Is There a Heyday on the Horizon?
A Counterintuitive View of State Budgets and Education Planning
Do you have a big, expensive idea to improve public education? Maybe you’d like to close the huge funding gaps that trap low-income students in substandard schools, or create free, high-quality, universal prekindergarten. Or rebuild the crumbling school infrastructure, create scholarships for the next generation of scientists and engineers, and finally give good teachers the pay raise they deserve. If you have these or other pricey aspirations, then get ready—your once-a-decade window of opportunity for state spending is starting to open.
State budgets, shrunk and desiccated over the last four years, are coming back to life. The National Association of State Budget Officers recently reported that state spending grew by more than 6 percent in both fiscal years 2005 and 2006. Researchers at the Rockefeller Institute of Government, the research arm of the State University of New York, found that state revenues are growing at the fastest rate in nearly 15 years.
This should come as no surprise. The last recession ended more than four years ago. If history is any guide, the next one is still years away. Consider the starting dates of the last seven recessions: March 2001, July 1990, July 1981, January 1980, November 1973, December 1969, and April 1960. Delay the December 1969 date by a single month, and it’s been almost 50 years since an economic downturn began in the second half of a decade.
But the good fiscal times won’t start rolling just yet. States are still making up lost ground from the last fiscal crisis. The most likely moment for big state budget surpluses, and the opportunities they provide, won’t be in the next fiscal year, 2007, but in those that immediately follow. The key is understanding this: Surpluses don’t happen because of strong revenue growth. They happen because of unexpectedly strong revenue growth. Politicians, being politicians, will spend every dime forecasters tell them is coming. But they can’t spend money they don’t know will be there.
State revenue forecasters are conservative by nature—I know, I used to be one. They’re still gun-shy from the recent, difficult recession, and are very likely to underforecast future revenues. That’s what they did in fiscal 2005, when 45 out of 50 states got their revenue forecasts wrong, and every one of them guessed too low. They’ll probably make the same mistake again.
Which means there’s a good chance that the beginning of 2007 and 2008 (some states write budgets every other year) will bring a New Year’s gift that many newer legislators have never before received: lots of extra money to spend. Inevitably, a mad scramble for dollars will ensue, as every special interest worth its name grabs for a piece of the pie. Old, unfunded programs will be dusted off and given a new, 21st-century polish. Those who oppose government spending on principle will argue for giving the money “back to the people.” Loud arguments will follow; some people will win, and some people won’t.
And then, just as quickly, the money will disappear, as the business cycle does what it always does, wringing out the excesses and inefficiencies of the expansion, cutting revenues before righting course again.
It might not work out that way, of course. Past performance is never a guarantee of future results. And there surely won’t be as much money as in the salad days of the late 1990s, when state coffers were swollen with income taxes paid on capital gains earned during the historic run-up in the stock market and state expenses for Medicaid were temporarily held back by declining welfare rolls and cost savings from managed care.
It’s certainly true, too, that public schools can’t be fixed simply by giving them more money. But that doesn’t mean that there aren’t real problems out there that cost real dollars to solve. The opportunity, and funding, to tackle those issues simply don’t come along every day. There are good reasons to believe that day is coming soon.
So my advice to reformers is this: Assemble your forces, marshal your arguments, and get your interest groups in line. Introduce legislation this year, even though the money’s not there yet, so you can get a sense of who your friends and (more important) your enemies really are. Then get ready to come back and fight hard for the resources you believe students truly need. The fiscal window of opportunity is opening, but it won’t be open long.
Vol. 25, Issue 25, Page 29Published in Print: March 1, 2006, as Is There a Heyday on the Horizon?