September 2012, Week 2


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New School Year Brings More Cuts in State Funding for 
By Phil Oliff, Chris Mai, and Michael Leachman
Center on Budget and Policy Priorities
Updated September 4, 2012

[moderator: to view accompanying chart, graphs and
notes please use the link above]

States have made steep cuts to education funding since
the start of the recession and, in many states, those
cuts deepened over the last year.  Elementary and high
schools are receiving less state funding in the 2012-13
school year than they did last year in 26 states, and in
35 states school funding now stands below 2008 levels -
often far below.

States made these cuts after the deepest recession in 70
years hit beginning in late 2007, precipitating a
historic collapse in state revenues.  Because states
relied heavily on spending reductions in response to the
recession, rather than on a more balanced mix of
spending cuts and revenue increases, funding for schools
and other public services fell sharply.  While emergency
aid from the federal government reduced the severity of
cuts to school funding in the years immediately
following the onset of the recession, Congress allowed
that aid largely to expire at the end of the 2011 fiscal
year, before state revenues had recovered from the

Our review of budget documents for the 48 states that
publish education budget data in a way that allows
historic comparisons finds that:

    Twenty-six states are providing less funding per
    student to local school districts in the new school
    year than they provided a year ago.  These funding
    cuts have been modest, but, in many states, they
    come on top of severe cuts made in previous years.

    Some states are beginning to restore their school
    funding over the past year, but those restorations
    are, for the most part, far from sufficient to make
    up for cuts in past years.  For example, Florida is
    increasing school funding by $273 per pupil this
    year.  But that is not nearly enough to offset the
    state's $569 per-pupil cut over the previous four

    As a result, school funding remains well below pre-
    recession levels.  Thirty-five states are providing
    less funding per student than they did five years

    Seventeen states have cut per-student funding by
    more than 10 percent from 2008 levels.

    Three states - Arizona, Alabama, and Oklahoma - each
    have reduced per-pupil funding to K-12 schools by
    more than 20 percent.  (These figures, like all the
    comparisons in this paper, are in inflation-adjusted
    dollars and focus on the primary form of state aid
    to local schools.)

As state revenues have improved with the broader economy
over the past year, funding cuts have slowed, and some
states have increased their school funding.  But state
tax collections remain 5 percent below pre-recession
levels, and at current growth rates it will take years
before state revenues are able to sustain services like
K-12 education at normal levels.  States will need to
raise additional revenues to prevent school cuts from
getting worse and to make significant progress in
restoring school funding without forcing cuts in other
state services.

Restoring school funding should be an urgent priority.
The steep state-level K-12 spending cuts of the last
several years have serious consequences for the nation.

    State-level K-12 cuts have large consequences for
    local school districts.  Some 44 percent of total
    education expenditures in the United States come
    from state funds (the share varies by state).[2]
    Cuts at the state level mean that local school
    districts have to either scale back the educational
    services they provide, raise more local tax revenue
    to cover the gap, or both.  In particular, cuts in
    state aid may disproportionately affect school
    districts with high concentrations of children in
    poverty.  States typically distribute general
    education aid through formulas that target
    additional funds to school districts with large
    shares of low-income and other high-need children
    and/or with lower levels of taxable wealth.  As a
    result, reductions in "formula" funding may result
    in particularly deep cuts in general state aid for
    less-wealthy, higher-need districts unless a state
    goes out of its way to protect them.

    The cuts extended the recession and slowed the
    recovery.  Federal employment data show that school
    districts began reducing the overall number of
    teachers and other employees in July 2008, when the
    first round of budget cuts began taking effect.
    Since then, schools have been shedding jobs
    steadily; nationwide, schools have cut jobs in 10 of
    the last 12 months.

    As of July 2012, local school districts had cut
    328,000 jobs nationally compared with 2008. These
    job losses have reduced the purchasing power of
    workers' families, in turn reducing overall
    consumption in the economy and thus extending the
    recession and slowing the pace of recovery.

    The cuts counteract and sometimes undermine
    education reform and more generally hinder the
    ability of school districts to deliver high-quality
    education, with long-term negative consequences for
    the nation's economic competitiveness.  Many states
    and school districts have undertaken important
    school reform initiatives to prepare children better
    for the future, but deep funding cuts hamper their
    ability to implement many of these reforms,
    particularly in areas like lengthening the school
    day and expanding early childhood education.  At a
    time when the nation is trying to produce workers
    with the skills to master new technologies and adapt
    to the complexities of a global economy, large cuts
    in funding for basic education threaten to undermine
    a crucial building block for future prosperity.

    Local school districts typically have little ability
    to replace lost state aid on their own.  Given the
    sorry state of many of the nation's real estate
    markets, it is difficult for many school districts
    to raise more money from the property tax without
    raising rates, and rate increases are often
    politically very difficult.  Property tax
    collections were actually 2.8 percent lower in the
    12-month period ending in March 2012 than they were
    the previous year, after adjusting for inflation.
    However, at least some localities are considering,
    and in some cases enacting, property tax increases -
    a sign of the challenges that schools face.

States Are Cutting K-12 Education Formulas - the Primary
Funding Source for Schools

State aid is a major source of funding for K-12 schools.
On average, some 44 percent of total education
expenditures in the United States come from state funds;
the share varies by state.  States typically distribute
most of this funding through formulas that allocate
money to school districts, with some funds often
targeted to districts that have higher levels of student
need (e.g., more students from low-income families) and
less ability to raise funds from local property taxes
and other local revenues.

Cuts to state formula funding often have very large
consequences for local school districts.  Such cuts mean
that local school districts must either scale back the
educational services they provide, raise more revenue to
cover the gap, or both.  In addition to the funding
distributed through general aid formulas, states may or
may not use separate allocations to fund items such as
pupil transportation, contributions to school employee
pension plans, and teacher training; some of those
allocations also have been cut.

Since states typically distribute general education aid
through formulas that target additional funds to school
districts with large shares of low-income and other
high-need children, reductions in formula funding may
result in particularly deep cuts in general state aid
for districts with high concentrations of low-income

For 48 states, the necessary data are available to
compare state K-12 formula funding in the current school
year with funding in earlier years.[3]  (The other two
states, Indiana and Hawaii, publish education funding
data in ways that make it difficult to make accurate
historical comparisons. DC is excluded because it is a
city that operates a single school district with no
distinction between state and local funding).  The 48
states included in this analysis are home to 97 percent
of the nation's schoolchildren.

School Funding in 2012-13 Compared with 2007-08

Based on the data available in these 48 states, cuts to
state education formula funding since the start of the
recession have been widespread and very deep.  This
survey finds that, after adjusting for inflation:

    More than two-thirds of states - 35 of the 48 states
    surveyed - are providing less per-student funding
    for K-12 education in the current 2013 fiscal year
    than they did in fiscal year 2008.

    In more than one-third, or 17 of the 48 states, per-
    student funding is 10 percent or more below pre-
    recession levels.

    The three states with the deepest cuts - Arizona,
    Alabama, and Oklahoma - each have reduced per-
    student funding by more than 20 percent from pre-
    recession levels.

    The worst year of the recession for school funding
    cuts was last year, the 2012 fiscal year, the first
    year after most emergency federal aid had expired.
    That year, 34 states cut per-pupil spending.  The
    median cut among these states was 5 percent.

School Funding in 2012-13 Compared with 2011-12

The majority of states cut their per-pupil school
funding in the last year.  These cuts generally have
been modest, but in many states they come on top of
severe cuts in previous years, leaving state funding for
schools far behind pre-recession levels.

    In 26 states, per-student funding is lower in the
    current fiscal year (2013), than it was in the last
    fiscal year (2012), after adjusting for inflation.
    Among these states the median cut was $68, or 1.7

    A number of states increased funding for the current
    school year, but these increases generally have left
    per-pupil spending far below pre-recession levels.
    For example, Florida increased education funding by
    $273 per pupil this year.  But that was not nearly
    enough to offset the state's $569 per-pupil cut over
    the previous four years.  South Carolina increased
    per-pupil funding by $207 in fiscal year 2013, an
    increase that pales in comparison to the $746 cut
    the state made between fiscal years 2008 and 2012.

These cuts are occurring at a time when schools face
demands from parents, employers, and civic leaders to
bring greater numbers of students to higher levels of
academic proficiency, in large part because workers will
increasingly need higher levels of educational
attainment to thrive in the workforce.

Why a Few States Have Increased Education Funding

While most states have cut spending on education since
the recession hit, as the figures in this analysis show,
a few states have boosted it.  A few states, such as
Alaska, Montana, North Dakota, and Wyoming, have
significant oil and gas resources and therefore have not
suffered the same level of economic problems as other
states, and thus they have enacted fewer budget cuts.
In other states, the growth in spending reflects
policymakers' prioritization of education funding in the
face of fiscal stress.  For example, Maryland was
already embarking on a program of increased state aid
for local school districts when the recession hit, and
chose largely to protect that program.  (Maryland also
raised significant amounts of revenue after the onset of
the recession, which lessened the need to scale back
education funding.)   Spending growth in Massachusetts
and Iowa reflects lawmakers' decisions to maintain
education funding even as these states cut programs in
other areas.

Why This Happened

States have enacted cuts to funding for K-12 education -
and a range of other areas of spending including higher
education, health care, and human services - primarily
because the recession caused state revenue to decline
sharply as costs increased.  In addition, emergency
fiscal aid from the federal government has run out, and
states have disproportionately chosen to address their
budget shortfalls through spending reductions rather
than a more balanced mix of service cuts and revenue

    Revenues remain depressed.  The recession of 2007-09
    and the slow recovery continue to affect state
    budgets and schools.  With unemployment still high
    and housing values still depressed, people have both
    less income and purchasing power.  So states are
    receiving less income and sales tax revenue, which
    are the main sources of revenue states use to fund
    education and other services.

    State revenues are starting to improve across the
    country.  In the 12-month period ending in March
    2012, state tax revenues grew 6.6 percent.  But
    revenues remain 5 percent below 2008 levels after
    adjusting for inflation, and it will be many years
    before they are able to return to funding services
    like K-12 education at pre-recession levels.

    Costs are rising.  The costs of state funded
    services have increased since the recession began,
    due to inflation, demographic changes, and rising
    needs.  For example, in the current school year, the
    U.S. Department of Education estimates that there
    are about 535,000 more K-12 students and 2.5 million
    more public college and university students than
    there were in 2007-08.[4]  Some 4.8 million more
    people are projected to be eligible for subsidized
    health insurance through Medicaid in 2012 than were
    enrolled in 2008, as employers have cancelled their
    coverage and people have lost jobs and wages.[5]

    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 2012,
    states closed 45 percent of their budget gaps
    through spending cuts, and only 16 percent of their
    budget gaps through taxes and fees (they closed the
    remainder of their shortfalls with federal aid,
    reserves, and various other measures; see Figure 5).
    States could have lessened the need for deep cuts to
    education funding and made more progress in
    restoring the funding that has been lost if they had
    been more willing to raise additional revenue.

    The federal government allowed aid to states to
    expire prematurely.  States used emergency fiscal
    relief from the federal government (including both
    education aid and other forms of state fiscal
    relief) to cover a significant share of their
    shortfalls through the 2011 fiscal year.  After the
    2011 fiscal year, the federal government largely
    allowed this aid to expire, even though states
    continued to face very large shortfalls in 2012 and
    beyond.  The expiration of most federal aid the end
    of the 2011 fiscal year is a key reason why state
    education funding dropped so sharply in the 2012
    fiscal year, and remains suspended at such low

    Not only has the federal government allowed aid to
    states to expire, federal policymakers are moving
    ahead with plans to cut ongoing federal funding for
    states and localities, thereby making state fiscal
    conditions even worse.  The federal government
    already has cut non-defense discretionary spending
    by 9 percent in real terms since 2010.
    (Discretionary spending is spending that must be
    renewed on an annual basis, as opposed to mandatory
    spending, which funds programs like Social Security,
    and which is not subject to the annual
    appropriations process.)  Discretionary spending
    caps established in the federal debt limit deal last
    summer will result in an additional 7 percent cut by
    2022.  This additional cut would grow to 12 percent
    by 2022 if "sequestration" - the automatic, across-
    the-board cuts also established in the debt limit
    deal - is allowed to take effect.

    About one-thirdof non-defense discretionary spending
    flows through state and local governments, and of
    that a sizeable share (about one-quarter) funds
    education.  Large cuts in federal funding to states
    and localities would worsen state budget problems,
    increasing the need for additional cuts in education
    spending, and making it harder for states to restore
    the funding that has been lost.

Moreover, an approach to federal deficit reduction that
avoids raising additional revenue would likely result in
even deeper cuts.  For example, the House passed a
deficit-reduction plan earlier this year that does not
raise significant new revenue.  That plan would produce
cuts to state aid programs some three times as deep as
those imposed under sequestration.[6]

K-12 Education Cuts Have Serious Consequences

States' large cuts in spending on education have serious
consequences for the economy, in both the short and long
term.  Not only do they directly impact jobs, but they
also counteract and sometimes undermine important state
education reform initiatives, and put upward pressure on
local property taxes.

Damage to the Economy, Now and in the Future

State education budget cuts are deepening the recession
and slowing the pace of economic recovery by reducing
overall economic activity.  The spending cuts have
forced school districts to lay off teachers and other
employees, reduce pay for the education workers who
remain, and cancel contracts with suppliers and other
businesses.  All of these steps remove consumer demand
from the economy, which in turn discourages businesses
from making new investments and hiring.

Local school districts already have eliminated 328,000
jobs nationally since July 2008, federal data show.
(Normally, local education employment grows each year in
large part to keep pace with an expanding student
population.)  In addition, education spending cuts have
cost an unknown but probably very large number of
additional jobs in the private sector as school
districts have canceled or scaled back private-sector
purchases and contracts (for instance, purchasing fewer
textbooks). These job losses shrink the purchasing power
of workers' families, which in turn affects local
businesses and slows recovery.  While it is not possible
to calculate directly the additional loss of jobs
resulting from state education budget cuts, it appears
very likely that school districts will continue to cut
jobs and also to cut funding for some private-sector
jobs, negating some of the job growth that otherwise
would occur in the economy as a whole.

In the long term, the savings from today's cuts may cost
states much more in diminished economic growth.  To
prosper, businesses require a well-educated workforce.
The deep education spending cuts states have enacted
will weaken that workforce in the future by diminishing
the quality of elementary and high schools.  At a time
when the nation is trying to produce workers with the
skills to master new technologies and adapt to the
complexities of a global economy, large cuts in funding
for basic education undermine a crucial building block
for future prosperity.

Undermining Education Reform

State education cuts are counteracting and sometimes
undermining reform initiatives that many states are
undertaking with the federal government's encouragement,
such as supporting professional development to improve
teacher quality, improving interventions for young
children to heighten school readiness, and turning
around the lowest-achieving schools, to name just a few.
As U.S. Secretary of Education Arne Duncan has said, "It
is very difficult to improve the quality of education
while losing teachers, raising class size, and
eliminating after-school and summer school programs."[7]

Some education reforms have moved forward despite
reductions in state education funding.  But deep cuts in
state spending on education counteract and sometimes
undermine reform initiatives both by limiting the funds
generally available to improve schools, and by cutting
specific reform initiatives.  For example:

    Research suggests that teacher quality is the most
    important school-based determinant of student
    success.[8]  For that reason recruiting, developing,
    and retaining high-quality teachers is widely
    thought to be critical to improving student
    achievement. But these tasks are more difficult when
    school districts are cutting their budgets.  Since
    teacher salaries make up a large share of public
    education expenditures, funding cuts inevitably
    restrict districts' ability to expand teaching
    staffs and supplement wages.  Indeed, numerous
    school districts have reduced teacher wages through
    furloughs since the start of the recession and have
    resorted to hiring freezes.

    There is evidence to suggest that smaller class
    sizes can boost achievement, especially in the early
    grades and for low-income students.  Yet small class
    sizes are difficult to sustain when schools are
    cutting teaching positions while enrollments
    increase.  Indeed, a survey of school administrators
    found that 54 percent of respondents increased class
    sizes for the 2011-12 school year and 57 percent
    anticipate doing so for the 2012-13 school year.[9]

    Many education policy experts believe that more
    student learning time can improve achievement.[10]
    In a number of states and school districts, however,
    budget cuts are making it more difficult to extend
    instructional opportunities.  For example, the Los
    Angeles and Philadelphia school districts and
    several Florida districts have significantly scaled
    back their summer school programs.[11]   And a
    Washington Post survey in 2011 found that 292 school
    districts nationwide had implemented a four-day
    school week to cut costs.[12]

    Moreover, reductions in the education workforce make
    it less likely that schools will have adequate
    personnel to teach and supervise students for
    additional periods of time or to give additional
    attention to students who are having difficulty
    learning, despite state and federal goals to lessen
    disparities among achievement levels.  Cuts that
    limit student learning time are likely to continue
    in the coming year.  The school administrators'
    survey mentioned above found that 10 percent of
    respondents were considering shortening the school
    week to four days for the 2012-13 school year

    As of the 2010-11 school year, 39 states provided
    pre-kindergarten or pre-school programs, which
    served 1.3 million children.[13]  A number of
    studies conclude that such programs can improve
    cognitive skills, especially for disadvantaged
    children.[14]  In the 2010-2011 school year, 12
    states cut enrollment in pre-kindergarten programs,
    with especially large reductions in Illinois and New
    York.  Arizona eliminated its state-funded pre-
    kindergarten program. [15]  Other states have scaled
    back pre-kindergarten programs in other ways.  For
    example, funding cuts in Georgia last year shortened
    the pre-kindergarten school year from 180 days to
    160 for 84,000 four-year-olds.[16]

Impact on Property Taxes and Other Local Revenues

State budget cuts are also placing upward pressure on
property taxes and other local revenues, because
increasing these revenues is one of the few ways school
districts can compensate for the loss of state funding.

Given the precipitous decline in property values since
the start of the recession and in many places the
political and/or legal difficulty of raising property
taxes, raising significant additional revenue through
the property tax will likely be very difficult for
school districts in the coming years.  Indeed, property
tax collections were 2.8 percent lower in the 12-month
period ending in March 2012 than in the previous 12
months, after adjusting for inflation.[17]

Despite the obstacles to raising local revenues,
however, at least a few districts are considering, or
have already implemented, property tax increases.  For
example, last year the Granite School District and the
Davis School District, two of the three largest school
districts in Utah, raised property tax rates by 4
percent and 4 percent, respectively, to compensate for
cuts in state funding and growing enrollments.[18]
Jefferson County, Kentucky (the county that includes
Louisville) Public Schools' school board this year
increased property taxes for the fifth year in a row, to
make up for declining state and federal funding.[19]

Beyond increasing local revenues, school districts'
options for preserving education services are very
limited.  Some localities could divert funds from other
local services to shore up school district budgets.  But
this would sustain education spending at the expense of
services like police and fire protection.

Appendix:  Methodology

The education funding totals presented in this paper
reflect the funding distributed through states' major
education funding formulas.  These funds include the
federal funds distributed through these formulas from
the American Recovery and Reinvestment Act (ARRA) State
Fiscal Stabilization Fund and the Education Jobs Fund.
In a few cases, the funding totals also include more
narrowly targeted forms of federal education aid in
ARRA, such as Title I funding.

In cases where we had sufficient data, we attributed
federal funds to the year in which they were used by
school districts.  In other cases, we attributed this
aid to the year in which it was distributed to school
districts by the state.

The numbers do not include any local property tax
revenue or any other source of local funding.

Additional adjustments were made to reflect the
following state-specific policies or data limitations:

    California's numbers reflect General Fund
    Proposition 98 spending for K-12 education.  All
    years include child care funding which was removed
    from Proposition 98 spending in fiscal year 2012.

    Maryland's numbers include funding for the state's
    foundation program as well as funding for
    compensatory education, aid for local employee
    fringe benefits, formula programs for specific
    populations, and limited English proficiency

    Minnesota has withheld (or delayed) $2.2 billion in
    payments to school districts, reducing the amount of
    state formula aid provided to districts in fiscal
    years 2010, 2011, and 2012.  The state is now
    gradually reimbursing school districts for these
    withheld payments, significantly inflating the 2013
    amounts. Minnesota's numbers represent formula
    funding for a dozen or so different programs
    including special education, compensatory aid (to
    help schools with high concentration of low-income
    children), Limited English Proficiency aid,
    operating capital, etc.

    In Nebraska, $58.6 million in federal aid was
    distributed to the school districts through the
    state's funding formula in fiscal year 2011.  The
    school districts were encouraged to carry these
    amounts forward for use in the 2011-12 school year,
    and there is evidence that school districts
    generally did so.  For this reason, we have counted
    the entire amount as 2011-12 spending.

    New York's numbers reflect school districts' fiscal
    years (which end June 30), rather than the state's
    fiscal year (which ends March 31).  New York's
    numbers include funding for new competitiveness
    performance grant programs, which reward school
    districts that show improvements in performance or

    Ohio's numbers include line items for state- and
    stimulus-funded foundation funding, as well as
    school district property tax replacement funds that
    are also considered to be part of the school funding

    South Carolina's numbers include employer
    contributions to the Education Finance Act.  They do
    not include federal aid.

    South Dakota received federal Education Jobs funds
    in fiscal year 2011 but also passed legislation to
    encumber an equivalent amount ($26.2 million), of
    already appropriated state funds, requiring that
    amount to be held over for use in 2012 rather than
    2011.  For this reason, we have subtracted that
    amount from 2011 budgeted expenditures and added it
    to 2012.

    In Vermont, school property taxes are state taxes
    and are deposited into a state Education Fund which
    covers the cost of pre-K-to-12 public education.
    This state's numbers represent the amount
    contributed to the Education Fund each year from a
    state General Fund appropriation, General Fund
    revenues dedicated to the Education Fund, and
    federal ARRA funds used to temporarily backfill the
    General Fund appropriation.


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