The Economy and Education- Will the Budget Crunch Facing States Affect Education Spending

As the economy continues to weaken, many states across the country are starting to face a budget crunch that may affect funding for education. A variety of factors--including the housing market, fuel prices, and a slowdown in tax collections--mean that states are going to see fewer revenue increases than in previous years.

When states face economic downturns, there are real implications for students, teachers, and schools. States often try to protect K-12 spending during tight budget times. But states spend such a large portion of their discretionary spending on education (about 34 percent for K-12 and 11 percent for higher education) that it is difficult to make cuts entirely in other areas. Other large discretionary expenditures include Medicaid (17 percent) and corrections (11percent).

The Center on Budget and Policy Priorities found that during the end of the last recession (2002-2004), 34 states cut real per-pupil aid to school districts. Already this year 10 states have proposed or implemented funding cuts to K-12 education.

According to a report by the Center on Budget and Policy Priorities, in fiscal year 2009, 29 states have a combined budget shortfall of $48 billion. California, Arizona, Nevada, and Florida are particularly hard hit. We are already starting to hear stories about teacher layoffs in California; reduced summer school programming in Bethel, Conn.; a 10 percent budget cut for the Miami-Dade School District in Florida; fewer nurses and certified personnel for libraries in Mesa, Ariz.; and cuts to gifted and talented programs in Nevada.

The extent and severity of the budget problems vary widely, however, with some states facing much more severe funding issues than others. In energy- and agriculture-rich states, such as Montana, Wyoming, North Dakota, Alaska, and New Mexico, state revenues are actually increasing. However, higher energy and health care costs combined with lower property tax revenues doesn't necessarily mean that schools in those states are not feeling a pinch at the local level.

According to a recently released National Governor's Association report, The Fiscal Survey of States, 16 states are facing revenue decreases, and 23 states show no increase or decrease for 2009. When the economy is good, generally both state revenues and expenditures grow each year, because of inflation and population growth. Thus all 39 of these states are in for tough times. Additionally, during recessions the costs of social services tend to rise as people need more assistance, placing an extra burden on these already cash-strapped budgets.

If the economic slump in the early 2000's is any indication, the toughest time is still to come. The NGA reports that last time around, state's faced their largest shortfalls in the year or two after the economic downturn had ended. Considering we are still in the midst of a troubled economy with no end in site, it is likely that more and more states will be impacted.

For at least some states, there is still a little time left to tighten the belt for the rough road ahead. States seem to be doing that. According to the NGA report governors recommended only a one percent increase in discretionary spending in their 2009 budgets--the third lowest increase in the past 31 years. Hopefully, states are taking the time to carefully plan for the economic downturn and will make cuts to education only when they have to and in the places least likely to affect student learning.

We are just getting a first glimpse of what the economic downturn means for students, teachers and schools; the real fallout remains to be seen. Ed Money Watch will be closely following the economy and how it affects education funding around the country.