America’s great recession and its lingering effects have severely pressured local, state, and federal budgets. Declining tax revenues, in conjunction with increasing public expenditure on health care and pensions, has produced a wicked brew for government finances. In recent months we have witnessed the damage wrought by governments in Europe that have spent more money than they have, and we are seeing similar problems in America at the federal, state and city level.
In the Buckeye State, for example, state government rang in the 2011 New Year with a grand total of 89 cents in its rainy day fund. (Though improving conditions and concerted efforts to trim expenditures have enabled Ohio to add nearly $500 million to this savings fund.) Ohio’s school districts, which heavily rely on state government funds and local taxes, have also felt the budget crunch. But, Ohio is actually in better shape than a lot of other states.
Former New York lieutenant governor Richard Ravitch and former Federal Reserve Board chair Paul Volker formed the State Budget Crisis Task Force to study and report on state government finances. The task force recently released a report that studied six states’ budgets—California, Illinois, New Jersey, New York, Texas, and Virginia. The study finds that state Medicaid spending—a health care program for low-income residents—now exceeds K-12 education spending as a percentage of states’ budget.Figure 1 from their report shows the upward trend in Medicaid versus the downward trend in education spending over the past five years:
K-12 education funding is being squeezed big-time as health care spending for the elderly, the poor and the disabled accelerates at rates far exceeding inflation. School districts should expect less and less funding through state sources. Consequently, districts will have to stretch their school budgets in ways perhaps unimagined. Additionally, as a big-picture issue for the general public, Medicaid’s crowding out of K-12 education underlies a larger, long-term question ripe for debate: How do we balance the health care needs of our aging population with the educational needs of our children who ultimately have to pay these bills?
This somber report on the threats facing state budgets should be required reading for every state officials who daily grapples with tougher and tougher choices, and for all voters and taxpayers who furnish their hard-earned treasure to finance these expenditures.
Report of the State Budget Crisis Task Force
Richard Ravitch and Paul Volker, Chairs
State Budget Crisis Task Force
July 2012
