Includes updates and/or revisions.
State leaders may have thought this budget year was tough, but fiscal 2009 will be even worse, predicts a by the organizations that represent the nation鈥檚 governors and their top budget officers.
States鈥� cash balances鈥攁 key sign of fiscal health鈥攁re declining, which means states will have a smaller financial cushion as they enter future budget years, according to the report. It was released today by the National Governors Association and the National Association of State Budget Officers, both based in Washington.
The report projects that states, on average, will have a financial cushion of 7.5 percent of total expenditures at the end of fiscal 2009, down from 11.5 percent three years ago.
鈥淭he [states鈥橾 fiscal situation mirrors the situation currently being experienced by the American consumer,鈥� said Scott D. Pattison, the executive director of the state business officials鈥� group, at a press conference today. He said that although these tough times aren鈥檛 as bad as those following the 9/11 terrorist attacks, 鈥渨e are worried about how bad it will continue to get.鈥�
It鈥檚 not all bad, however. There is a huge disparity鈥攗nlike any seen in the last three decades鈥攁mong states, said Raymond C. Scheppach, the NGA executive director. Some states have been hit hard by the housing market slump, including California, Florida, Arizona, and Nevada. Other states rich in energy and food crops, such as Montana, Wyoming, and North Dakota, are booming.
Governors already appear to have braced for the bad news, the report concludes, having recommended budgets for 2009 that collectively included only a 1 percent increase in spending鈥攖he third-lowest rate in 31 years.
The findings echo those of the Denver-based National Conference of State Legislatures, which issued its budget update in April. (鈥淪tate Fiscal Woes Start to Put Squeeze on K-12 Budgets,鈥� May 7, 2008.)
Bad News for Schools?
Though the 52-page NGA-NASBO report doesn鈥檛 focus on education, it鈥檚 clear the findings don鈥檛 bode well for K-12 schools, which took up the biggest chunk鈥�34.4 percent鈥攐f states鈥� general-fund budgets in fiscal 2007. Even though state leaders typically cut K-12 spending only as a last resort, it鈥檚 unclear how many states can continue to weather the economic storm without slashing funds for public schools.
States aren鈥檛 likely to start cutting public school funding, or even flat-lining spending growth鈥攁t least not yet, Mr. Scheppach said.
鈥淲e鈥檙e going to see a ratcheting down鈥� from past increases of 3 or 4 percent to 2 percent or less, he said. And the effect will most likely be felt in more modest growth in teachers鈥� salaries, he added.
Mr. Pattison said K-12 education is the most 鈥渟ancrosanct鈥� line-item in states鈥� budgets. He pointed out that even in the post-9/11 economic downturn, most states didn鈥檛 have to cut K-12 spending.
Sparing K-12 education means other programs must be cut. Already, during the 2008 budget year, 13 states had to reduce their already-enacted budgets because of sluggish revenue, compared with only three in 2007. That鈥檚 still far shy of the 37 states that had to reduce their budgets in 2002 and 2003, during the last economic downturn.
However, the report points out an ominous fact about the recession of the early 2000s: States鈥� biggest budget cuts came after the national economic downturn ended in late 2001. Most experts agree this latest national economic downturn has not ended, and it鈥檚 not clear when it will.
As the economy continues to tumble, states can expect more residents to seek public assistance, such as health-care coverage or food stamps, which will only put more pressure on already stressed budgets and further compete with education for funding. Nearly one-half of governors proposed spending more to expand health insurance to low-income residents in 2009, and six wanted to increase spending on food stamps.
鈥淯nfortunately, when revenue growth declines as a result of a weakened economy, spending pressures for social programs and health care increase,鈥� the report says. As a result, 鈥渇iscal 2009 could prove to be more troublesome than fiscal 2008.鈥�
Costs Outpace Revenues
The reason for states鈥� budget problems are numerous: Rising fuel costs are driving up the cost of doing state business, the slowdown in the real estate market has hit states鈥� tax revenues hard, and general sales, corporate, and personal income taxes aren鈥檛 growing as much as they did during stronger economic times.
Still, states are predicting a 4.4 percent growth in tax collections next budget year鈥攁lthough in many states, that won鈥檛 be enough to cover the rising costs associated with providing services such as prisons, roads, and education.
During this year鈥檚 budget negotiations around the country, K-12 education has already taken a hit.
In Florida, districts will have about 5 percent less to spend in the 2008-09 school year than they did the year before, because of state budget cuts. (鈥淔la. Districts Slash Programs, Personnel,鈥� May 14, 2008.)
California, meanwhile, has struggled to close a $17 billion budget deficit for next year. Thousands of teachers across the state faced layoffs before Gov. Arnold Schwarzenegger, a Republican, cobbled together a revised, $101.8 billion budget that will likely spare most of those jobs鈥攁t least for now. (Revised California Budget Plan Could Blunt Impact on Schools,鈥� May 21, 2008.)
