The Economy and Kansas School Districts

The following is from Mark Tallman at the Kansas Association of School Boards. It outlines the economy and how it will impact school districts in Kansas. The point being that this is not the time to stick our heads in the sand. School districts need Greenbush and our business partners more than ever to help them be more cost-effective and efficient so they can squeeze every ounce of value from their limited dollars.

State revenue projections plummet

The consensus revenue estimating group reduced projected revenues to the State General Fund by $230 million in the current fiscal year (2008-09) when it met Tuesday. It also projected no increase in revenues for FY 2010, far short of the historic average of four percent growth. Revenue projections could be cut even further in April if the national economy continues to slump.

School districts should expect the possibility of cuts in base funding and other state aid programs, including the $59 base budget increase already approved for next year, as the state faces a massive revenue shortfall.

Under the budget approved at the end of the 2008 legislative session, the state expected to begin FY 2009 with a balance of $533 million and receive about $6 billion in revenues during the year. The Legislature approved spending $6.4 billion, which would leave a state general fund balance of $118 million. But tax receipts for FY 2008 were nearly $60 million below expectations. The new projected drop in revenues, combined with other budget changes, means the state now faces a shortfall of $137 million in the current year.

That could increase later this week, when the Department of Education, Legislative Research Department and Budget Division meet to consider changes in school finance estimates. For example, the number of students qualifying for free lunch is expected to increase, which will require more funding for at-risk weighting. When a student qualifies for free lunch, the funding for the child increases between 45 and 50 percent due to the weighting.

Governor Kathleen Sebelius, who is preparing her budget recommendations for the upcoming Legislature, has already asked state agencies for two percent budget cuts, which would save over $40 million this year. The state also expects to begin receiving funding for expanded gaming activities in the state, and has the ability to make certain shifts in spending to manage the budget.

But an even bigger problem will face the Governor and Legislature in the 2010 budget. The Legislative Fiscal Staff estimates that the Legislature is already committed to over $6.57 billion in spending for FY 2010, including the $59 base increase, social service caseloads (which are expected to increase in a bad economy), funding for the Kansas Public Employees Retirement System (which will be affected by the stock market collapse), restoration of aid to cities and counties to reduce property taxes, deferred maintenance at the state universities, and state employee pay plan adjustments.

If tax receipts do not increase in FY 2010 from the lowered base of FY 2009, projected expenditures would exceed projected revenues by nearly $800 million. To put that amount in context, the additional funding school districts have received over the past three years is approximately $500 million.

Most of the projected revenue drop is in individual income taxes, due to expected losses in capital gains earnings. However, if unemployment increases, income tax revenue from wages will also decline. Reduced income and access to borrowing also affects purchases and therefore sales tax receipts. State receipts have also been reduced by tax cuts; transferring sales tax money to the transportation department and other programs; and the federal stimulus package which reduced business taxes.

Faced with a similar budget crisis in 2002, the Legislature cut spending in many areas but also passed a $252 million tax increase to avoid deeper cuts in programs, including education. Another possibility is that the new administration of Barack Obama will seek a second economic stimulus package that would include aid to states and local governments.

Mark Tallman
Assistant Executive Director/Advocacy
Kansas Association of School Boards
mtallman@kasb.org