tide turning in favor of tax hikes. He predicted that many state leaders would continue to respond to bleak fiscal conditions by making more cuts or short-term fixes, or through what he described as budget gimmicks, such as floating bonds against states’ revenue streams, or moving certain state costs from one fiscal year to the next.

Tax Hikes in Wake of Great Recession

Many states are struggling to close severe budget shortfalls. But states have relied less on tax increases, cumulatively, during the most recent recession than they did during economic downturns in the early 1980s and early 1990s. States were less apt to raise taxes during and after the recession of 2001.

Concerns about relying on temporary or illusory fixes were a factor in California Democratic Gov. Jerry Brown’s decision this month to veto a state budget proposal sent to him by his own party, which holds a majority in the legislature. That spending plan relied on “legally questionable maneuvers, costly borrowing, and unrealistic savings,” the governor said.

Mr. Brown has urged lawmakers to allow residents of his state, which is trying to close an $11 billion deficit, to vote on a series of tax increases and extensions as an alternative to what he says would be deep cuts in K-12 education. But Republicans in the statehouse have refused to support having those measures placed on the ballot, arguing that the governor and Democrats need to agree to a series of spending cuts across government first.

“We keep having an appetite to spend at a higher level than we can afford,” Sen. Bob Huff, the ranking Republican on his chamber’s budget committee, said during a legislative debate this month. “We have to borrow from here, we have to prop up from there ... and we keep wondering how in the world we ended up with this huge hole at the end of the process.”

Budget deadlocks along partisan lines have played out in Iowa, Texas, and other states.

In North Carolina, Democratic Gov. Beverly Perdue vetoed the Republican legislature’s budget, saying it did not provide enough money for schools and would result in major job losses in districts. GOP lawmakers, however, voted to override the veto.

Minnesota Deadline

In most states, Mr. Sigritz said, there is no definite consequence to not approving a budget on time, because legislatures can keep the government running through temporary spending measures or other means. But the circumstances are different in Minnesota, where state legal and constitutional provisions would lead the state into a government shutdown unless Democratic Gov. Mark Dayton and the Republican-controlled legislature can agree on a budget by the end of this month.

Minnesota faces a $5 billion budget shortfall. The governor, who was elected in November, would pay for state programs and services and close the gap by raising taxes on the top 2 percent of the state’s income-earners; Republicans favor budget cuts. The governor and state lawmakers have proposed fairly similar spending on schools, at around $14 billion over two years, with Mr. Dayton having called for about $80 million more for K-12 education than his GOP counterparts.

The governor has filed a petition in a state district court providing a list of government functions he views as essential in the event of a shutdown, which include maintaining prison services, highway repair, and services for the disabled.He did not list K-12 education as one of those functions, a decision that wasn’t based on his view of education’s importance, but rather on his obligation to follow the state’s constitution, said Katharine Tinucci, a spokeswoman for Gov. Dayton. The governor’s budget proposal is a fiscally responsible one, she argued.

“Taxes have become very regressive in Minnesota,” Ms. Tinucci said. The governor “thinks it’s the fairest thing to do to ask the richest Minnesotans to pay a bit more.”

The possibility of a shutdown has created unease in Minnesota school districts, which rely heavily on state funding, said Charles Kyte, executive director of the Minnesota Association of School Administrators.

School districts receive checks for state aid twice a month, he said. Many districts could manage if they missed one or two payments, but if a shutdown dragged out for much longer, it could create problems, he said. Many districts could dig into reserves or borrow money at low-interest rates, Mr. Kyte said. But charter schools typically have less money in rainy-day funds and can’t borrow money as cheaply, he noted. In addition, temporarily closing the state’s education department could lead to delays in licensing teachers, administering statewide tests, and other services that are important to school systems, he said.

Mr. Kyte said he’s trying to be optimistic that state leaders can avert a shutdown, but the fixed positions of both sides make him doubtful.

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“The philosophical differences here, as they are in most parts of the country, are pretty deep,” he said. “I see compromise being pretty difficult. I’d be tickled if I was wrong.”

Cloudy Revenue Forecast

Even in states with improved budgetary conditions, the amount of money that will flow to schools is unclear. In South Carolina, the state recently learned that it would receive about $210 million more in tax revenue than anticipated, which could bolster a $6 billion state budget.

Senate lawmakers had proposed sending $105 million of the new revenue to schools. But Republican Gov. Nikki Haley, whose party also controls both chambers of the legislature, suggested she would veto a spending plan that did not send a significant amount of the new revenue back to taxpayers.

With the unanticipated arrival of new revenue, “it means that you say, if you’re not giving it in tax relief, if you’re not giving it to pay down debt, you send it back to the taxpayers, that’s where it belongs,” Ms. Haley said at a news conference. “Whenever money falls from that money tree, it’s not, ‘Where do we spend it and how do we spend it.’ ”

South Carolina school district officials say that after years of making deep cuts to programs and services, they’re desperate for state help.

Since 2008, the Kershaw County School District has been forced to chop $12 million, or 17 percent of its total budget, Superintendent Frank E. Morgan said. The jobs of 80 employees, including 50 teachers, have been eliminated; custodial services have been privatized; school supplies and field trips have been scaled back.

The additional state funding would allow his 10,000-student district, which has a total budget of about $60 million, to avoid furloughs of five teachers and 10 other employees and to replenish its rainy-day fund.

The district “wouldn’t be out of the woods, but we’d be better off than we were in January or March,” Mr. Morgan said. “Any line-item that we’ve had discretion to cut, we’ve cut.”

Vol. 30, Issue 36

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