States Wrap up the Year

Abstract

ACCORDING to Mike Griffith, who specializes in school finance at the Education Commission of the States (ECS), during the first nine months of this year our national economy began to experience a slowdown in growth. This economic downturn was made far worse by the terrorist attacks of September 11. Many individuals are now asking how the economic situation will affect state spending for K-12 education. Says Griffith, education spending has already been negatively affected, and the only questions are how big the impact will be and how long it will last. Griffith asserts that over the past five years state policy makers were in the enviable position of being able to increase education spending and cut taxes at the same time. Those times appear to be over - at least in the short term. From 1996 to 2001 per-student expenditures for K-12 education increased by more than 30.6% - more than 13.6% above inflation. Such a large increase would have been difficult to maintain even in good economic times, and in fact a slowdown in state budgets in general and in education spending in particular was evident prior to September 11. A report issued by the National Conference of State Legislatures (NCSL) last March stated that 19 states either had made cuts in their 2001 budgets or were on the verge of doing so. Of those states making cuts, only one - Alabama - was forced to make actual cuts in education spending. Most states were just lowering the rate of increase in education spending for fiscal year 2002. A New Economic Outlook Griffith believes that the states that felt the economic impact of the terrorist attacks first were those that rely heavily on travel and tourism or on energy production. The drop in tourism since the attacks has had an immediate impact on such states as Florida, Hawaii, and Nevada, he says. Meanwhile, the decrease in oil prices has hit such states as Alaska, Louisiana, and Texas. Although some states may have been hit earlier than others, it appears that all states will eventually feel the impact. The nationwide effect on state budgets can be seen in a survey conducted by Stateline.org - a web-based publication that reports on state policy issues. Stateline surveyed all 50 states and found that 40 had determined to freeze spending or make cuts in their current budgets prior to the attack. While most of the states surveyed had not made adjustments to their budgets since September 11, 15 states said they would need to make further budget cuts as a result of the attacks. What Does the Future Hold? Some states, according to Griffith, will be able to avoid budget cuts in the short term because they were able to put excess funds into their accounts. In a study released in August, the NCSL estimated that by the end of fiscal year 2002 the states would have a combined $19.2 billion in their rainy day accounts. These funds are equivalent to only about 10% of yearly state revenue, so this funding will not be sufficient to carry the states through a protracted economic downturn. A few states have already been forced to make some difficult decisions about education spending. For example, Iowa has been forced to delay its teacher Pay for Performance program, which was seen as a possible model for other states. Some states may be forced to follow North Carolina, which chose to increase its sales and income taxes by $1 billion after September 11, in order to accommodate a previously planned pay raise for teachers. Less than a month after this tax increase, it was announced that state departments in North Carolina would have to reduce their budgets by 4%. If the economy does not turn around soon, state policy makers will be in the unenviable position of being forced to decrease education spending, increase taxes, or both. According to Griffith, it's hard to tell if the party is over or if the band is just taking a break. Either way, no one's going to be dancing any time soon. …