Sound the alarm: budget cuts to public education are on the AZ Legislature agenda

The economic effect of the coronavirus pandemic has meant our state ad local governments have taken a major economic hit to their budgets through reduced sales tax revenues, which Arizona too heavily relies upon.

In April, it was estimated that Arizona faces an estimated $1.1 billion budget shortfall in the coming year economic hit due to the coronavirus outbreak, the Legislature’s top budget analyst predicted.

But there was so much uncertainly around state revenue that the damage could be as much as $500 million more for the budget year that begins July 1, or $500 million less, according to Richard Stavneak, who heads the Joint Legislative Budget Committee. A lot depends on how quickly the state and nation recovers from slowdowns caused by the response to the virus.

The estimated loss equals nearly 9% of the state’s total general fund spending in the current year of $11.8 billion.

The good news is that the state had anticipated a nearly $1 billion surplus for the coming budget year and has $1 billion in its rainy day fund. The bad news is that all that money could evaporate in the coming year and the economists in Stavneak’s group estimate it may take three years to fully recover.

It’s too early to tell the full impact to state revenues, he said, but there are signs the impact is massive.

When Arizona has a budget shortfall, we all know the very first thing that happens is massive budget cuts to public education, not rescinding prior year corporate welfare tax cuts to claw back some of the welfare given to corporations.

Sound the alarm: Arizona’s queen of voter suppression, Rep. Michelle Ugenti-Rita, is already calling for budget cuts, and you know what that means. We need a plan to cut spending to counter $1.1 billion budget shortfall:

[T]he impacts of the COVID-19 pandemic on Arizona’s economic outlook and budget are significant and very real. The sooner the Legislature tackles the depth of the fiscal impacts to our budget and what options are available to address them, the sooner we can get on the road to recovery.

Due to the unprecedented nature of our situation and the difficulty of being able to predict how and when the economy will return to solid footing, I believe it is most prudent to act out of an abundance of caution when stabilizing the current year’s budget, reducing the budget just enacted for next year and crafting the following year’s budget.

It’ll take a while for our economy to rebound

The Joint Legislative Budget Committee is projecting a $1.1 billion deficit by the end of the next fiscal year, June 30, 2021. Of this amount, $638 million of the shortfall is projected to occur in the current fiscal year, ending June 30, 2020, which can be resolved before then or deferred until next year. The projected shortfall of $1.1 billion could be off by as much as $500 million in either direction given the highly unstable and unpredictable nature of the economy presently.

The numbers speak for themselves. Arizona is facing a substantial budget deficit and the only uncertainty is when the economy will reach bottom and begin to turn around. We cannot wait until that moment occurs; we need to be proactive and prepare to make the tough decisions we will face because the longer we wait the more difficult it will be.

Time is of the essence. We should have solutions to address at least the 2020 fiscal year deficit by the end of June and preferably also the 2021 deficit.

Rainy day money, federal aid could soften blow

With continuing unemployment insurance claims of approximately 303,000 people, a 1,500% increase since the middle of March, significant job losses and drops in corporate and individual income tax collections, I believe we need to be willing to reduce spending.

The cuts can be softened on a one-time basis by making wise withdrawals from the state’s rainy day fund, which has a balance of almost $1 billion. Arizona also received $1.8 billion for costs related to COVID-19 as part of the CARES Act that was passed by Congress and signed by the president.

To what extent this money can be used to offset the state’s current budgetary obligation has yet to be determined.

Wait for it…

No way lawmakers can consider new taxes

These decisions will need to be made with the understanding that temporary solutions will not suffice and that only permanent solutions will provide the certainty needed to achieve the long-term goal of returning our economy to what it was just a few months ago.

Some may advocate for an increase in revenue by raising an existing or enacting a new tax, even on a temporary basis. This will weigh down consumer spending and job growth, adding further stress to an already fragile economy.

This is a long-standing Republican canard for which Ugenti-Rita offers no evidence in support. Simply saying it doesn’t make it true, even if it is Republican orthodoxy.

You will recall that at the federal level, the Omnibus Budget Reconciliation Act of 1993, signed into law by President Bill Clinton, increased the top tax rate to 39.6 percent. Clinton’s final four budgets were balanced budgets with budget surpluses, beginning with the 1997 budget (for fiscal years 1998-2001). The Budget and Deficit Under Clinton.

You may also recall that Federal Reserve Board Chairman Alan Greenspan, testifying before Congress in favor of the Bush tax cuts in 2001, said that he thought debt reduction was actually happening too fast. Greenspan’s Brave New World Has Room for Bush’s Tax Cut:

The Fed Chairman said, “the most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach before the end of the decade.”

And that could be a bad thing.

Running surpluses without a debt, Greenspan warned, would result in the “longer-term fiscal policy issue” of a government paying off its debt, particularly long-term Treasury bonds, before the bonds mature — costing it extra money by buying back those securities from private investors before they mature. Which is very expensive — better to buy back only matured bonds, which won’t be possible until at least 2011.

Now, we know how Greenspan feels about reducing surpluses via additional spending — he doesn’t like it. And that leaves tax cuts, which by halfway through the speech were an integral part of a budget strategy “that is consistent with a preemptive smoothing of the glide path to zero federal debt” and aimed at “making the on-budget surplus economically inconsequential when the debt is effectively paid off.”

Greenspan was spectacularly wrong, as is virtually all Republican faith based supply-side “trickle down” economic theory. Republican economic theory has been a failure for 40 years, with substantial harm caused to the economic wellbeing of Americans. It is long past time that people stop listening to them. We are going to need to raise taxes to pay for this pandemic response. Period.

Ugenti-Rita concludes:

My experience as a member of the appropriations and finance committees has shown me that to implement the reductions necessary to balance the budget, it will require swift and decisive action. The impact of these decisions may not be preferable, but it is what is necessary to preserve our quality of life and keep Arizona the great place it is to live and raise a family.

In other words: budget cuts to public education are on the agenda, reversing Governor Ducey’s pledge to increase public education funding each year after the Red for Ed public protests in 2018.

NPR reports today, A Looming Financial Meltdown For America’s Schools:

Austin Beutner looked haggard, his face a curtain of worry lines. The superintendent of the second-largest school district in the nation sat at a desk last week delivering a video address to Los Angeles families. But he began with a stark message clearly meant for another audience:

Lawmakers in Sacramento and Washington, D.C.

“Cuts to funding at schools will forever impact the lives of children,” Beutner said less than a week after California’s governor called for emergency cuts in education spending. The harm children face from these cuts, Beutner warned, “is just as real a threat to them as is the coronavirus.”

Similar alarms are sounding in districts across the country. With the nation’s attention still fixed on the COVID-19 health crisis, school leaders are warning of a financial meltdown that could devastate many districts and set back an entire generation of students.

“I think we’re about to see a school funding crisis unlike anything we have ever seen in modern history,” warns Rebecca Sibilia, the CEO of EdBuild, a school finance advocacy organization. “We are looking at devastation that we could not have imagined … a year ago.”

“Really shocking declines”

Schools receive nearly half of their funding from state coffers. But with businesses shuttered in response to the pandemic and the unemployment rate already nearing 15% — well above its 10% peak during the Great Recession — state income and sales tax revenues are crashing.

For April, the first full month of the coronavirus lockdowns, states are now reporting “really shocking declines” in tax revenues, says Michael Leachman at the Center on Budget and Policy Priorities. Some states have lost “as much as 25% or a third of their revenues compared to the previous year in the same month,” Leachman says.

And unlike the federal government, most state governments are required to balance their budgets. The result: Many governors and state lawmakers are now racing to implement deep cuts, including to school funding.

In early May, for example, Ohio Gov. Mike DeWine unveiled $300 million in K-12 budget cuts — and that’s just through June 30, when the current fiscal year ends. In Cleveland schools, according to Cleveland.com, that amounts to about $100 less per student with the possibility of more cuts in the new fiscal year.

A few days earlier, Georgia’s governor asked state education leaders to prepare for a 14% cut in funding starting in July. And in Michigan, a top Republican in the state Senate warned superintendents they could see their school funding slashed by as much as 25%.

In many states, these cuts will hit vulnerable, low-income communities the hardest. That’s because of how America funds education. On average, the bulk of a school’s resources comes from a roughly even split between state and local funding, the latter largely from local property taxes.

But differences in property wealth between districts have created decades-old disparities that many states have tried to alleviate with additional state money. As a result, “when state funding starts to drop,” says Michael Griffith at the Learning Policy Institute, “what we see is a separation between the haves and have-nots.”

Worse than the Great Recession

At first, experts say, school cuts will mirror the losses of the Great Recession. Districts will trim spending on buildings and transportation, supplies and equipment. Then will come staff cuts, beginning with librarians, nurses and counselors. The U.S. lost roughly 120,000 teachers between 2008 and 2010, Griffith says. More than a decade later, “we still don’t have the number of public school teachers today that we had in 2008.”

As I explained at the start of the legislative session this year, before the coronavirus pandemic subsumed everything, Arizona’s GOP leaders have no serious plans to make up for the ‘lost decade’ of budget cuts, and now they are preparing for a new round of budget cuts.

The current pandemic-driven downturn promises to be even harder on schools. “From the numbers we’re looking at right now, this coming year could be maybe twice as bad, or more, than the worst year we had during the Great Recession,” Griffith says.

Staff cuts, for example, have already skyrocketed.

“We know that in April, school districts nationally furloughed or laid off nearly half a million workers,” says Leachman at the Center on Budget and Policy Priorities. “That is an astonishing number. It’s many more than lost their jobs through the entirety of the Great Recession. It’s all happened in one month.”

Leachman says many of those affected have been bus drivers and school staff who were laid off as schools closed their doors for the remainder of the academic year. A lot of them obviously hope to return. “But, given the collapse in state revenues, it’s likely that unless the federal government steps in … many of these workers will never get their jobs back.”

Griffith estimates that if states slash education spending by 15%, schools could be forced to shed more than 300,000 teaching positions — almost 10% of the national K-12 teacher force.

Other school budget experts are singing a similar refrain, as are district leaders such as Austin Beutner, who warned in his video address that schools would need the same emergency infusion of resources that hospitals and many businesses have already gotten.

“We’re looking at the same challenge in public education, and we need the same full-throated response,” Beutner said.

Little bipartisan appetite for more spending

The $2 trillion coronavirus relief bill, known as the CARES Act, provided K-12 schools with more than $13 billion in emergency funding, an average boost of about $270 per student. But spending the money has been complicated by controversial guidance from the U.S. Department of Education.

Education Secretary Betsy DeVos is advising public schools to spend far more relief money than they’d planned to on services for students at private schools. Louisiana, for example, reports that under a traditional reading of the CARES Act, its private school students would receive services worth $8.6 million. Under the department’s broader interpretation, though, that share would jump to $31.5 million — a 267% increase.

The department’s guidance, issued on April 30, confused many school leaders, prompting a letter from the Council of Chief State School Officers telling DeVos that if the guidance is not revised it “could significantly harm the vulnerable students who were intended to benefit the most” from the CARES Act.

In a response signed by DeVos herself, the education secretary writes, “the Department disagrees with your interpretation of the law.”

DeVos goes on to say: “All students and teachers have had their learning disrupted. A growing list of non-public schools have announced they will not be able to re-open, and these school closures are concentrated in low-income and middle-class communities. I would encourage educators everywhere to be as concerned about those students and teachers as they are with those in public schools.”

Even without that guidance and the confusion it has caused, advocates say, the relief funds in the CARES Act won’t be nearly enough. In a letter to congressional leaders earlier this month, dozens of organizations representing teachers, principals and parents requested at least $175 billion more for K-12 schools.

“While we don’t yet know what the full impact of the novel coronavirus that has spread across the nation will be,” the letter says, “we do know that both the economic hardship and the grief and trauma that ensue from COVID-19 will be unprecedented for today’s school-age children.”

In other words, schools won’t just need help making up for dramatic gaps in state spending. They’ll need extra money to pay for the extra things they’re being asked to do: feed children and families in hard-hit communities, help millions of students make up for learning time they’ve lost while home, and make sure schools are safe when children do finally return to class.

So far, though, Congress has shown little bipartisan appetite for more school spending. In mid-May, House Democrats passed the HEROES Act, which would provide K-12 schools with an additional $60 billion, but House Minority Leader Kevin McCarthy, R-Calif., dismissed the move, saying, “this is a political messaging bill that has no chance of becoming law.”

Governor Ducey says he hopes to reopen schools this fall, but hope is not a plan, and Arizona has a budget shortfall that he has failed to address. He has no idea how to pay for all of the extra things that schools are going to be asked to do in order to reopen safely and not unnecessarily put children’s lives at risk, or to honor his pledge to increase school funding every year.