1. Governors’ Priorities, Challenges for the Coming Year Dane Linn Director Education Division, National Governors Association Center for Best Practices

2. Recent State Fiscal Trends Slowing revenue in FY 2008 Some states experiencing significant shortfalls Increased attention towards infrastructure and transportation Health care Property tax relief

3. Examples: Current Announced Budget Shortfalls Arizona, facing a shortfall of $870 million, is considering using the rainy day fund, bonding for school construction, and spending cuts. California is facing a $14.5 billion shortfall for fiscal 2009. Gov. Schwarzenegger has ordered agencies to cut budgets by 10%. Florida held a special session in October to address shortfall. Since then, revenue estimates have been lowered again. Kentucky, facing a $289 million shortfall for fiscal 2008, has requested that state agencies cut budgets by 5%. Nevada is facing a shortfall of $440 million for fiscal 2008. Gov. Gibbons has proposed 4.5% cuts. Rhode Island is facing a possible $450 million fiscal 2009 shortfall. Gov. Carcieri announced plans to eliminate 1,200 positions.

4. Examples: States Showing Positive Growth Arkansas’ revenue is 4.0% above projections so far in fiscal 2008. Georgia’s November tax revenue increased 10.3% from fiscal 2007 levels. Iowa increased its revenue estimates by $100 million in December. Louisiana increased projections by $657 million for fiscal 2008 and $477 million for fiscal 2009. Missouri’s revenue through November is 4.5% higher than expected. North Carolina’s first quarter revenue exceed projections by $75 million

5. Slowing Fiscal ‘08 Expenditure Growth, But Still Overall Growth *30-year historical average rate of growth is 6.4 percent **Fiscal 08 numbers are estimated Source: NASBO December 2007 Fiscal Survey of States

6. Some State Likely will Face Mid- Year Fiscal ’08 Budget Cuts Source: December 2007 Fiscal Survey of States

7. Long Term Spending Pressures Medicaid and Health Care K-12 Higher Education Demographic Changes Infrastructure Pensions

8. Spending Pressures in the News… “state pension issue looms for legislature” - Kentucky, The Courier-Journal, 1/1/08 “State’s Prison Budget Soars” - California, Los Angeles Times, 12/26/07 “Petition to ask Michigan Voters to Pass Universal Health Care” - Michigan, The Detroit Free Press, 12/19/07 “ Corzine proposes preschool expansion” - New Jersey, Philadelphia Inquirer, 12/14/07

9. FY 2008 Budgetary Issues Medicaid Economic Woes ─Housing Downturn Impacting Revenue Health Care ─SCHIP, Universal Health Care Infrastructure ─Transportation, Energy Property Tax Relief

10. Education Priorities for 2008 Early Childhood –Pre-K expansion/Full-Day Kindergarten Postsecondary Education –Access/Financial Aid/R & D Science, Technology, Engineering, Math –Teacher Supply/Workforce Shortages Teacher Compensation Finance

11. NGA Center Priorities International Benchmarking High Schools –Action Agenda 2.0/Low-Performing Schools/Career Technical Education/Drop-outs Early Childhood Virtual Learning STEM Education Postsecondary Education Student Supports

12. State Fiscal Outlook Revenue and spending growth likely to slow Housing decline and a slowing economy could be problematic National economic situation will determine extent of state revenue slowdown States will face fiscal challenges over next several years States will look for creative financing opportunities to meet spending demands

13. Contact Information Dane Linn Director, Education Division National Governors Association Center for Best Practices 202/624-3629 dlinn@nga.org