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.

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We Can Only Wish that Politicians Would Learn a Lesson from Sam Brownback’s Failed Tax Cutting

It’s budget season. At the federal level, Congress will soon consider the President’s proposed 2018 budget. And many states are up against a June 30th deadline: the end of Fiscal Year 2017 and the deadline for approving a new budget. Yesterday’s post examined the catastrophic programmatic implications of President Trump’s federal budget proposal. Today the focus will be a little different— taxing policy at the state, not the federal level, and the tax slashing that continues to underpin much budgeting in 2017. Please continue reading; I promise this post will not be overly technical.

Much of the talk about state taxing policy these days relates to what just happened in Kansas. Both houses of the Kansas Legislature had voted to overturn several years of Governor Sam Brownback’s tax cutting and at the same time to eliminate a special taxing innovation that reduced business taxes on pass-through income. Governor Brownback, whose dedication to tax cutting is undeterred, vetoed the Legislature’s big tax increase. But two weeks ago, the Legislature—both houses dominated by Republicans—overrode Governor Brownback’s veto. Since Gov. Brownback initiated his experiment with tax cutting, Kansas has fallen into a fiscal crisis, and its public schools had suffered from lack of funding. Earlier this spring, the state’s supreme court had presented an ultimatum to the Legislature: improve school funding by June 30, or school will not open in September.

Brownback has called his tax cuts a real life experiment in supply-side economics. His hypothesis? That the state’s economy would thrive because everybody would be drawn to low-tax-Kansas to open businesses. Explosive economic growth, he predicted, would follow the tax cuts.  Here is Michael Tomasky, writing for the NY Times about how the experiment turned out: “Kansas, under Gov. Sam Brownback, has come as close as we’ve ever gotten in the United States to conducting a perfect experiment in supply-side economics. The conservative governor, working with a conservative State Legislature, in the home state of the conservative Koch brothers, took office in 2011 vowing sharp cuts in taxes and state spending…. The taxes were cut, and by a lot. The cumulative cut was forecast to be $3.9 billion by 2019… The cuts came. But the growth never did… The experiment has been a disaster… Finally, even the Republican Kansas Legislature faced reality.”

Tomasky traces some of this back to Grover Norquist: “Republicans are not supposed to raise taxes, ever. In Washington or in the states. This goes back to President George H.W. Bush’s agreeing to a bipartisan tax increase in 1990 after famously saying in his 1988 campaign, ‘Read my lips: no new taxes.’  Afterward, the conservative group Americans for Tax Reform, led by Grover Norquist, started making Republican candidates for Congress and state houses sign a no-tax pledge. Ever since, with scattered exceptions, no Republican member of the House or Senate has voted for a tax increase. For 27 years. If you wonder why problems arise and Congress never does anything about them, the tax pledge is usually the answer, or at least an answer.”

Paul Krugman, the economist and NY Times columnist, calls supply-side tax slashing a “zombie” policy idea: “(T)he term refers to policy ideas that should have been abandoned long ago in the face of evidence and experience, but just keep shambling along. The right’s zombie-in-chief is the insistence that low taxes on the rich are the key to prosperity. This doctrine should have died when Bill Clinton’s tax hike failed to cause the predicted recession and was followed instead by an economic boom. It should have died again when George W. Bush’s tax cuts were followed by lackluster growth, then a crash. And it should have died yet again in the aftermath of the 2013 Obama tax hike—partly expiration of some Bush tax cuts, partly new taxes to pay for Obamacare—when the economy continued jogging along, adding 200,000 jobs a month. Despite the consistent wrongness of their predictions, however, tax-cut fanatics just kept gaining influence in the G.O.P.—until the disaster in Kansas, where Gov. Sam Brownback promised that deep tax cuts would yield an economic miracle. What the state got instead was weak growth and a fiscal crisis, finally pushing even Republicans to vote for tax hikes, overruling Brownback’s veto.”

Robert Greenstein, president of the Center on Budget and Policy Priorities, looks at the Kansas story as an important cautionary tale; he remains hopeful but skeptical that legislators in other states and Republicans in Congress will learn the story’s lesson. He spoke about what just happened in Kansas in his speech last week to the Cleveland City Club, where he pointed out that the Kansas lesson should be taken to heart in Ohio, where Governor John Kasich and Ohio’s all-Republican legislature have been running exactly the same experiment as Brownback’s in Kansas, and with similar results: “The Kansas tax cuts represent an important cautionary tale from which both state and federal policymakers should learn. And there are few states where these lessons are more applicable and important than Ohio. Your state has actually cut its top income tax rate even more deeply than Kansas did. Kansas cut its rate 29% since 2012. Ohio has cut its top rate one-third since 2005, from a top rate of 7.5% to just under 5%.  Moreover, one of Kansas’ most damaging tax cuts was eliminating state income tax on what is known as ‘pass-through income’…. Ohio enacted a similar provision—eliminating state income tax on the first $250,000 a year of pass-through income and taxing the rest at just 3%. As in Kansas, the Ohio tax cuts have not delivered the promised results…”

Zach Schiller of Policy Matters Ohio just reported on the fiscal impact of Ohio’s tax cut on pass-through income, “A tax break on business income first enacted in 2013 is now costing Ohio about $1 billion a year. That’s far more than previous public estimates, which didn’t attempt to account for the full value of the break.”

How is all this cautionary history directly relevant in a blog whose primary subject is public education?  Brent Larkin, the retired editorial page director of the Cleveland Plain Dealer, makes the connection perfectly clear in his column in last Sunday’s paper: “Hide the children. Ohio’s legislators need a scapegoat.  And in this state, when the going gets tough, the kids get punished. Sometime between now and June 30, it’ll happen again… With tax revenues in a free fall, the Ohio General Assembly and Gov. John Kasich need to compensate for a multibillion-dollar mistake largely of their own making by inflicting pain on the people they’re supposed to serve, not betray. Like cornered rats, their way out will be to shortchange kids. So they’ll essentially flat-fund most school districts, while slashing support for others, ignoring yet again that ‘thorough and efficient’ system of schools requirement in Article VI of the Ohio Constitution.” And, “they will perpetuate Ohio’s ongoing pattern of shamefully underinvesting in preschool programs.” Larkin continues: “How is it a state that spent the past six years awash in tax revenue now lacks the money to make life-changing investments in a child’s future?  The answer involves a misjudgment so egregious that if it happened in the private sector everyone involved would pay with their jobs. Six years ago, instead of balancing tax cuts with massive investments in the future, Kasich and his legislative conspirators began engineering what now total $5 billion in tax cuts.”

Here is Gordon Lafer—the labor, economics and state policy expert—explaining, in his new book, what he believes to be an even deeper motive of ALEC, Grover Norquist and the huge corporate lobbies who are driving Congress and the state legislatures to adhere zealously to tax-slashing: “The corporate lobbies have pursued an agenda that steadily shrinks public services, including education, health care, libraries, recreation, parks, and transportation. The agenda serves to lower corporate tax bills and creates new markets for those hoping to profit from the privatization of public services. But there are deeper rationales underlying the erosion of public services… At a deeper level, the elimination of basic services serves, over time, to lower popular expectations regarding the standard of living to which one is entitled. For the economic elite—the few seeking to extend their rule over the many—the central political question of this time is how to accelerate economic inequality without provoking a political backlash.  A key component of the answer to this question appears to be an attempt to engineer what might be termed a revolution of falling expectations among the public.” (The One Percent Solution, pp. 75-76)

School Funding: A Moral, Not a Fiscal Problem

Taxes are merely a tool by which governments can fund the services needed in a good society.  Today instead, as the Freedom Caucus dominates the House of Representatives and Donald Trump sets sets the agenda, taxes and government are seen as the enemy—something to eliminate.  Grover Norquist, who leads Americans for Tax Reform and who has convinced a mass of state legislators to sign his pledge never to raise taxes, is famous for his declaration: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” In the eyes of many of today’s politicians, tax policy has become not a tool of government but a goal in itself along with the goal of reducing the programs and services the government provides.

Some of the services tax cutters want to eliminate are provided by public schools.  Even before President Donald Trump announced his budget outline last week, federal funding for schools had declined because many in Congress have prioritized tax cutting. In October 2016, the Center on Budget and Policy Priorities reported that the two largest funding streams for K-12 public schools have been growing smaller. Funding for Title I, the program for schools serving concentrations of children in poverty dropped 8.3 percent (adjusted for inflation) between 2010 and 2016 and funding to support federally mandated programs for special education dropped 6.4 percent (again adjusted for inflation).

If tax reduction were merely a federal malaise, it would not be so serious for schools, for federal funds pay for merely 10 percent of school funding, with the bulk of the money roughly split between states and local school districts. But because schools make up one of the the biggest budget lines in every state, tax slashing by the state legislative endorsers of Norquist’s pledge is definitely affecting public schools. That is why we are seeing more and more reports like this one about school districts in rural and small towns instituting four-day school weeks.  When states cut the budget and federal programs are also reduced, local school districts can either raise millage or cut programs.

School funding problems continue on display during this state budget season. In New York, the Alliance for Quality Education (AQE) released a white paper documenting that again this year Governor Andrew Cuomo’s budget fails to fulfill the state’s commitment under the 2007 Campaign for Fiscal Equity (CFE) decision to fund schools adequately under the standards of New York’s constitution. AQE condemns Cuomo’s recent budget proposal: “The 2017-18 Executive Budget repeals and does not replace the Foundation Aid formula, and would return New York State to the pre-CFE era when political machinations and arbitrary formulas guided the distribution of school aid—without regard for student need.”  In a new lawsuit, parents in three New York school districts have also just demanded that an appeals court release funds that had already been allocated to their school districts but that have been frozen by another court: “On December 28, 2016, Judge Kimberly O’Connor in Albany found that the budget director exceeded his legal authority in withholding the grants and ordered the funds be immediately released… for distribution to support vital programs at the schools.”  But, “Governor Cuomo decided to appeal Judge O’Connor’s ruling last month. Under New York law, the appeal triggers an automatic stay of the order to release the funds.”  The school districts list the services they cannot afford to provide without the funds: social work and counseling, family outreach, academic interventions, professional development, and extended learning time.”

And in Illinois—where weeks ago Governor Bruce Rauner vetoed a bill to send $215 million that had already been promised by the state to help the Chicago Public Schools avert bankruptcy—Rauner has finally agreed to release the funds, but only if legislators will redo the state’s pension system.  Rauner is holding Chicago’s children and teachers hostage.  A reporter for Chicago’s DNA Info describes  Illinois Senate President John Cullerton’s response to Rauner’s pension reform ransom demand: “The legislation would require public sector employees to give up ‘pension benefits in return for a one-time fix for CPS and no guarantee the state will offer the same assistance next year or any other year.” While there is politics involved in all this wrangling, experts document that Illinois imposes a structurally flawed funding system on Chicago and other poor school districts. The Education Law Center has identified Illinois school funding as among the nation’s most inequitable and has identified Chicago as chronically among “the most fiscally disadvantaged large urban districts in the nation.”

Kansas is the state where relief suddenly seems possible. Ironically Donald Trump himself may intervene (sort of) in the school funding crisis. It has been reported that Trump may be appointing Governor Sam Brownback to a post with the U.S. Mission to the United Nations in Rome, where Brownback would coordinate the work of agencies involved in food and agriculture. Yesterday the NY Times editorialized: “Kansas can only hope that reports are true that the Trump administration will let… (Kansas’s) governor, Sam Brownback, escape the disaster he created in Topeka….”  The editorial continues: “Mr. Brownback, a Republican first elected on the Tea Party crest of 2010, used his office as a laboratory for conservative budget experimentation. His insistence that tax cuts create, not diminish, revenues has left the state facing a ballooning deficit plus a ruling by the state Supreme Court that Kansas schoolchildren have been unconstitutionally shortchanged in state aid for years, with the poorest minority children most deprived. The court ruled this month that they would shut the state’s schools if funding wasn’t made equitable by June 30.”  The NY Times describes Kansas families as “experiencing the deepening budget crisis firsthand in shortened school hours and resources as the state suffered two credit downgrades. Public protest led to a number of Brownback loyalists voted out last year, with legislative newcomers igniting a budget revolt against the governor.”

We can only hope for Brownback’s departure through the confirmation of the Trump appointment to Rome. But there is some question about what would happen then. It is to be hoped that if he becomes governor, Lt. Gov. Jeff Colyer, also a fiscal conservative, will not veto—as Brownback last month vetoed a bill passed by the legislature to increase taxes by $1 billion over two years—the necessary revenue to support the state’s schools.

In Final Test, a book written long before our country faced today’s army of tax slashers—President Trump, Vice President Mike Pence, Education Secretary Betsy DeVos, Congressional Budget Office Director Mick Mulvaney and the members of the House Freedom Caucus—Peter Schrag, the retired editorial director of the Sacramento Bee, ruminated about the decades-long California school funding crisis following the passage of Proposition 13 and the role of the courts in trying to rectify legislative failures to fund schools. In chapters on school finance court battles in California, New Jersey, Ohio, Alabama, North Carolina, Maryland, and New York, Schrag ponders a question that is more timely today than it was when his book was published in 2003: “Court decisions—particularly those that seem to require states to provide ever-richer resources to under-performing children—will almost certainly run into increasing political resistance, on both financial and equity grounds. To what extent are middle-income and affluent voters, the people who come to the polls, willing to send their local and state tax dollars to support extra resources for other people’s children, especially if they’re poor, black, or Latino?” (p.238)

Of course, that is what the social contract is all about. School finance is not so much a fiscal as a moral issue.

Economy Grows But State Funding for Public Schools Continues to Shrink

Here is what Wikipedia says about Grover Norquist:  “Grover Glenn Norquist…  is an American political advocate who is founder and president of Americans for Tax Reform, an organization that opposes all tax increases…. A Republican, he is the primary promoter of the “Taxpayer Protection Pledge,” a pledge signed by lawmakers who agree to oppose increases in marginal income tax rates for individuals and businesses, as well as net reductions or eliminations of deductions and credits without a matching reduced tax rate. 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… Norquist’s national strategy has included recruiting state and local politicians to support ATR’s stance on taxes.”

How has Norquist described the goal of his campaign against taxes? “My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.”

You might imagine that Norquist is a kind of nut case, but lots of people have signed his pledge. In Ohio, my super-majority Republican state, for years and years our legislative leaders have been signing Norquist’s pledge and cutting taxes. Last week, the Plain Dealer described the plight of municipalities in Ohio caused by a rash of state tax cuts that have diminished funds the state has in the past allocated for essential servicesAlthough the economy has begun to spring back from the 2008 recession, Cleveland’s Mayor Frank Jackson is reported to have explained that Cleveland, “just cannot compete with a series of policies at the state level that, he says, rob local governments….  The Local Government Fund was created in 1935, as a promise to Ohioans that their support of the state’s first sales tax would mean that 40 percent of collections would come back to local governments and schools… In 2011, however, Gov. John Kasich, faced with an $8 billion shortfall, proposed a state budget that cut 25 percent of local government funding the following year and 50 percent in 2013…. By 2015, Cleveland’s annual share  of the Local Government Fund had been whittled to $26.5 million—a net loss of $29.5 million (annually) from pre-recession levels.” In 2005, former Governor Bob Taft and the legislature eliminated a tangible personal property tax on income and equipment that had helped fund municipal governments and school districts. They replaced it with a Commercial Activities Tax, which was then slashed by Governor Kasich and the legislature in 2011.  “Also built into Kasich’s 2011 budget bill was the controversial abolition of the estate tax.”  And finally at the end of 2014, Governor Kasich and the legislature passed a law to standardize and streamline Ohio’s income tax, a plan that will take effect in 2016 and further reduce state funding for municipalities and school districts (separate taxing jurisdictions in the state of Ohio).

It is axiomatic in public finance: if the federal government cuts taxes and the state government cuts taxes, the only way to maintain essential services is to go is back to citizens to increase local taxes—which is exactly what is happening here in my community. Across Ohio, according to the dogma of Grover Norquist which our legislature has embedded in state law, we cannot have “unvoted tax increases,” and so, in November my inner-ring suburban city government asked voters to increase the income tax.  In 2016 the school district will be asking voters to increase the millage. Because of all the tax cuts from the state, these new local taxes will (we hope) maintain current services.  In my community we are working hard to stay in place—just to keep from laying off garbage collectors and police and fire at the municipal level and to keep from increasing class size to alarming levels by laying off the teachers in our schools.  In these times when computers and the internet are making it possible to cut costs across some sectors, we are told we must economize in government too, but to collect garbage and put out fires and teach our children, we need to pay real people.  Roughly eighty percent of school budgets are spent on personnel.  If we cut taxes, we lose the people we depend on. (Increasing local taxes is inherently disequalizing, as some communities cannot afford to raise local taxes, but that is a topic for another day.)

In this context, it is significant that in December the Center on Budget and Policy Priorities (CBPP) updated a report it has been releasing  for several years, a report comparing overall funding for public education to what states were spending on public schools before the Great Recession in 2008: Most States Have Cut School Funding, and Some Continue Cutting.  Here is how the authors summarize their findings: “Most states provide less support per student for elementary and secondary schools—in some cases, much less—than before the Great Recession, our survey of state budget documents over the last three months finds.  Worse, some states are still cutting eight years after the recession took hold.  Our country’s future depends crucially on the quality of its schools, yet rather then raising K-12 funding to support proven reforms such as hiring and retaining excellent teachers, reducing class sizes, and expanding access to high quality early education, many states have headed in the opposite direction.  These cuts weaken schools’ capacity to develop the intelligence and creativity of the next generation….”

The report simply and clearly explains the trends in public funding for schools nationally and across the states.  The federal government provides about 9 percent of funding for public schools; states average 46 percent; and local taxes cover about 45 percent.  But the federal government and the states have been reducing their portions.  Congress reduced Title I compensation for schools serving children living in poverty by 11 percent between 2010 and 2015 and cut funding for the Individuals with Disabilities Education Act by 9 percent.  It is at the state level—the primary funder of public schools—where the most devastating spending reductions have occurred.  “At least 31 states provided less state funding per student in the 2014 school year (that is, the school year ending in 2014) than in the 2008 school year…. In at least 15 states, the cuts exceeded 10 percent… While data on total school funding in the current school year (2016) is not yet available, at least 25 states are still providing less ‘general’ or ‘formula’ funding—the primary form of state funding for schools—per student than in 2008.  In seven states, the cuts exceed 10 percent.  Most states raised ‘general’ funding per student slightly this year, but 12 states imposed new cuts, even as the national economy continues to improve.”

Which states reduced per-pupil funding for public schools by more than 10 percent?  Arizona, – 23.3%; Alabama, -21.4%; Idaho, -16.9%; Georgia, -16.5%; Mississippi, -15.4%; Oklahoma, -15.3%; South Dakota, -14.2%; Wisconsin, -14.2%; North Carolina, -13.9%; Kentucky, -12.1%; Virginia, -11.2%; Texas, -11%; New Mexico, -10.7%; South Carolina, -10.4%; and Kansas, -10.3%.

Local school districts have been unable to compensate: “In at least 18 states, local government funding per student fell over the same period.  In at least 27 states, local funding rose, but those increases rarely made up for cuts in state support.  Total local funding nationally—for the states where comparable data exist—declined between 2008 and 2014, adding to the damage from state funding cuts.” “Because schools rely so heavily on state aid, cuts to state funding (especially formula funding) generally force local school districts to scale back educational services, raise more revenue to cover the gap, or both.  When the Great Recession hit, however, property values fall sharply, making it hard for school districts to raise local property taxes —schools’ primary local funding source—without raising rates, which is politically challenging even in good times.  Raising rates was particularly difficult in the midst of a severe recession with steep declines in housing values in many areas.”

In mid-December, Jeff Bryant, writing for the Education Opportunity Network, summarized the implications of CBPP’s new report in a fine piece, The Important Education Issue Leaders Are Still Ignoring: “One of the more telling combinations of news stories from the past week found education policy insiders in Washington, DC rejoicing over the passage of a new law rewriting federal education policy while at the same time a new report revealed how political leadership is continuing to fail America’s public schools… (D)espite all the celebration surrounding the Every Student Succeeds Act, the issue that remains mostly unaddressed in education policy is the massive under-funding that most states continue to inflict on public schools… Importantly, as the CBPP commentary states, ‘money matters for educational outcomes,’ especially for low-income children, whose best interest, many have said, is the main intention of federal education policy.”

As you contemplate the new year, I encourage you to read both the Center on Budget and Policy Priorities’ accessible report and Jeff Bryant’s fine piece about its significance.

School Funding Declines due to Tax Cutting, Austerity Budgeting, and Paring Down Title I and IDEA

A new report from the Center on Budget and Policy Priorities (CBPP) documents that 35 states continued to spend less in the 2013-2014 school year on their public education formulas than they did before the recession hit in 2008.  Alabama and Oklahoma have cut per-pupil school funding by over 20 percent since 2008.  In 14 states, per-student funding remains fully 10 percent below what those states were spending before the recession. Fifteen states are providing less funding per student than they did a year ago.  At the same time, according to the report, an additional 775,000 students are now enrolled in public schools compared to the 2007-2008 school year. (All CBPP statistics are adjusted for inflation.)

What do these numbers say about our society?  Do we believe it is our public responsibility to educate all children?  Are we committed to expanding opportunity for the children who have been left behind by racial segregation and economic inequality?  Is society’s commitment to educating our children diminishing?  Have we stopped believing in the public schools and hence stopped investing?  Have state elected officials come to accept widespread rhetoric about “failing” public schools, language generated by our national test-and-punish law, No Child Left Behind?  And if so, is disinvestment a smart response?  A moral response?  What do the budget priorities of legislatures across our 50 states say about our society?

Maybe we have come to accept the rhetoric of those who have signed the pledge distributed widely across state legislatures by Grover Norquist and his Americans for Tax Reform. Legislators who sign the pledge promise they will never vote to raise taxes. If states persist in reducing the funds available by cutting taxes, then school funding is likely to diminish over time.  The arithmetic is very simple.  Because public education for over 50 million children in the United States is such a large endeavor, and because 44 percent (according to CBPP’s recent report) of all education funding comes from state governments, public education remains the biggest budget line for most states.   CBPP reminds us: “States have avoided raising new revenues.  States have disproportionately 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 2013, states closed 45 percent of their budget gaps through spending cuts, and only 16 percent of their budget gaps through taxes and fees….”

Here is how the tax cutting has played out in my state, Ohio. Columnist Thomas Suddes, writing for the Cleveland Plain Dealer on June 22, declared, “Republicans grabbed control of the state Senate 30 years ago this November by pledging to cut Ohio’s income tax.  They, and House Republicans, have vowed the same ever since.”  Suddes traces the history of tax cuts—the elimination of the tax on inventory and equipment that shifted the responsibility for paying property taxes  from businesses to homeowners and farmers—the elimination of the estate tax—the 21 percent cut in the income tax in 2005 followed by more income tax cuts including one just signed into law last week.

CBPP notes that local school districts have not been able to make up for cuts in state revenue: “The precipitous decline in property values since the start of the recession, coupled with political or legal difficulties in many localities of raising property taxes, make raising significant additional revenue through the property tax very difficult for school districts.”  While wealthy communities may be able to develop the political momentum to raise local taxes, in poorer communities the residents are less likely  to be able to afford a local levy.

To make matters worse, CBPP reports recent cuts to federal funding for the formula programs that have been a lifeline for local districts for a generation: “Adding to states’ struggles, federal policymakers have cut ongoing federal funding for states and localities, thereby worsening state fiscal conditions.  For example, since 2010, federal spending for Title I—the major federal assistance program for high-poverty schools—is down 12 percent after adjusting for inflation, and federal spending on disabled education is down 11 percent.”  A new summary from Five Thirty-Eight Economics notes that, “The cuts haven’t been evenly distributed.  Most federal education aid targets two groups, low-income and special education students, who are overrepresented in urban school districts.  As a result, urban districts have been hit harder by the recent cuts.” As federal spending fell by 20 percent in the years between 2010 and 2012, “Nearly 90 percent of big-city school districts spent less per student in 2012 than when the recession ended in 2009.”