Education Funding

Fiscal Chill Puts Squeeze on Several States

By Michele McNeil — May 18, 2007 6 min read

While most states are enjoying full—or even overflowing—tax coffers, a handful are confronting budget deficits that could threaten public school spending, the result of sluggish local economies and bigticket programs.

The financial squeeze is tightest in Michigan, where public schools face significant cuts unless the legislature and the governor can find a compromise on how to close a $700 million deficit this fiscal year.

Schools aren’t yet on the chopping block in California, Maryland, and Rhode Island, but all three states are scrambling to cope with projected deficits in the coming budget years. Teetering on the edge is Delaware, which is also seeing slack collections in almost all of its major tax categories, from corporate to personal-income taxes.

In all, 11 states were taking in fewer dollars than they had expected as of February of this year, according to the latest report published last month by the Denver-based National Conference of State Legislatures. And eight of those states were reporting budget overruns, or spending more than their current spending plans allowed, as of this February.

“Things are not as robust as was the case a year ago. There’s some early indication of concern for states,” said Arturo Perez, an NCSL fiscal analyst.

He pointed to the April report from the country’s largest retailers, including Wal- Mart, which posted lower than expected sales. That, he said, will likely translate into sluggish sales-tax revenue for states. In addition, he said, high fuel prices and a lethargic housing market continue to put a strain on state revenues.

“Whether that’s a one, two, three punch— that’s a possibility.We just don’t know,” Mr. Perez said.

Schools Warned

Michigan, a manufacturing state where the economy has struggled for years, seems to be embroiled in the biggest budget mess—one that threatens funding to schools this budget year.

Lagging Revenue

A number of states have reported tax collections below target through February 2007. Some are facing a tighter budget picture than others.


MICHIGAN, which was undergoing budget negotiations last week, is facing an estimated $700 million budget deficit. Gov. Jennifer M. Granholm, a Democrat, has said that without tax increases, public school funding will be cut.

MARYLAND, which has already wrapped up its 2007 legislative session, faces a $1.4 billion budget deficit next year. That could spell trouble for education funding.

RHODE ISLAND lawmakers, who are working on next year’s budget, are grappling with a deficit of more than $350 million. Gov. Donald L. Carcieri, a Republican, already has proposed cutting some social services.

SOURCES: National Conference of State Legislatures; Education Week

In an April 30 letter to school superintendents, Gov. Jennifer M. Granholm’s administration warned schools that state payments will be reduced by $122 per student in June if the $700 million budget deficit isn’t addressed. That’s because the state hasn’t taken in enough in tax revenue during the 2007 budget year to fulfill its promised allotment to schools. In addition, cuts loom for the 2008 budget year. The legislature is in session now trying to fix the budget.

For school administrators, who have to adopt their budgets by June 30, the uncertainty only complicates financial planning.

“Folks are more than willing to make tough decisions, but if the data’s not there, it’s really challenging,” said Jon Tomlanovich, an associate executive director of the Michigan Association of School Administrators.

The impact could be severe. For instance, if the $122-per-student cut sticks, the Detroit public school system, where the annual budget is about $1.6 billion, could lose nearly $16 million, Mr.Tomlanovich pointed out.

“Cuts like this have been going on for seven years now,” Mr. Tomlanovich said. “We’ve done our best to preserve programs by cutting around the edges, but we’re way past that now.”

It’s unclear when this year’s budget crunch will be resolved in the legislature.

Last week, budget talks broke down several times as the Republican-controlled Senate refused to allow a tax increase as part of the deficit-reduction package. Senate Majority Leader Michael D. Bishop, in a statement, called the plan a “$2 billion tax increase.” Gov. Granholm and her fellow Democrats who control the House favored a mix of cuts and tax increases.

“We cannot cut our way out of this crisis,” Gov. Granholm and House Speaker Andy Dillon said in a statement issued May 15.

Looming Problems

The situation is less clear in states feeling more modest budget pressure.

Last week, California Gov. Arnold Schwarzenegger, a Republican, spared schools in announcing cuts to rein in a persistent budget deficit—nearly $1.5 billion in cuts for the 2008 fiscal year that include a temporary halt to cost-of-living increases for some low-income Californians and those with disabilities. But in a press conference, he blamed the budget problem on spending on education and prisons, coupled with a continued housing slump.

In Rhode Island, a deficit of $350 million for the upcoming 2008 budget year prompted Gov. Donald L. Carcieri, a Republican, in January to propose cuts in social- welfare programs. They include a cutoff age of 17 for children receiving state services, down from 21. But, at the same time, his budget proposed increasing school aid by 5 percent. Legislators are still wrangling over the budget.

The governor told lawmakers that even though tax revenues are increasing, spending is outpacing that growth. In addition, the state is seeing some sluggish performance in lottery revenue and sales taxes, according to the governor’s budget report.

“We’re looking at budget deficits as far as we can see,” said Steve Kass, a spokesman for Gov. Carcieri. Though K-12 education will be the last thing cut, Mr. Kass said, schools might not be immune if state policymakers can’t get social-services spending under control.

Maryland is facing a similar budget crisis, although state policymakers have some time to deal with their projected $1.4 billion budget deficit, which will face lawmakers next year as they craft the state’s 2009 fiscalyear budget.

So far, Maryland legislators have been kind to schools. The legislature this year spent an additional $1.3 billion on K-12 education, as part of the socalled “Thornton” school funding formula. However, the state was unable to fund a portion of the formula intended to equalize spending among geographic areas—a priority for Gov. Martin O’Malley, a Democrat, in his recent campaign for governor.

Now, Maryland policymakers are working behind the scenes to figure out how to fix the deficit. Gov. O’Malley already has announced cuts to state agencies, but they haven’t touched schools. But K-12 education advocates fear that sparing schools from cuts could be difficult in the future unless the state finds more money.

“We have been fortunate to get the kind of funding we have. But we’re in a more difficult climate now,” said Daniel Kaufman, a spokesman for the Maryland State Teachers Association, a 62,000-member affiliate of the National Education Association. “There needs to be a stable, long-term funding source for education.”

Any new long-term revenue source would be politically controversial, whether a tax increase or, as is being considered as part of the long-running funding debate in Maryland, adding slot machines to horse tracks.

But in order for the state policymakers to approve any new revenue measures, politicians need to start building support among the public, said Alvin L. Thornton, who led the commission named after him in 2000 that came up with recommendations on how to better fund Maryland schools.

While legislators don’t officially return to the Maryland statehouse for their next session until January—unless a special session is called—Mr. Thornton said a budget solution needs to be brokered now if politicians want public support for a tax increase.

“If we wait until January, it’s too late,” said Mr. Thornton, a political science professor at Howard University in Washington. “We can’t assume the groundswell will automatically emerge.”

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A version of this article appeared in the May 23, 2007 edition of Education Week as Fiscal Chill Puts Squeeze on Several States


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