Lawmakers Greet Rosy Budget Picture With Caution

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Fewer budget shortfalls and larger-than-expected revenues are brightening the outlook for most state budgets this year, and that will mean more money for education in most states, a report by the National Conference of State Legislatures says.

But state leaders gathered here last week for the group’s national conference said they plan to be cautious in spending any additional revenues that they may see in the coming year.

According to the report, states’ education spending for fiscal 2005 is expected to grow at a higher percentage than for the previous year.

NCSL fiscal analysts said that increases in K-12 spending for fiscal 2005 already have averaged about 5 percent above last year for the 44 states that completed their budgets in time for the preliminary report.

But despite the increase overall, six of those states have cut K-12 funding in their 2005 budgets, the report adds. Seven states also cut higher education programs in the new fiscal year, which began July 1 in most states.

And the half-dozen states that had not passed budgets in time for the analysis—California, Illinois, Kentucky, Michigan, and New York—could account for about one-third of the study’s final results, the authors cautioned.

"Larger states have had the most trouble closing budget gaps," said William T. Pound, the NCSL’s executive director.

The encouraging fiscal tone voiced in the report, which was released July 20, was greeted with guarded optimism during sessions at NCSL’s July 19-23 meeting.

Indeed, the increasing costs of health care, primarily Medicaid programs, and broader concerns about the projected demands from the country’s aging population, dominated many of the discussions.

Another top concern of NCSL members is the cost of implementing tougher school accountability systems, enhancing teacher quality, and providing technical help to schools as required by the federal No Child Left Behind Act.

Tax Resistance

On the revenue side, states typically are not turning to tax increases to generate revenue as they did during the last economic downturn, in the early 1990s, said Corina Eckl, the NCSL’s fiscal-program director in presenting the report.

And because this is an election year in most states and tax increases remain unpopular, that reluctance to impose higher taxes is not expected to change, she added.

But of the handful of states that passed tax increases in the past two legislative sessions, Mr. Pound said, most of the measures were earmarked for K-12 education.

"Fewer states are taking extraordinary actions, and I think that is an indicator that things are improving," Ms. Eckl said. "We are probably out of the worst of it," she said of the recent downturn, "but we are certainly by no means done with challenges for states."

In addition, she said, there has been a slowdown in recent state trends of raising tobacco taxes and government fees to boost revenues, and of laying off state employees to curb expenditures.

Molly Ramsdell, the director of the NCSL’s budgets and revenues committee, said states should not expect much more funding from the federal government in coming years. Instead, federal lawmakers are trying to overcome a mounting deficit of their own, and will likely look to cut programs rather than increase taxes, she said.

Two major federal education laws, the No Child Left Behind Act and the Individuals with Disabilities Education Act, will continue to significantly hurt states’ ability to balance their budgets, Ms. Ramsdell contended.

A few states have benefited from the rising costs of fuel and energy, said Ms. Eckl because of the taxes and fees they impose. Others reported increased revenue from rising home values and construction in their states.

Some state lawmakers told researchers as part of the state fiscal report that they feel pressure to spend new revenue on programs that have been cut in recent years, including higher education, and on new elementary and secondary programs.

David Abbey, the director of the New Mexico legislature’s finance committee, said his state had been helped by an increase in the cost of natural gas. But while some legislators want to spend the resulting money on raises for teachers and new pre-K programs, he said, the rising cost of Medicaid programs "could take all the new money that we get."

Nevertheless, the report was welcome news for many state leaders and legislative aides.

"I’m more optimistic than I’ve been in three years," said Jeff Youtz, the supervisor for budget and policy analysis for the Idaho legislature, "although it’s all still relatively unknown."

Vol. 23, Issue 43, Pages 18, 20

Published in Print: July 28, 2004, as Lawmakers Greet Rosy Budget Picture With Caution
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