State Budgets

1
State Budgets the Federal Stimulus Proposal

• David Shreve
• Federal Affairs Counsel
• National Conference of State Legislatures
• February 9, 2009

2
About State Legislatures
Full-time, well paid, large staff
Hybrid
Part-time, low pay, small staff
3
Introduction Variety is the defining
characteristic!

• 7 states have biennial session biennial budget-
  AR, KY, MT, NV, ND, OR, TX
• 14 have annual session but biennial budget-AZ,
  CT, HI, IN, ME, MN, NE, NH, NC, OH, VA, WA, WI,
  WY
• 29 annual session budget
• cumulative state genl fund for FY 2002 540
  billion
• cumulative state genl fund for FY 2008 648
  billion
• FY ? most states use July 1 but 4 use other
• NYApril 1 TXSept 1 MI AL Oct. 1 (Federal
  FY)

4
State Budgeting

• Constitutional requirement for balanced budget in
  49 states.
• Which state is the exception?

5
State Budgeting

• Sources of state revenue?
• sales tax-18
• excise tax-16
• personal income tax-18
• corporate taxes- 15
• federal revenues- 25

6
State Budgeting

• Sources of state revenue?
• 45 States have general sales tax
• 43 states have personal income tax

7
State Budgeting

• Biggest issue for many states is the volatility
  of consumption taxes- sales excise accounting
  for 34 of revenues
• Sales tax dependent states usually tank early in
  a recession. This recession has been different,
  with the early tanking occurring in states with
  high concentrations of sub-prime mortgages. NV,
  CA and FL.

8
(No Transcript)
9
State Budgeting

• K-12 is constitutionally required and near to
  legislators hearts, so it is usually the cut of
  last resort.
• Higher ed is also near to their hearts, so it is
  often protected - for an instant.

10
FISCAL CONDITIONS FY 2002-04
11
FISCAL CONDITIONS FY 2002-04

• How were shortfalls addressed?
• Tuition increases
• Rainy Day Funds
• Other reserves
• Borrow from dedicated funds
• Tobacco Funds
• Enhance revenues

12
CONCLUSIONS

• FY 02 - FY 04 was worst fiscal crisis for states
  in last 20 years
• Some federal actions have exacerbated the
  problem through unfunded mandates, cost shifting
  and MOEs.
• Also, states piggy-back on taxes. (federal tax
  cuts impact state revenues)

13
FY 2006 saw State Budget deficits leveling off.
14
Current State Budget Gaps are ballooning!
FY 10
FY 09
15
(No Transcript)
16
(No Transcript)
17
Edvard Munch The Scream 1893 (National Gallery
of Norway)
18
Higher Education Budget Issues

• NCSL tracks projected spending growth for four
  major budget categories K-12 education, higher
  education, corrections and Medicaid
• Higher education received the highest general
  fund appropriations increase for FY 2008, and is
  budgeted to grow 7.7 percent

19
Higher Education Budget Issues

• Highlights a cyclical funding trend unique to
  higher education funding typically takes a
  disproportionate hit when state fiscal conditions
  are weak, but experiences more robust increases
  make-up spending - to help compensate for
  particularly lean yearswhen state budgets
  recover.

20
(No Transcript)
21
(No Transcript)
22
(No Transcript)
23
Higher Ed Budget Issues-MOE

• In tough budget years, higher education funding
  suffers, but states make up for any decreased
  funding with generous increases when revenues are
  good.
• The federal MOE will discourage states from
  making such large increases because they might
  not be able to maintain them in slow economic
  times or under budget deficits.

24
Higher Ed Budget Issues-MOE 2
25
Higher Ed Budget Issues- MOE unintended
consequences.

• Analysis by the National Association of State
  Budget Officers predicts a significant decrease
  in state higher education spending under a
  Maintenance of Effort, contrary to what the feds
  tell you.
• MOE in the Higher Education Opportunity Act of
  2008 places the funding and future of the College
  Challenge Access Grants program in doubt.

26
Higher Ed Budget Issues-Stimulus 1.

• ARRA makes available significant "non-recurring
  revenues for re-occurring expenditures". gt 140
  billion for education under House version.
• "Pot I" (Title IX of ARRA) Enhancement through
  existing channels.
• "Pot II" (Title X of ARRA) State Fiscal
  Stabilization Fund

27
Higher Ed Budget Issues-Stimulus 2

• "Pot I" (Title IX of ARRA) Enhancement through
  existing channels.
• Higher Education Act Student Financial
  Assistance (Title IV, Part C (Work Study) Part
  A, Subpart 1 (Pell Grants)) 16.126 billion, of
  which 15.6 billion goes to Pell to fund
  increases through 2011

28
Higher Ed Budget Issues-Stimulus 3

• "Pot I" (Title IX of ARRA) Enhancement through
  existing channels.
• School Modernization Repair -- (NEW Funding
  Stream--ARRA Section 9301) 14 billion for
  K-12 (including Charter Schools) distributed
  through 2008 Title I formula 6 billion for
  higher education facilities.
• Distributed to state higher education agencies
  in proportion to number of full time equivalent
  undergrads enrolled in public and private
  (not-for-profit) postsecondary schools.
• Neither funding stream for new construction. Both
  face 'use-it-or-lose-it' provision requiring ½
  obligated in first year and remaining ½ obligated
  in 2 years. Prohibited for use on religious
  institutions and stadiums.

29
Higher Ed Budget Issues-Stimulus 4

• "Pot II" (Title X of ARRA) State Fiscal
  Stabilization Fund
• To replace state funding for K-12 and higher
  education
• 79 billion in new resources
• ½ available 7/1/09 - 9/30/10 ½ available 7/1/10
  - 9/30/11
• State gets allocation based on relative
  population between age 5 - 24

30
Higher Ed Budget Issues-Stimulus 5

• "Pot II" (Title X of ARRA) State Fiscal
  Stabilization Fund
• Governor applies and grants go to governor
• Must spend 61 on K-12 and higher education.
• Can spend up to 39 on "other government
  services" including education.
• Cannot use this money for construction nor Higher
  Ed endowments

31
Higher Ed Budget Issues-Stimulus 6

• "Pot II" (Title X of ARRA) State Fiscal
  Stabilization Fund
• Governor also applies for 15 billion in state
  incentive grants taken off top of 79 billion.
• In order to be eligible for incentive funds,
  states must meet maintenance of effort (MOE)
  provision in K-12 and higher ed based on FY-06
  spending levels make progress toward 'equity' in
  distribution of highly qualified and highly paid
  teacher in high poverty schools develop
  longitudinal data systems and develop
  challenging assessments.

32
Higher Ed Budget Issues- SENATECollins/Nelson

• Reduces Pell to 13.8 billion
• Adds 61 million to Perkins
• Zeros out Higher Ed facilities
• Reduces Title I marginally
• Zeros out K-12 construction
• Cuts Pot II (State Stabilization) in ½ (40 b)
  and requires all to be spent on P-PhD.
• 7.5 billion for conditional state incentive
  grants

33
Higher Ed Budget Issues- Questions.

• How do you spend this money quickly but wisely?
• How to replace "non-recurring revenues for
  reoccurring expenditures" when we fall off the
  cliff in 2 years?.
• How much is really "shovel ready" or do we have a
  new definition of 'shovel ready'?

34
For More Information

• David Shreve
• National Conference of State Legislatures (NCSL)
• 444 North Capitol Street, N.W., Suite 515
• Washington, D.C. 20001
• [phone]
• www.ncsl.org
• david.shreve_at_ncsl.org