Daniels: State Must Cut K-12 Spending By At Least $300 Million

December 16, 2009

Faced with more grim fiscal news, Gov. Mitch Daniels said Tuesday he is ordering across-the-board cuts to school corporations’ budgets – a measure that he said comes as a “last resort” to ensure the state can pay its bills.

To heed Daniels’ demand for reductions of at least $300 million in K-12 spending over the next 18 months, schools will have to give up a bare minimum of 3 percent of what the state’s budget originally set aside.

The Situation.

Indiana will collect $1.8 billion less in taxes than lawmakers originally thought when they passed the current two-year budget, according to the latest revenue forecast.

If accurate, the grim economic news means Indiana’s $1 billion surplus would turn into an $800 million deficit. After making $500 million in cuts, Gov. Mitch Daniels said all that’s left is education. He said Tuesday that he will cut K-12 funding by at least $300 million.

That means the Evansville Vanderburgh School Corp. and others across the state would lose a minimum 3 percent of what was budgeted. Daniels said he expects schools to handle the losses without laying off teachers.

The realities of the recession’s effect on Indiana’s government "are going to start being very noticeable to the average Hoosier very soon," said John Ketzenb erger of the Indiana Fiscal Policy Institute.
“And that’s cutting it too close to comfort and may not be enough,” Daniels said.

The governor’s announcement came on the heels of a new revenue forecast that predicted Indiana will collect $1.8 billion less in taxes than state lawmakers expected when they passed the current two-year, $27 billion budget in June. That means the $1 billion surplus the budget set aside has turned into an $800 million deficit.

Already, Daniels has ordered massive spending cuts for all state agencies, leading to bare-bones operations and forcing some layoffs. He also ordered a $150 million, or 6 percent, funding decrease for higher education.

But those reductions are only projected to save $500 million – an amount that, when added to the extra $1 billion that was built into the budget, would still leave the state $300 million short.

That’s why Daniels said he is forced to turn to the area he had considered a “last resort” – K-12 education, which makes up about half of all state spending – to cover the difference.

The State Board of Education has scheduled an emergency meeting for Thursday. Daniels has asked the panel to discuss how much K-12 spending can be cut without eliminating teachers. Its recommendations are due to the governor by Friday, Daniels said.

He didn’t name a specific amount he wants cut, but said he will accept no less than $300 million. “If all parties will accept a part in helping out, we’ll get through whatever is left of this recession and come out the other side sooner and stronger than most,” he said.

Though the state has no authority to tell school districts how to spend their money, Daniels said rather than laying off teachers, he expects school corporations to manage the funding reduction by taking steps such as slashing administrative expenses and joining a state pool to buy health insurance and school supplies.

“I would hope that everyone can embrace the goal of keeping teachers on the job, keeping classroom sizes as small as possible and using any tool that might be available to accomplish that,” Daniels said. “There are many, many more options – plenty enough to accommodate a modest reduction in their appropriation.”

The Evansville Vanderburgh School Corp. has known for some time that cuts would be coming and has attempted to prepare, Superintendent Vincent Bertram said

Cooperative purchasing among school districts, an administrative shakeup approved by the School Board on Monday and cost reductions on health insurance, workers compensation and other items have produced some savings, Bertram said, although more moves likely will be necessary.

“We are being very diligent in looking at areas of operation and we want to protect our classrooms,” Bertram said.

EVSC’s annual general fund appropriation from the state is about $143 million. Bertram said new education initiatives being undertaken by the school district, such as the new technology high school program announced last week, are being funded from grants and by reallocating existing funds.

“We have reduced our general fund obligation substantially,” Bertram said. “We are not adding positions in our general fund.”

Smaller local school districts also have been preparing for state cuts.

“Our approach is always to meet with our principals, sit down and come up with a solution on how to make these cuts,” said Stacey Humbaugh, superintendent of the South Gibson School Corp., which has a general fund of $10.7 million.

Because of uncertainty surrounding the state’s budget forecast, South Gibson teache rs are working without a contract this year, Humbaugh said. The teachers’ last contract expired in August.

“Obviously, you try to (make the cuts) so it doesn’t effect programming,” Humbaugh said.

The panel of fiscal analysts that produces revenue forecasts retooled the formula it uses after a projection it issued in May, which state lawmakers used to craft the budget they passed in June, came up more than $450 million short in the first five months of the fiscal year that began in July.

Tuesday’s forecast, delivered to the State Budget Committee, is downgraded by $1.8 billion over the biennium from the one given in May. But even though the new forecast is more in tune with the sagging tax collections Indiana has seen in recent months, it anticipates slight economic growth over the next 18 months.

“Let’s hope that’s right,” Daniels said.

If the forecast proves to be overly optimistic, then the $1.8 billion dip from the May forecast won’t be large enough and further spending cuts will be necessary. If it’s too dour, then the budget specifies that half of the extra money the state takes in will go directly to K-12 education.

John Ketzenberger, the president of the nonpartisan Indiana Fiscal Policy Institute, said he thinks the new forecast will prove to be fairly accurate.

“The hardest time to forecast is the turn, and we’re so far beyond that now that I think they’ve taken into account the problems that they had before,” Ketzenberger said. “I’d imagine this forecast is more accurate as a result.”

A series of revenue forecasts have become increasingly gloomy over the last year. But now, Ketzenberger said, the realities of the recession’s financial pinch on state coffers “are going to start being very noticeable to the average Hoosier very soon.”
&#x 0A;