September 2012 School Cuts FROM PAGE 11
higher education, health care, and human services — primarily because the recession caused state revenue to decline sharply as costs increased. In addition, emergency fiscal aid from the federal government has run out, and states have disproportionately chosen to address their budget shortfalls through spending reductions rather than a more balanced mix of service cuts and revenue increases.
Revenues remain depressed. The
recession of 2007-09 and the slow recovery continue to affect state budgets and schools. With unemployment still high and housing values still depressed, people have both less income and purchasing power. So states are receiving less income and sales tax revenue, which are the main sources of revenue states use to fund education and other services.
State revenues are starting to
improve across the country. In the 12-month period ending in March 2012, state tax revenues grew 6.6 percent. But revenues remain 5 percent below 2008 levels after adjusting for inflation, and it will be many years before they are able to return to funding services like K-12 education at pre-recession levels.
• Costs are rising. The costs of state funded services have increased since the recession began, due to inflation, demographic changes, and rising needs. For example, in the current school year, the U.S. Department of Education estimates that there are about 535,000 more K-12 students and 2.5 million more public college and university students than there were in 2007-08. Some 4.8 million more people are projected to be eligible for subsidized health insurance through Medicaid in 2012 than were enrolled in 2008, as employers have cancelled their coverage and people have lost jobs and wages.
• States have avoided raising new revenues. States have dispropor- tionately relied on spending cuts to close the very large budget shortfalls they have faced over the last several years, rather than a more balanced mix of spending cuts and revenue increases. Between fiscal years 2008 and 2012, states closed 45 percent of their budget gaps through spending cuts, and only 16 percent of their budget gaps through taxes and fees (they closed the remainder of their shortfalls with federal aid, reserves, and various other measures). States could have lessened the need for
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deep cuts to education funding and made more progress in restoring the funding that has been lost if they had been more willing to raise additional revenue.
• The federal government allowed aid to states to expire prematurely. States used emergency fiscal relief from the federal government (including both education aid and other forms of state fiscal relief) to cover a significant share of their shortfalls through the 2011 fiscal year. After the 2011 fiscal year, the federal government largely allowed this aid to expire, even though states continued to face very large shortfalls in 2012 and beyond. The expiration of most federal aid the end of the 2011 fiscal year is a key reason why state education funding dropped so sharply in the 2012 fiscal year, and remains suspended at such low levels.
Not only has the federal government
allowed aid to states to expire, federal policymakers are moving ahead with plans to cut ongoing federal funding for states and localities, thereby making state fiscal conditions even worse. The federal government already has cut non-defense discretionary spending by 9 percent in real terms since 2010. (Discretionary spending is spending that must be renewed on an annual basis, as opposed to mandatory spending, which funds programs like Social Security, and which is not subject to the annual appropriations process.) Discretionary spending caps established in the federal debt limit deal last summer will result in an additional 7 percent cut by 2022. This additional cut would grow to 12 percent by 2022 if “sequestration” — the automatic, across-the-board cuts also established in the debt limit deal — is allowed to take effect.
About one-thirdof non-defense
discretionary spending flows through state and local governments, and of that a sizeable share (about one-quarter) funds education. Large cuts in federal funding to states and localities would worsen state budget problems, increasing the need for additional cuts in education spending, and making it harder for states to restore the funding that has been lost.
Moreover, an approach to federal
deficit reduction that avoids raising additional revenue would likely result in even deeper cuts. For example, the House passed a deficit-reduction plan earlier this year that does not raise significant new revenue. That plan would produce cuts to state aid programs some three times as deep as those imposed under sequestration.
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