Unit 3: Budget Shortfalls for States Through 2013

A report published in 2006 by the Department of Education's Institute of Education Sciences called State Shortfalls Projected to Continue Despite Economic Gains; Long-term Prospects for Higher Education No Brighter offered a long-term prognosis for states financial situation through the year 2013. The report looked at trends in state spending and revenue from 2002 to 2006 to provide these projections. The analysis projects all states will face potential budget deficits further limiting funds for higher education. The economic prosperity of the late 90's and 2005 were considered outliers for the projection. Although cyclic patterns in finance can be expected, an overhaul of state budgetary practices is needed for prosperity to happen before 2013. During the 90's and 2005, reserve funds were tapped, spending was controlled, higher education institutions had extraordinary increases in enrollment, and rebounding tax revenues eased states from experiencing a fiscal crisis.

All 50 states are expected to face a gap between projected growth and costs of public services. The report recommends that states either scale back its appetite for government services or state residents must accept tax increases to finance new growth. Unfortunately for higher education, the demand for growth in other services like K-12 education, Medicaid, social services, and corrections have taken priority. Only Nevada, Illinois, New Jersey, and Arizona are expected to see appropriations for higher education grow more rapidly than needs of other state and local programs.

The report's 2013 projections for each state were based off current revenue structures, conservative estimates for expenditures, and an average or normal state economic conditions. States are likely to face substantial gaps between revenues and resources required to maintain current service levels. By 2013, state revenues will be 5.7 percent lower than the level needed to maintain current services. Personal income is projected to grow at an annual rate of 4.5 percent. State and local spending needed to maintain current services is projected to grow just shy of the personal income rate at 4.4 percent. State revenue is projected to grow at an alarming annual pace of only 3.7 percent. The report outlines three main reasons for this condition: 1.) tax revenue will not grow as fast as the economy, 2.) spending in states will be dominated by the cost of Medicaid, 3.) the federal budget is expected to substantially cut state and local grants. States in the northeast, who historically tax larger portions of income, have the least gap between spending and revenue. States with no income tax, only a sales tax, and those that rely heavily on federal aid, like Wyoming, will suffer projected gaps ranging from 8 to 13 percent.

The U.S. Department of Education's Institute of Education Sciences was founded in 1980. The institute's mission is to promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access. The branch's budget is dedicated to establishing policies on federal financial aid for education, collecting data on American schools and disseminating research, focusing national attention on key educational issues, and ensuring equal access to education.

References:

United States Department of Education, Institute of Education Sciences (2006). State shortfalls projected to continue despite economic gains; Long-term prospects for higher education no brighter. Retrieved October 10, 2009, from http://www.ed.gov/about/reports/annual/%20index.html.