States’ Fiscal Woes Raise Anxiety Level on School Budgets

A long-projected revenue chill is beginning to bite in a number of states, putting pressure on education policymakers to defend existing programs—and, in some cases, forcing them to prepare for the worst if budget cuts become a reality.

The causes vary, from slack property-tax receipts in Florida to a chronically sluggish economy in Michigan. But the result is the same: financial uncertainty as school districts head into the 2007-08 school year and begin planning in earnest for the next budget cycle.

Complicating that picture is worry on the part of some economists—reinforced by the continued national housing slump and a gloomy Sept. 7 jobs report from the U.S. Department of Labor—that the worst is yet to come.

“I’m concerned we are going to have an economic downturn in the next couple of months,” said Michael P. Griffith, the school finance analyst for the Education Commission of the States, in Denver. “If we do, that means you’re going to have almost every state go back and revise their 2007-08 school year spending amounts.”

Such concerns echo warnings in a 45-state survey issued last month by the Denver-based National Conference of State Legislatures that state revenues likely have peaked for the decade. (“Fiscal Forecast for States Begins to Darken,” Aug. 15, 2007.)

And local officials already are getting the message.

“Prudent school districts are preparing for a couple of lean years,” said Jim Warford, the executive director of the Florida Association of School Administrators. “Districts are already cutting discretionary spending. Travel has been limited. We’re seeing reductions of staff development.”

Regional Woes

While the slowdown in the real estate market and its effect on state revenues are national concerns, some regions are harder-hit economically than others, according to Daniel G. Thatcher, an NCSL research analyst.

“The Great Lakes region is going through a slump,” he said, referring to Indiana, Ohio, Michigan, and Wisconsin. “The population is declining and jobs are declining. Personal income is below the national average.”

Education officials in states feeling the crunch are lobbying hard to hang on to promised funding, even while planning where to cut if needed.

In Florida, where state revenues are down in part because of a sluggish housing market, Gov. Charlie Crist, a freshman Republican, is negotiating with legislators on how to cut $1.1 billion from the state’s $71 billion budget in fiscal 2008, which began July 1.

“The governor is focused on keeping dollars in the K-12 classroom,” said Anthony De Luise, a spokesman for Mr. Crist.

But revenue pressure in Florida is coming from a number of directions. Legislation the governor signed in June reduced property taxes to at least 2006 levels, Mr. De Luise noted. In addition, a constitutional amendment that goes before voters in January would cut property taxes even more.

Florida lawmakers have set a one-week special session for next month to resolve the budget shortfall. In the meantime, he has said that on average state agencies will have to cut their budgets by 4 percent—and state education officials have warned their local counterparts to prepare for the same. “We did reach out to the school districts, and we did recommend that they set aside 4 percent of their state funding as an exercise of caution,” said Thomas Butler, the press secretary for the Florida Department of Education. We don’t know what’s going to happen.”

In Michigan, district officials fear layoffs of teachers and other staff members if the budget being prepared for the fiscal year that starts Oct. 1 fails to increase funding for K-12 schools.

“From the standpoint of schools, we’ve been cutting for a couple of years, so we’re down to the bare bones,” said Justin P. King, the executive director of the Michigan Association of School Boards. He said a survey by school business officials has projected that 53 percent—or 318—of Michigan’s school districts will have to cut their workforces by at least 5 percent without increased funding.

Michigan Gov. Jennifer M. Granholm, a Democrat, has projected a $1.8 billion shortfall in her proposed $43 billion budget. Lawmakers last week were to consider proposals for addressing the shortfall.

Mr. King said that districts would have to receive $200 more per pupil this school year over last to make up for the increasing cost of health insurance and retirement benefits for teachers and other staff members.

Revenue Complexities

In Indiana, school district funding got caught in the crossfire of a property-tax debate.

John G. Ellis, the executive director of the Indiana Association of Public School Superintendents, said that districts had expected increases in property-tax revenue because the state had reassessed many properties at higher rates. But the rates went up so much in some counties that taxpayers complained, and the state is now doing new assessments of properties in those counties.

Mary Jane Michalak, the director of communications for the state’s department of local government finance, said her department froze property-tax levels at either 2006 or 2007 levels for four of the state’s 92 counties, including Marion County, which encompasses Indianapolis. In all, 21 counties are being reassessed. She said it’s possible that property-tax levels will be frozen at 2006 levels in other counties.

Mr. Ellis said “school districts [in those counties] are borrowing money. They’re having to borrow the difference between [fiscal] 2006 and 2007 revenues.” He said the districts are feeling a squeeze because of the extra cost of interest they’re having to pay on the borrowed money. The legislature reconvenes in January.

In Maryland, where Gov. Martin O’Malley, a freshman Democrat, and state legislators face a $1.5 billion budget shortfall, school advocates are urging the state to fulfill its funding commitment under the Bridge to Excellence in Schools Act. The 2002 law, known in Maryland as the Thornton plan, is meant to make school funding more equitable and increase it over five years.

“We will certainly work to make the case that now would be a terrible time to backslide on the commitment to education,” said John R. Woolums, the director of governmental relations for the Maryland Association of Boards of Education.

“We are approaching the deadlines and sanctions that come with the No Child Left Behind Act—and come with a fairly high price tag,” he said, referring to the accountability-focused federal K-12 law.

Mr. Woolums said that Mr. O’Malley and his Republican predecessor, Gov. Robert L. Ehrlich Jr., both funded the Thornton plan fully, even including an annual increase for inflation. But he said Gov. O’Malley has suggested that the hike for inflation should be trimmed for some counties.

“We would prefer that the inflation factor not even be on the table and considered for a cut,” Mr. Woolums said.

Maryland’s next regular legislative session starts in January.

Planning Puzzle

All the uncertainty adds up to a planning headache for local education officials.

School districts tend to spend a large portion of their budgets in the beginning of the school year, said Mr. Griffith of the ECS, so it can be difficult to adjust after the school year has started.

“When you purchase equipment, materials, and books, you are usually making those payments in the beginning of the year,” he said. “You can’t go and sell your textbooks back.”

California may have to revisit its budget, including K-12 spending, in the fiscal year that started July 1, said Carol Bingham, the director of the fiscal-policy division for the California Department of Education.

H.D. Palmer, the deputy director of the state department of finance, said the state’s budget is $145.5 billion, and California is projecting a shortfall of $6.1 billion for the 2009 fiscal year.

Ms. Bingham noted that the state’s revenues are not keeping up with expenses. “We may have to go in [to the budget] in the spring and take another shot at it,” she said. “We in schools can’t get complacent about it.”