Pending Train Wreck: Trump’s Budget and Healthcare Cuts on Top of Widespread State Fiscal Crises

What’s been happening in our statehouses over the past few weeks may help us picture the train wreck that looms if President Trump’s proposed budget, and/or the repeal-and-replace or total repeal of the Affordable Care Act should be enacted by Congress. We were warned several weeks ago in a report from the Center on Budget and Policy Priorities that these proposals being considered by Congress make outlandish assumptions about the fiscal capacity of state governments. But only in the past couple of weeks, during rancorous state budget debates that preceded the end of Fiscal Year 2017, have the ugly details about the condition of state budgets been explored in detail by the press.

Thirty years ago Grover Norquist of Americans for Tax Reform began demanding that state legislators and members of Congress sign his pledge never to raise taxes. Wikipedia explains: “Prior to the November 2012 election, the pledge was signed by 95% of all Republican members of Congress and all but one of the candidates running for the 2012 Republican presidential nomination.”  In the past month, however, state legislators have been begun to break their promise to Grover Norquist as despairing constituents have demanded tax increases to preserve essential services and protect their state economies.

Here is the warning from the Center on Budget and Policy Priorities about the danger of Trump’s and Congress’s assumption that states can absorb the impact of massive tax slashing by the federal government: “The reality… is that states lack the wherewithal to replace the magnitude of funds they would lose under the budget. States operate under balanced budget requirements, and most states are already struggling to balance their current budgets, even before any federal cost shifts. Recent state revenue growth has been weaker than expected, leaving 28 states with budget shortfalls this fiscal year… Most of these states have responded by cutting services, using reserves, and taking other steps to balance their budgets…. More than half the states lack the revenue needed to maintain services at existing levels in 2018.”

In June in Topeka, Kansas and then last Thursday night in Springfield, Illinois, legislators overrode vetoes by Republican governors and raised taxes.  Both states raised taxes in the midst of catastrophic fiscal crises. Illinois had not passed a state budget since Governor Bruce Rauner took office. It is one thing to read the dry analysis from the Center on Budget and Policy Priorities. And you usually wouldn’t turn to the Wall Street Journal for heart-rending details about the pain in people’s lives, but here is the tragedy that newspaper’s reporters Shibana Mahtani and Douglas Belkin depicted on June 27 from Illinois as the legislature wrangled: “Hospitals, doctors and dentists don’t get paid for hundreds of millions of dollars of patient care. Social-service agencies help fewer people. Public universities and the towns that surround them suffer. The state’s bond rating falls to near junk status. People move out… The unpaid backlog is now $14.6 billion and growing. Illinois is even late paying its utility bills to Springfield, its own capital city… Susana Mendoza, the state’s Democratic comptroller, is in charge of doling out limited funds to organizations demanding payment—a job she likens to handing out crumbs to starving children… Peoria-based OSF Healthcare a network with 10 Illinois hospitals, is owed about $115 million for bills over four months old…. The state owes Illinois dentists $225 million, and some of those bills go back 23 months… Over the past two years, Eastern Illinois University has received at least $53 million less than it would have if the average funding levels of the prior five years had held. Professors in the chemistry department haven’t been able to print in color since the department’s printer ran out of yellow ink a year ago. Biochemistry professor Mary Konkle says she decided to leave her tenured position when she no longer had funding to order equipment or chemicals for her research.”

Illinois Governor Bruce Rauner had agreed to a tax hike, but he wanted it to be only temporary and he wanted to have a four-year property tax freeze to go along with it. But legislators didn’t even give him these concessions as they raised taxes.  Here is Natasha Korecki for POLITICO: “In an extraordinary rebuke to GOP Gov. Bruce Rauner, a group of Illinois House Republicans joined the Democratic majority to override the governor’s veto of a $36 billion budget.  Thursday’s action ends a stalemate that has stretched two years, causing the state to build up a $15 billion backlog and teeter on the edge of an unprecedented ‘junk’ bond rating downgrade.  The passage means the state has a budget for the first time since 2015—when Rauner took office… the agreed-upon budget package increases the state personal income tax from 3.75 percent to 4.95 percent and the corporate income tax from 5.25 percent to 7 percent.”

But there is still trouble for public education, because a new school funding distribution formula hasn’t yet passed, and Illinois has been known as one of the nation’s most inequitable states in the way it fails to use state funds to make up for the vast disparities in local property taxing capacity in poor and wealthy school districts. Here is Chicago Sun-Times reporter Lauren FitzPatrick explaining the meaning of the new budget for school funding: “Wait, what? Weren’t the budget bills supposed to fix everyone’s money problems?  Not quite. School spending is separate, though connected. The measures House members approved on Thursday do authorize more spending for schools—about $350 million more throughout the state with one of the most inequitable school funding systems in the nation—but don’t include the new funding formula for doling out that money.  That formula… is spelled out in  separate legislation, including one bill, Senate Bill 1, that has passed both houses of the Legislature but has been targeted for veto by Rauner once it lands on his desk… The budget bills would raise new tax revenue—which the Illinois Comptroller’s office said would allow it to cut checks for a remaining $850 million in late block grant payments to Chicago Public Schools and other districts across the state—but there’s no immediate cash infusion…. Meanwhile on Thursday, the credit ratings agency Moody’s also threatened to further downgrade Chicago Public Schools’ already shoddy rating, citing the state’s ‘uncertain’ timeframe in sending that money to its largest school district.”

Then there is a short new report on the school funding mess in, of all places, Washington state, where a long-running school funding lawsuit awaits a remedy. The reporter, Hanna Brooks Olsen describes, “the basic issue with Washington’s inability to fund schools—and the biggest sticking point in the legislature. With no income tax, a plethora of tax exemptions for the state’s many mammoth companies (Amazon, Boeing, Microsoft, plus several in biomed), and a business tax that’s basically flat, Washington’s revenue has been cascading over the last several decades, despite the state’s impressive growth. Since the 1970s, Washington’s tax revenue has fallen 30% as a portion of state income; meanwhile, Seattle, the state’s biggest economic driver, adds close to 1,000 new residents every week. And those 13 billionaires living nearly tax-free—among them, Amazon’s Jeff Bezos and Microsoft’s Bill Gates—boast a net worth totaling $180.3 billion.  Meanwhile, Washingtonians pay ‘the fifth highest combined sales tax in the country.’  The result is the ‘most regressive tax system’ in the United States.  Washington’s poorer residents pay a larger portion of their income than those huge earners, and it’s a less balanced ratio than if they lived anywhere else.”

The Washington Post‘s Emma Brown and Sandhya Somashekhar add that in the budget just passed, “Lawmakers in Washington state narrowly averted a government shutdown after coming to a last-minute agreement to raise property taxes, a move meant to help the state fulfill a court order to invest more in its public schools.”

Brown and Somashekhar paint a bleak picture as they summarize budget trouble from Illinois and Kansas to New Jersey, Washington state, Alaska, Louisiana, Oklahoma, Connecticut, Arizona, California, Minnesota, and Mississippi: “Since 2011, 11 states have enacted large tax cuts meant to be phased in over a period of years… Phasing in tax cuts aims to ease their impact. But critics say that states often fail to plan for the resultant decline in revenue and that lawmakers are shielded from accountability when the full consequences of their votes won’t be felt for years.”

It would appear that some of the effects of those “back-loaded” tax cuts are now being felt in many places. And if Congress enacts Trump’s budget and reduces federal funding for Medicaid and other health programs—pushing what are now federal responsibilities off onto the states—more states will begin to face the sort of crisis that has caused legislators in Kansas and Illinois to forget they signed Grover Norquist’s pledge.

What’s the Matter with School Finance in Kansas is What’s the Matter in Many States

Yesterday the Kansas Supreme Court heard oral arguments to see if changes made by the legislature and signed by Governor Sam Brownback in early April go far enough to remedy underfunding of public education and unequal distribution of state funds to support public schools.  The Court will decide, based on documents submitted and yesterday’s arguments from the plaintiffs and the state defendants, whether to shut down Kansas’ public schools for the upcoming school year, as threatened, or whether school funding in the state now passes constitutional muster. In its February decision, the Kansas Supreme Court said it would order the state’s schools shut down on June 30, if the legislature and governor neglected to find enough money by June 30 to fund schools adequately and to distribute the funding equitably.

It is very hard to be bored by a school funding lawsuit in your own state, particularly if you have children in school and you know the school librarian and school nurse will be shared by several schools or your high school will lose its orchestra if the case goes the wrong way.  When a contested school finance case moves through your own state’s courts, you are even likely to find people arguing about it in bars, because its resolution will affect two things people really care about—their children and their taxes.  If it’s somebody else’s state, however, particularly if its way out in Kansas, well that might seem like their problem—their taxes—their children.

But here’s the thing: what’s the matter with Kansas school funding is likely also the matter in your state.  So it’s very much worth paying at least a little attention. While it used to be pretty widely accepted that paying taxes for government services is a civic responsibility of individuals and businesses and that the tax code ought to be progressive, with the heaviest burden on those with the greatest financial means, these days such principles are being widely questioned.  Like Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Michigan, Mississippi, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Wisconsin, and Wyoming, Kansas has all-Republican government without bipartisan checks and balances—a Republican governor and both houses of the legislature dominated by Republican majorities. And just as what’s happened in a lot of these states, Governor Sam Brownback led his legislature to slash taxes—a $1.1 billion tax cut enacted in 2012 and even more in 2013.  The economy, according to trickle-down orthodoxy, was supposed to grow as a result and yield more revenue to the state, but the plan didn’t work.  States like Kansas are broke and can’t see how to afford to fix public education. Not all the states have pending lawsuits, but school funding is a problem not only in the one party states that have embraced austerity budgeting; it is also a long running problem in other places including Louisiana, Illinois, Pennsylvania and New York.

Here is what has been happening this year in Kansas. In February the Kansas Supreme Court affirmed an earlier trial court decision in Gannon v. State of Kansas, and found the state’s school funding system unconstitutional.  The Education Law Center explains the February decision: “In its decision, the Court explained that Article 6 of the Kansas Constitution requires the legislature to ‘make suitable provision for finance of the educational interests of the state…’ Article 6 contains both adequacy and equity requirements.  It necessitates that the legislature provide enough funds to ensure public school students receive a constitutionally adequate education and that the funds’ distribution does not result in unreasonable wealth-based disparities among districts.”  The Education Law Center continues: “The Court had found an earlier funding system inequitable, and the legislature revised the system and brought it into compliance with the Constitution during its 2014 session.  However, in its 2015 session the legislature reversed itself, and the Gannon plaintiffs returned to the Kansas courts, arguing that the funding system had become unfair (inequitable) and therefore unconstitutional again.” Although in 2014, the legislature had made school funding adequate and equitable and satisfied the Court, in 2015, according to the editorial board of the Kansas City Star, the state gave up the formula it had recently devised and switched to school district block grants.

In March of this year, to satisfy the Court, the legislature devised a new plan, and Governor Brownback signed it into law in early April.  Press coverage of the new plan indicates that it cuts funding to some school districts but then awards it back without returning as much funding as the poorest districts desperately need.  It also includes a hold-harmless guarantee that ensures that no district will fall below the current funding level.  According to an April report in the Kansas City Star, a central problem is that because not enough total funds are available in this state that has drastically reduced taxes, it would be impossible to help the poorest districts without taking money from wealthier districts, and that, of course, is politically unpopular: “Fully funding equalization would have required spending an additional $38 million….”  The plan also allows school districts to raise local property taxes, likely to be an easier undertaking in the wealthier school districts.

A recent analysis by John Hanna for the Associated Press explains the political dilemma legislators faced in March as they developed the new plan required by the court: “It was necessary for legislators to prevent any school district from losing money even as they sought to improve funding for poorer ones, the state’s attorneys argue in court filings… Legislative committees considered proposals to boost total money to poor districts by taking funds away from as many as 100 districts.  But those measures garnered little support—partly because districts in Johnson County, the state’s most populous, faced big losses.”  Johnson County is home to the school districts of some of Kansas City’s well-off suburbs.

Alan Rupe, the attorney for the plaintiff school districts, Kansas City, Wichita, Hutchinson and Dodge City, is quoted as condemning the plan for its inherent inequity: ‘The state did not eliminate the distance between the districts caused by naturally occurring wealth disparities… It worsened the disparities and put the districts even further apart. They’ve done the worst possible thing.  They have left the valleys where they are and they have increased the mountaintops… I don’t think for a minute that creating greater disparity is going to satisfy the court. It’s sure not going to satisfy the plaintiffs.”  Yesterday Rupe told the justices that they have the power, “to restrict other spending in state government until or unless the schools receive other funds.”  Schools must be funded as essential public services, he said, according to the state constitution.

Whatever the outcome of the case currently before the Kansas Supreme Court, the Kansas City Star rates as zero the chance that the decision will solve the school funding problems across Kansas: “Another legal battle is under way over whether the state must spend an extra $550 million a year to fund K-12 schools.”

The decision expected by early June from the supreme court of Kansas will be important—whether legislative tinkering earlier this spring makes Kansas school funding satisfy the state constitution or whether the court will shut down public education in Kansas as of June 30 as a motive for the legislature to make more effort.

State Funding for Public Colleges and Universities: Tax and Budget Cuts Reinforce Inequality

In many states, the budget for next year or for a two-year biennium will be decided in just a few days—the end of June.  As your legislators wrap up their wrangling about the budget, consider these facts about the condition of funding for public colleges and universities that the the Center on Budget and Policy Priorities (CBPP)  presented last month. I urge you to look at the data on each of the 50 states in the CBPP’s report as a benchmark for evaluating whether your state will be reversing or perpetuating some pretty scary trends:

  • “Forty-seven states—all except Alaska, North Dakota, and Wyoming—are spending less per student in the 2014-15 school year than they did at the start of this recession.
  • “The average state is spending $1,805, or 20 percent less, per student than it did in the 2007-2008 school year.
  • “Per-student funding in Alabama, Arizona, Louisiana, Pennsylvania, and South Carolina is down by more than 35 percent since the start of the recession.
  • “In 13 states, per-student funding fell over the last year.  Of these three states—Kentucky, Oklahoma, and West Virginia—have cut per-student higher education funding for the last two consecutive years.”

This past year many states did raise their investment in their colleges and universities (and in California, Governor Jerry Brown just signed a budget that continues to raise expenditures, though there is a long way to go).  And yet, the Center on Budget and Policy Priorities reports that some states are actively considering further cuts to higher education spending in their current budget negotiations: “Tax cuts are often sold as a recipe for economic growth.  But to the extent that tax cuts prevent investments in higher education that would increase access to college, improve graduation rates, and reduce student debt, their net effect could be a drag on the economy.  States that have cut higher education funding deeply and yet are considering or have enacted tax cuts this year include Arizona, Florida, Maine, Michigan, Montana, Nebraska New Hampshire, North Carolina, Ohio, Texas, and Wisconsin.”

How have states kept their colleges and universities afloat as legislatures cut their funds?  “Public colleges and universities across the country have increased tuition to compensate for declining state funding, and rising costs.  Annual published tuition at four-year public colleges has risen (on average) by $2,068, or 29 percent, since the 2007-08 school year, after adjusting for inflation.  In Arizona, published tuition at four-year schools is up more than 80 percent, while in five other states—California, Florida, Georgia, Hawaii, and Louisiana—published tuition is up more than 60 percent.”  Universities have also been forced to eliminate campuses or programs or departments and to replace full-time professors with part-time adjuncts.

In the July 9 New York Review of Books, Andrew Delbanco, professor of American Studies at Columbia University, describes “Our Universities: The Outrageous Reality” (in a piece that is unfortunately behind a paywall but available in your local library).  Delbanco describes how the growing cost of higher education is putting college out of reach for many students whose family’s income has fallen or stayed flat as tuition keeps rising: “Between 2000 and 2008, the proportion of family income required for families in the bottom income quintile to cover the average cost of attending a four-year public institution rose from 39 percent to 55 percent.  For top quintile families over that same period, the corresponding rise went from 7 percent to 9 percent.”

Delbanco believes higher education is driving inequality: “The story these numbers tell is of a higher education system—public and private—that is reflecting the stratification of our society more than resisting it.  Those students who do get to college are distributed, like airline passengers, into distinct classes of service, but with incomparably larger and lingering effects.  In 2010, private non-profit universities, whose students tend to be relatively affluent, spent on average nearly $50,000 per student—with the wealthiest colleges spending nearly double that amount.  At public four-year institutions expenditure per student was $36,000, while community colleges, where minority and first-generation students are concentrated… could spend just $12,000 per student.”  He adds that while the size of  federal Pell Grants to help the neediest students has grown, in 1970 a Pell grant covered a far greater portion of a student’s costs than it does today: “(A) Pell Grant in the 1970s covered four fifths of total cost at the average four-year public university.  Today it covers less than one third.”  “One result,” Delbanco reports, “is that graduation rates are the same for low-income students with high test scores as for high-income students with low test scores.  In the United States today, three of every five children from families in the top income quartile earn a bachelor’s degree by age twenty-four, while for those in the bottom quartile the rate is one in four.”

Mike Rose, whose 2012 book, Back to School explores the role and importance of community colleges for expanding opportunity, posted College Affordability and the Low-Income Student on his blog earlier this week. Rose humanizes the data by describing how the cost of even community college undermines the possibility that students he knows can finish degrees or even shorter term certification programs: “These are successful students, students who have strong Grade Point Averages and who have education and career goals they they are working hard to realize… They live in a tight web of financial constraint… They have different packages of financial aid—some combination of grants, work-study, loans—but it is rare… that they get enough aid to cover their costs.  There are times when they cannot afford textbooks or supplies for occupational courses.  Or they can’t pay phone or Internet bills… One of the students I know lives in a two bedroom apartment with eight other people… Responsibilities beyond school also weigh heavily on them, for they have no financial reserves to draw on—none whatsoever.  One woman was making good progress toward completing an Associate of Science degree on top of an occupational certificate, but had to leave college for a year to pay medical bills and help support her mother.”  For these “diligent, motivated people,” Rose declares, “community college is just within tenuous reach.”

Andrew Delbanco worries that our society may have lost its bearings: “Perhaps concern for the poor has shriveled not only among policymakers but in the broader public. Perhaps in our time of focus on the wealthy elite and the shrinking middle class, there is a diminished general will to regard poor Americans as worthy of what are sometimes called ‘the blessings of American life’—among which the right to education has always been high if not paramount.”

Protecting Ourselves from the Vagaries and Blindness of Our Politics

At the end of last week, the Education Law Center sent out an excellent and lucid summary of the significance of the recent state supreme court decision on Kansas school finance, Gannon v. State of Kansas.  I urge you to read it, for it explains the issues in the clearest possible way.  Make no mistake, adequate school funding (How much is enough?) and equitable distribution of school funding are very likely pertinent matters in your state, too.  After all, according to the Center on Budget and Policy Priorities, 34 states are spending less on public education than they did in 2007 prior to the Great Recession.  Some of this is due to ongoing economic troubles; much of it relates to the politics of austerity budgeting.

The Kansas court spoke to another matter, however, that I had never considered worrying about: are issues of school funding justiciable—subject to judicial review?   In its description of the case, the NY Times elaborated: “The court rejected the contention that it lacked the authority to make decisions on school funding, saying that it has the duty to determine whether legislative acts comply with the Kansas Constitution. ‘The judiciary is not at liberty to surrender, ignore or waive this duty,’ the decision said.”

Remembering my civics class lesson about the checks and balances provided by the three branches of government—legislative, executive, and judicial—I had never considered the possibility of losing the protection provided by court oversight, but now I learn this might be in question.  The Education Law Center reports that in Kansas, defending itself against the parents who brought the case to protest deep cuts in the funding of Kansas’ public schools, “the state argued that the legislature had the sole decision making authority over school funding.” However, in its decision the state’s supreme court decided otherwise, explaining “that the Kansas Constitution assigns to the judiciary the duty and responsibility to interpret the constitution and determine whether acts of the legislature violate it.”

Because of secretive political organizations that reach out to push the same menu of far-right policies to state legislators across the 50 state governments— organizations like the American Legislative Exchange Council and the State Policy Network of extremely conservative think-tanks—today we are watching as the same policy proposals pop up again and again from state to state—right to work, tax cutting and austerity budgeting, school vouchers, grading schools A-F, and so on.

One reason that the justiciability of school funding caught my eye in the Kansas case is that the same issue has suddenly emerged in my own state.  I recently received an update from Bill Phillis at the Ohio Coalition for Equity and Adequacy of School Funding about my state’s “Ohio Constitutional Modernization Commission” which Phillis reports is currently, “in the process of formulating recommendations for changes in the Ohio Constitution.”  One of the provisions this commission is said to be considering is “removing the courts from any decision related to school funding.”

I can certainly imagine why some of Ohio’s politicians would wish to remove the huge fiscal responsibility for funding schools from the court’s protection at this time when the legislature has perpetually cut taxes with the dream (unsuccessful so far) of luring businesses to Ohio.  Recently the Plain Dealer published a 30-year history of Ohio tax cutting:  “In 1985, legislators…  cut the income tax by 15 percent over three years.  Effective in 1987, they cut the income tax again.  In 1996, they created a mechanism to cut the income tax when Ohio runs a surplus.  In 1997, they indexed the personal exemption to inflation; and in 2005, they cut the income tax by 21 percent over five years.  What’s more, Ohio’s current budget, signed by Kasich last June, cuts the income tax by 10 percent over three years.”  Last month Governor John Kasich proposed another cut in the income tax.

Our state constitutions enshrine the lofty principles our forebears sought to protect.  The Education Law Center quotes the March 7, 2014  decision in Gannon v. State of Kansas: “Matters intended for permanence are placed in constitutions for a reason—to protect them from the vagaries of politics….”   Today we live in a time when the very idea of public education is endangered through de-funding and privatizing schools, and scapegoating school teachers.  Are we too close to our politics today to even realize these are the threats from which our founding documents were meant to protect us?