SHARON WARDPENNSYLVANIA BUDGET AND POLICY CENTER

EPLC 2008 EDUCATION FINANCE CONFERENCE

NOVEMBER 20, 2008

The Coming Storm:Education Funding in a Weakened

Economy

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

Pennsylvania Budget All Funds

State General Fund Spending 2007-2008

Paying for State Services

PA Ranks 30th in Expenditures

…and Ranks 32nd in State Taxes

Taxes Are Stable Over Time

Property Taxes Trail the US Average

Local Share is Higher

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%

Education Adequacy Gap: $600 Million

The Economic Outlook is Grim

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As the National Economy Weakens So Does the Economy in Pennsylvania

Pennsylvania United States

Source. Keystone Research Center analysis of Center for Workforce Information and Analysis data.

Monthly Unemployment rate (%) in Pennsylvania and United States 1979 to 2008

Unemployment will rise for several years even as the recession ends

Most recent year2007 2008 2009 2010 2008 2009 2010 2011

Unemployment rate (%) 4.4 5.2 5.9 6.7 5.6 6.8 8.0 9.2Employment rate (%) 61.7 61.4 61.1 60.8 61.1 60.5 59.8 59.2Change in real median household income (p.p.a) $48,437 -1.9 -1.9 -1.9 - - - -Povert rate (%) 10.4 10.9 11.5 12.1 12.0 13.6 15.3 16.9

Projected Recession

Mild to Moderate Severe

Table 2. Project Impact of Recession on Labor-Market Outcomes in Pennsylvania 2008-2011

Source. Keystone Research Center

States Already in crisis

STATE BUDGET TROUBLES WORSENBy Elizabeth C. McNichol and Iris Lav November 12, 2008

State Actions to Balance the Budget

Budget cuts have been proposed or enacted:

SCHIP and adult health–17 statesMedicaid: medical services, home care,

rehabilitative services—15 statesK-12 and early education—16 statesHigher education—21 statesState workforce reductions—10 states

State General Fund Revenue 2008-2009

State Revenue Slowed Early in 2008

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

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

Deficit Scenarios

(in $ thousands)Best Medium Worst

FUNDING NEEDSBeginning Deficit (from 2008-09) - (474,000) (474,000) No fiscal stimulus until 2009-10Funding needs 30,342,700 30,342,700 30,342,700 $450M for Educ., $700 Medicaid, $408M else (3%) TOTAL FUNDING NEEDS 30,342,700 30,816,700 30,816,700

AVAILABLE REVENUEFiscal Stimulus 700,000 400,000 200,000

Base GF revenues 28,047,312 27,230,400 26,685,792 2009-10 revenue growth from 08-09 3.0% 0.0% -2.0%

TOTAL REVENUE PRIOR TO TAX CHANGES 28,747,312 27,630,400 26,885,792

(1,595,388) (3,186,300) (3,930,908) Rounded millions (1,600) (3,190) (3,930)

2009-10 Funding Scenarios

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

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

The Future…..

Fight the cuts?Grow the pie?

Pennsylvania Budget and Policy Center412 North Third St.

Harrisburg, PA 17101717-255-7156

www.pennbpc.org