Tax Windfall No Boon for Schools
As expected, the nation's schools will reap relatively little benefit from the unexpected increase in state revenues caused by last year's overhaul of the federal tax code.
While the number of states planning to keep their windfall about equals the number that intend to return theirs to taxpayers, the latter group accounts for most of the money at stake, according to a recent survey sponsored by the National Governors' Association and the National Association of State Budget Officers.
The study, which examined fiscal conditions in all 50 states, also found that legislatures tended to be more generous than governors this year in funding education and other programs.
In a March survey, the nga found that the nation's governors had requested total spending increases averaging 3.9 percent for fiscal 1988, the budget year that began this past summer in most states. According to the latest survey, legislatures enacted an average 5.7 percent increase.
After inflation, however, realstate spending will grow by only 1.1 percent next year, the report predicted, continuing a trend towards slower budget growth that began in fiscal 1986.
But such aggregate figures, the new report noted, mask broad variations in spending caused by regional economic conditions. While states in the booming New England area increased fiscal 1988 spending by as much as 10 or 11 percent, oil states, such as Texas, Alaska, and Louisiana, underwent painful rounds of budget-cutting this year.
All told, 24 states were forced to cut spending below the levels set in their 1987 budgets because of lower-than-expected revenues, the nga and nasbo reported. As in past years, they said, governors and legislatures attempted to shield education programs from such cuts.
Their efforts were not always successful, however. According to the report, Alabama cut 1988 education spending by 5 percent, while Alaska reduced its aid to local school districts by 10 percent and Montana cut such payments by 3 percent.
While these and several other states reported sharply lower revenues in fiscal 1987, most states saw their tax collections soar, the survey said. Total revenues were up nearly 6.7 percent over fiscal 1986, one of the largest one-year increases in history.
A large part of that increase, however, was a one-time gain of $6.1 bil4lion resulting from federal tax changes, which forced many states to eliminate deductions and exemptions without raising their income-tax rates.
According to the nga report, 15 legislatures voted to return their portion of that windfall to taxpayers by lowering rates, while 16 states elected to keep all or part of the revenues.
But because the states with the largest potential gains have all refused to keep the money, more than 80 percent of the total windfall will be used for tax relief, the report said.
One state, Michigan, is still de8bating the issue. The remaining 19 states either lost revenue or were not affected by the federal changes.
For the coming year, nasbo fiscal experts predicted that strong economic growth would boost revenues in the New England and Mid-Atlantic states, while the hard-hit agricultural and oil-based states of the Midwest, the Southwest, and the Rocky Mountain region would experience a modest recovery.
Economic and budget trends are sharply split among the Southern states, and are difficult to forecast in the Great Lakes area and in the Far West, the study added.
Vol. 07, Issue 06