Online: October 16, 2009

By Alyson Klein

Despite the nearly $40 billion infused into state coffers to help steady state education budgets under the federal economic-stimulus package, some states remain in dismal fiscal straits, forcing further cuts to K-12 programs.

States such as Pennsylvania that recently wrapped up protracted legislative sessions were forced to make sometimes-painful adjustments to cope with declining revenues, despite the unprecedented aid under the American Recovery and Reinvestment Act, the stimulus law.

Lawmakers in other states, including New Mexico, are heading back for special sessions to consider further reductions to their budgets for the current fiscal year.

And many states are looking ahead to a time in the federal 2011 fiscal year when money from the State Fiscal Stabilization Fund, a key part of the stimulus program, will no longer be available. That funding, which was intended primarily to backfill cuts that states had already made to education programs, is spread out over two years. In some cases, states have diverted resources from K-12 programs and replaced their own dollars with stabilization funding from the federal government. ("States Stung by Criticism on Use of Stimulus Aid," October 12, 2009.)

“K-12 education has come under pressure that it has not seen in decades,” said Arturo Perez, a fiscal analyst for the National Conference of State Legislatures, based in Denver. “The only bright note is the money provided under the ARRA.”

That cloudy fiscal forecast appears unlikely to brighten any time soon. A report released Oct. 15 by the Nelson A. Rockeller Institute of Government, the public-policy-research arm of the State University of New York, shows that state revenues are faltering and are likely to remain shaky for the next several years.

The study found that those revenues nationwide dropped a record $63 billion in the fiscal year ending June 2009, or roughly twice the amount of money states have gained from the stimulus program so far.

That may help explain why, even with the extra cash, some states still have reduced or eliminated education programs.

For instance, this week Michigan Gov. Jennifer Granholm, a Democrat, was expected to sign the state’s K-12 budget for this fiscal year by Oct. 20, in time for payments to school districts to be doled out. The budget came after lawmakers had passed a continuing resolution to keep programs afloat while the legislature hashed out its spending bills. The budget includes a cut of $165 per pupil in grants to school districts for K-12 students.

In Michigan, the governor has line-item veto power, and it is still unclear whether Gov. Granholm planned to use it on any portion of the education spending bill.

Although state lawmakers sought to give districts flexibility in determining how to find the savings, school officials are struggling to figure out what to trim next, said Brad Biladeau, the associate executive for government relations at the Michigan Association of School Administrators.

“We’ve been cutting administrative expenses and support services to school districts,” he said. “Now school districts are faced with significant cuts that could impact the classroom."

Cuts to Programs

Pennsylvania wrapped up an exhausting legislative session when Gov. Edward G. Rendell, a Democrat, signed the final budget Oct. 9. The measure, which came in more than 100 days behind schedule, offered a mixed picture for K-12 education, said Ronald Cowell, the president of the Education Policy and Leadership Center, a nonprofit organization in Harrisburg, Pa.

“The good news is that there is a $300 million increase,” to $5.5 billion, for basic education funding, which provides the largest amount of aid for school districts, Mr. Cowell said. That amount represents a 5.7 percent increase over last year.

The move was in keeping with a plan, enacted in 2007, to overhaul Pennsylvania’s school finance system. But it will be tough to keep up that level of funding once the state-stabilization dollars provided under the recovery act are gone, Mr. Cowell said.

And other programs that school districts depend on saw substantial reductions, he said. For instance, a $44.7 million program called Classrooms for the Future, which provides technology to schools, was eliminated. A high school reform program was reduced to $3.7 million, from $10.7 million.

“There’s a story to be told about each one of these program cuts,” Mr. Cowell said.

This week, New Mexico is slated to hold a special session to address its budget issues. Lawmakers will work to resolve a deficit of at least $400 million in a budget of $5.5 billion.

Gov. Bill Richardson, a Democrat, has suggested a 3 percent across-the-board reduction in government programs, except for K-12 education.

But some New Mexico legislative leaders say cuts to schools might be unavoidable. K-12 education is receiving $2.4 billion this fiscal year.

“To sit there and say we’re not going to have any cuts in education—60 percent of the budget—is that a realistic proposal or is that just political rhetoric?” said Sen. Tim Jennings, a Democrat. “There ought to be meaningful solutions.”

But districts are going to have a tough time weathering further cuts, said Tom Sullivan, the executive director of the New Mexico Coalition of School Administrators.

“We have some superintendents who may be hanging by a thread who see this as the straw that’s going to break the camel’s back,” Mr. Sullivan said.

And he sees further trouble ahead, particularly if the state doesn’t find a new revenue source for education. Lawmakers in New Mexico used about $165 million in stimulus money to help balance school districts’ books in the current fiscal year, he said, but revenue forecasts have been even cloudier than expected.

That might force the state to tap the remaining $90 million in stimulus funding that so far hasn’t been allocated—leaving much less of a federal cushion to help finance schools in the next fiscal year.

“If that money is held back and used in building [next year’s] budget, then ... we’re not falling off the cliff yet,” Mr. Sullivan said. But, he added, “I’m not sure if they can make it through [this fiscal year] without using some or all of the $90 million sooner than they had hoped.”

‘Funding Cliff’ Coming

Other states are bracing for tough choices in the coming legislative sessions.

Florida has been hit particularly hard with the national downturn in the housing market, and that’s likely to lead to a structural deficit in the years ahead, said Wayne Blanton, the executive director of the Florida School Boards Association.

“We’re sort of at a crossroads,” Mr. Blanton said. He said state-financed programs, including K-12 education, have always benefited from the revenue bump created by an influx of new residents.

But Florida recently lost nearly 60,000 people, the first population drain in decades. “We’re going to take a 15 to 20 percent cut in state services” in the coming years, Mr. Blanton said, if there isn’t a major change in the state’s tax structure.

Right now, K-12 education in Florida is facing a $1 billion budget deficit, but Mr. Blanton said that amount would be closer to $2 billion without the federal help. The total budget for K-12, not including capital costs, was $15.9 billion.

He’s hoping that in the next legislative session, state lawmakers will start thinking about how to finance education after the stimulus money is no longer available.

The Associated Press contributed to this story.

Vol. 29, Issue 08