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Decreased Revenue, Increased Costs

anne Wujcik —Friday, August 08, 2008

The states’ budget picture is getting worse faster than anyone anticipated, according to the National Conference of State Legislatures' State Budget Update: June 2008. When the states built their 2008 budgets, the economy was relatively stable; states anticipated some downturn, but not what they are currently facing. So the number of state reporting budget gaps continues to grow, up to 20 now from the 14 reported in April. Further 2008’s $13 billion budget gap is projected to grow to $40 billion for FY 2009.

Since they have to operate under balanced budgets, the states are making progress on resolving their imbalances. Most states are focused on cutting spending, though a few have levied tax or fee increases. States like Minnesota, Massachusetts and Nevada have tapped their rainy day fund or some other state fund to bridge the gap. Eleven states having already cut K-12 spending: Alabama, Delaware, Florida, Kentucky, Maine, Maryland, Nevada, Pennsylvania, Rhode Island, Tennessee, and Virginia.

Economic downturns are never fun, but this one is complicated by the upward spiral of heating and fuel costs, which in turn is causing increases in the cost of manufactured and transported goods. The American Association of School Administrators recently fielded the AASA Fuel and Energy Snapshot Survey, asking school superintendents about the effect of rising fuel and energy costs on their school districts. Ninety-nine percent of respondents reported these rising costs are having an impact on their school systems. School systems are taking steps to minimize the impact of rising costs for the 2008-09 school year, including actions such as implementing energy conservation measures (59%), cutting back on student field trips (44%), limiting staff business travel (34%), eliminating/modifying support personnel positions (33%) and cutting back on purchasing supplies (31%) among others.

Schools also face a potential loss of more than $600 million as the Bush administration begins to enforce a regulatory change that will eliminate Medicaid reimbursements for certain transportation costs and for administrative costs related to identifying and enrolling Medicaid-eligible students, service coordination and case management. Schools will also face tighter restrictions around the types of services eligible for Medicare payment, such as speech, occupational and physical therapy. If a service is deemed to be rendered for educational purposes as opposed to health-care purposes, it may not be Medicaid eligible.

Both the Senate and Hose supplemental-spending measure for FY 2008 includes language that would continue reimbursing schools for administrative and most student-transportation costs until at least next spring.

In the meantime, the education appropriations bills are going nowhere. Congress has recessed until September with only one appropriations bill passed in the House and none in the Senate. It’s likely that the federal government will operate under a series of Continuing Resolutions until at least after the Inauguration and probably a while longer as the new administration settles into place.