SHARON WARD PENNSYLVANIA 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.

Pennsylvania Budget All Funds

State General Fund Spending

Paying for State Services

PA Ranks 30 th in Expenditures

…and Ranks 32 nd in State Taxes

Taxes Are Stable Over Time

Property Taxes Trail the US Average

Local Share is Higher

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

Unemployment will rise for several years even as the recession ends

States Already in crisis STATE BUDGET TROUBLES WORSEN By 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 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

State General Fund Revenue

State Revenue Slowed Early in 2008

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

Pennsylvania Response budget was changed  Increase 3.9% down from 4.2%  Real 1.3% reductions in many departments Rendell October 30 th response  $311 millions in reductions for  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

Balancing the 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 Center 412 North Third St. Harrisburg, PA