State Revenues Up, But School Hikes Uncertain

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The fiscal health of states continues to improve, but state lawmakers warn that a rising fever for tax cuts may keep schools from seeing a funding bonanza as a result.

The latest good news for states is a report showing that revenues in the second quarter of 1994 exceeded collections during the same period in 1993.

Cash flowing into state coffers was up 10 percent or more in 11 states for the second quarter of 1994, compared with a year earlier, according to the report, which was released last month by the Center for the Study of the States in Albany, N.Y.

As the economic landscape improves, schools are likely to see more generous aid from statehouses than they saw during the recession, according to Steven D. Gold, the author of the report and the director of the center.

"We can be confident that education next year will have its best year in the 90's," Mr. Gold said. "The outlook now is that purse strings will be looser."

Nationwide, state revenues increased by an average of 5.3 percent for the second quarter of 1994 over the same period in 1993.

Most of that growth was fueled by improvements in the economy. Twenty-three states reported double-digit percentage increases in corporate-tax revenue; 18 saw similar increases in sales-tax revenue.

States are not partaking of this new prosperity in equal measures, however, according to the center's study. Second-quarter revenues in Rocky Mountain states, where the economy is generally humming, were nearly 11 percent ahead of last year's. In the Mid-Atlantic region, meanwhile, revenues were up only 3.6 percent.

Echoes N.C.S.L. Report

The overall optimism of the center's report echoed other recent reviews of state fiscal conditions. In July, the National Conference of State Legislatures concluded that "after struggling through a multiyear recession early in the 1990's, finances finally stabilized for most states last year." (See Education Week, Aug. 3, 1994.)

State lawmakers approved an average increase of 7.7 percent in education spending in this year's legislative sessions, according to the N.C.S.L. study.

But the chances that legislatures will approve more dramatic increases next year depend in part on how many lawmakers line up to cut taxes.

In this year's sessions, at least 20 legislatures voted to cut taxes, according to the Center for the Study of the States report. New Jersey led the way, as Gov. Christine Todd Whitman pushed through a $649 million reduction.

Most of those cuts were small and affected mostly businesses, according to the center. But they have set the stage for what could be even bigger cuts in the next sessions.

In New York, for example, school and business groups played tug-of-war this year with a $1.5 billion revenue surplus resulting from improved economic conditions.

In the end, schools got a state-aid increase of roughly $550 million--more than double what Gov. Mario M. Cuomo had proposed--while businesses rounded up nearly $470 million in tax cuts.

Governor Cuomo opened round two of this budget battle when he pledged recently to send a package of $1 billion to $1.5 billion in tax cuts to the legislature next session.

The Governor's promise was made in the heat of his tough re-election bid, according to Alan Chartock, the publisher of The Legislative Gazette and a professor of communications at the State University of New York at Albany.

The Allure Of Tax Cuts

But Mr. Cuomo will keep to his word because of the anti-tax fury evident on the campaign trail, Mr. Chartok predicted.

"If Cuomo is re-elected, he'll learn from this," Mr. Chartok said.

In Idaho, where state legislators this year pumped up education spending by 17 percent, talk has turned to property-tax cuts that would not be accompanied by any increase in state taxes.

"I think we'll find a lot of pressure to lower taxes and then hope we'll just grow out it," said John D. Hansen, the chairman of the Senate education committee.

Legislators around the country who have been wrestling with big bills for Medicaid and prisons may also be less likely to authorize dramatic new school spending.

State Medicaid spending has grown faster than school aid since the late 1980's, according to the N.C.S.L. report, and corrections is the fastest-growing drain on state budgets.

"Those two demands will continue to present huge problems for us," said Ronald R. Cowell, the chairman of the House education committee in Pennsylvania.

Vol. 14, Issue 03

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