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STATE OF THE STATE ADDRESSES: North Dakota and New York at Opposite Ends of the Financial Crisis

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“The road to economic competitiveness and renewal runs right through our schools. However, during this downturn, we simply cannot spend more — so we must spend more effectively.”

The December 15, 2008 issue of Straight A’s details how the economic turmoil has hit state budgets and cites research from the Center on Budget and Policy Priorities that finds that all but a “handful” of states will face budget shortfalls (not enough revenue to cover expenses) that are projected to total more than $100 billion in Fiscal Year 2010, which, for most states, will begin on July 1, 2009. In several states, the gap between revenues and expenses accounts for over 20 percent of the state’s general fund, which is the primary operating fund for most states and is used to cover the majority of state expenses, including elementary, secondary, and postsecondary education, Medicaid, corrections, transportation, economic development, and public health and safety.

Unlike the federal government, most states’ constitutions do not allow them to run budget deficits. Therefore, states largely resort to several methods to close gaps between revenue and expenses—cutting spending, tapping reserves from “rainy day” funds, raising taxes, or some combination of the three. Throughout the next few months, the nation’s governors will use their annual state of the state addresses to explain how they anticipate closing the holes in their budgets.

North Dakota: Enjoying Budget Surplus, Hoeven Proposes Large Increase in Education Spending

North Dakota is one of the handful of states that is not expected to face a budget shortfall in Fiscal Year 2010. In his state of the state address on January 6, Governor John Hoeven (R) credited the state’s “economic growth and diversification, along with good financial stewardship” for enabling it to “build a surplus and a solid financial reserve for the future.” However, Hoeven also acknowledged the economic downturn that is affecting the rest of the nation and underscored that North Dakota is not immune to its effects.

“As measures are underway nationally to hasten recovery, we in North Dakota must undertake the right initiatives here to build our future,” Hoeven said. “That means we must invest in our future with the kind of thoughtfulness and balance that the people of our state deserve.”

Hoeven’s most notable proposal was the $500 million Tax Relief and Education Funding Reform initiative, which includes $300 million in property tax relief, $100 million in income tax relief, and $130 million in additional K–12 education funding. Under the plan, Hoeven would use $300 million from the state’s general fund surplus to reimburse each school district that agrees to reduce its mill levy.2 For every dollar the schools give up in property tax revenue, the state will match it with replacement dollars from the surplus. If the state legislature enacts Hoeven’s plan, it would mean that the state would fund 70 percent of the cost of public education, finally meeting a goal set more than twenty-five years ago. Local taxpayers would fund the remaining 30 percent.

The $130 million increase for elementary and secondary education would boost funding to $837 million and be used to fund the recommendations of the Commission on Education Improvement, a bipartisan group of state and local education leaders chaired by Lieutenant Governor Jack Dalrymple (R) that was created by Governor Hoeven to make recommendations to the state legislature on how to improve funding equity and adequacy among school districts. The commission’s recommendations include building student performance, enhancing curriculum, providing strong professional development and mentoring, and improving teacher compensation. Approximately $15 million of the increase is aimed at paying for all-day kindergarten.

Hoeven also outlined a plan that would boost higher education in North Dakota. “Quality education must not end with the twelfth grade,” he said. “To compete in a global economy, our young people need quality higher education and post-secondary technical training to link them to the jobs of the future.” Hoeven proposed $170 million in additional funding for North Dakota’s university system, which includes $40 million in needs-based tuition assistance and grants of up to $2,000 a year for five years for students in the fields of science, technology, engineering and math.

Governor Hoeven’s speech is available at http://governor.nd.gov/media/speeches/090106.html.

New York: Facing a $13 Billion Shortfall, Paterson Proposes Steep Cuts in Education Funding

New York is more representative of the fiscal crisis that is gripping most of the states. In fact, the Center on Budget and Policy Priorities projects that New York will face a $13.7 billion budget shortfall in Fiscal Year 2010, an amount that represents 24.3 percent of the state’s general fund from Fiscal Year 2009.

Because of the enormous financial difficulties that New York is facing, Governor David A. Paterson (D) submitted his budget in mid-December, five weeks before it was due. In it, he proposed more than 135 new or increased taxes and fees, looser restrictions on gambling, and $9 billion in spending cuts. As part of those cuts, Paterson would cut current education spending by $698 million and forego the planned $1.8 billion increase for Fiscal Year 2010 that was a part of a multiyear plan to boost school funding in response to a long-running lawsuit. In total, education funding would be cut by $2.5 billion in Paterson’s proposed 2010 budget.

In a statement issued with the release of his budget proposal, Paterson called the decision to recommend a reduction in school aid a “personally difficult one” for him. “During my time in the legislature, I was one of the strongest advocates for increased education funding,” he said. “The grim reality of our current fiscal situation is that all areas of state spending will have to experience reductions. … Despite these difficult times, I remain firmly committed to the $7 billion educational investment plan begun in the 2007–08 budget.”

In his state of the state address on January 7, Paterson continued to reaffirm his strong belief in education. “This current crisis should teach us that the only way to restore our long-term economic competitiveness is to build the world’s best system of education,” he said. “We can do it, but we have a long way to go. Today, three in ten New Yorkers do not graduate from high school and don’t even have a chance to go to college. The numbers are even worse for children of color and children from low-income families. We must do better. We must ensure that every child is prepared for college — and that every child can afford to go.”

Paterson noted that innovative educational models have raised high school graduation rates and helped to prepare the state’s most disadvantaged children for college. He proposed public-private partnerships to establish new early college high schools throughout the state and an expansion of the SAY YES program, which provides free college tuition to students who meet educational standards. To further help students pay for college, Paterson called for the establishment of the  New York State Higher Education Loan Program, which would provide more than $350 million in affordable loans to students in need.

“I have always fought for more resources for our schools,” he said. “The road to economic competitiveness and renewal runs right through our schools. However, during this downturn, we simply cannot spend more — so we must spend more effectively.”

Governor Paterson’s speech is available at http://ny.gov/governor/keydocs/speech_0107091.html.

2) A mill is one-thousandth of a dollar. A mill levy is the number of dollars a taxpayer must pay for every $1,000 of assessed property value.

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