More bad-and-getting-worse economic news arrived Monday when the National Governors Association warned that states—awash in red ink—are beginning to wield the budget ax in a once-sacrosanct realm: K-12 education.
In past downturns, states drew on "rainy day" funds and cut budgets across the board while sparing public elementary and secondary schools. Now, Alabama, Hawaii, Nevada, Utah, and Virginia are among states that have cut education spending or are poised to begin cutbacks, said the NGA's executive director, Raymond Scheppach.
He spoke at the release of a twice-annual report on the fiscal outlook for states, which said 36 states are experiencing budget shortfalls. The bottom line: 31 states report budget gaps totaling $29.7 billion, not counting the shortfalls expected in five states that have yet to supply figures, according to Scott Pattison, an official with the National Association of State Budget Officers.
In the last fiscal year, states spent a whopping $1.55 trillion. Almost 21 percent went to K-12 education; nearly 21 percent to Medicaid; 10 percent to higher education; 8 percent to transportation; 3 percent to corrections; and about 2 percent to public assistance. A considerable sum—35 percent of all spending—went to other unspecified items.
This year's projected red ink comes after considerable belt-tightening. Twenty-two states already have cut their budgets a total of $12.1 billion in the current fiscal year—and five more expect cuts. Ten states instituted across-the-board spending cuts of various percentages in the last fiscal year.
The pain is not being felt equally. Some states have prospered because of a run-up in commodity prices. Others got hammered because they were "significantly more exposed to the economic downturn sparked by the housing crisis," the report said.
The recession has been a double-whammy for states. They're being asked to fork over more money for the jobless, the uninsured, and the poor just as an array of tax revenues decline, including personal income tax, corporate income tax, and sales tax. To cope, a handful of states are reorganizing programs, reducing aid to municipalities, raising fees, laying off workers, or enacting early retirement programs.
The long-term outlook isn't rosier, because states face looming issues such as funding pensions, coping with an aging population, and maintaining and repairing infrastructure.
Tax cheats, beware: Some states are more aggressively going after scofflaws for unpaid back taxes.
One ray of hope: help for the states contained in an economic stimulus package promised by President-elect Barack Obama. Expectations are that Congress will pass a bill he can sign into law soon after his inauguration on January 20.
States want three types of help: money for the poor and unemployed, funds to help close budget gaps, particularly for federally mandated programs such as Medicaid, and cash for infrastructure, such as highways, sewer systems, and clean-water projects. But Scheppach, with the governors' association, and Pattison, with the budget officers' group, told reporters, in outlining the fiscal woes of the states, could not predict how many billions will flow to the states in any of the categories.
The two men warned, though, that the situation is so dire that even states that seemed recessionproof—energy states and farm states had been holding their own—now are being squeezed and looking at fiscal problems. "The situation is bad, and unfortunately, we have every indication that it will continue to get worse," Pattison said.
- Read more about how California and other states are struggling.