The Coming Storm: Education Funding in a Weakened Economy

1. The Coming Storm:Education Funding in a Weakened Economy Sharon Ward Pennsylvania Budget and Policy Center EPLC 2008 Education Finance Conference November 20, 2008

2. Who We Are • The Pennsylvania Budget and Policy Center (PBPC) is a statewide, non-partisan policy research project. • PBPC provides budget and fiscal analysis and public education in support of policies that improve the economic and social well-being of low and middle income Pennsylvanians. • www.pennbpc.org

3. Pennsylvania Budget All Funds

4. State General Fund Spending 2007-2008

5. Paying for State Services

6. PA Ranks 30th in Expenditures

7. …and Ranks 32nd in State Taxes

8. Taxes Are Stable Over Time

9. Property Taxes Trail the US Average

10. Local Share is Higher

11. 2008-09 Budget Highlights • General Fund Budget: $ 28,264,430 • 4.0% increase • $1.1 billion • General Fund Revenue: $28,784,200 • Growth 3.1% • $856 million • Education Funding • Total $10.1 billion • Basic Ed: $274 million increase: 5.5%

12. Education Adequacy Gap: $600 Million

13. The Economic Outlook is Grim

14. Unemployment will rise for several years even as the recession ends

15. States Already in crisis STATE BUDGET TROUBLES WORSENBy Elizabeth C. McNichol and Iris Lav November 12, 2008

16. State Actions to Balance the Budget Budget cuts have been proposed or enacted: • SCHIP and adult health–17 states • Medicaid: medical services, home care, rehabilitative services—15 states • K-12 and early education—16 states • Higher education—21 states • State workforce reductions—10 states

17. State General Fund Revenue 2008-2009

18. State Revenue Slowed Early in 2008

19. Potential Revenue Shortfall FISCAL YEAR 2008-09 • If current recession is same depth and duration of 2001 recession: $1.5 billion • Annualized revenue shortfall 7.1%: $ 2.1 billion

20. Pennsylvania Response • 2008-09 budget was changed • Increase 3.9% down from 4.2% • Real 1.3% reductions in many departments • Rendell October 30th response • $311 millions in reductions for 08-09 • 4.25% for many departments, hiring freeze • $40 million cut in Motor License Fund • November 19 update • Governor estimates $1 billion to $2 billion deficit • New cuts announced December 6

21. Deficit Scenarios

22. Balancing the 2008-09 Budget • Use the Rainy Day Fund: $750 million • Federal fiscal relief • House bill: $426 million • Senate bill: $923 million • Tightening up the budget: $500 million? • Cost savings

23. Paying for Public Investments • Revenue options • Suspend the phase out of the Capital Stock and Franchise Tax: $125 million • Taxation of foreign corporations : $400 million first year • Add a natural gas severance tax: $200 million • Raise the Personal Income Tax • 3.07%: second lowest top rate in the country • Raises .10 % raises $350 million

24. The Future….. • Fight the cuts? • Grow the pie? Pennsylvania Budget and Policy Center 412 North Third St. Harrisburg, PA 17101 717-255-7156 www.pennbpc.org