Schools face tough economic road ahead

That suggests there is a three-year lag in the changes in housing values.

“If we just saw the first decline in property taxes, and we know property values for homes started to decline three years ago, you might conclude that we have about three years of declining real estate taxes [ahead],” Sims said. “The base is gone, it’s down by about one-third, and most of the forecasters in the real estate business are talking about a continued decline.”

Economists predict that wages and personal income will continue to grow more slowly, and consumer spending is likely to grow at lower rates in the future.

State tax revenues have fallen since the end of 2008 and dropped 16.6 percent in 2009 compared to the previous year, the Center on Budget and Policy Priorities report indicates. Income tax was down 27.5 percent and sales tax was down 9.5 percent.

Also, during the last two recessions, the unemployment rate kept rising for 15 to 19 months after the recession ended and then remained high for a period of time after that.

“To gain maximum revenue, states that plan to adopt tax increases to help address their looming fiscal year 2011 shortfalls may want to put them in place as quickly as possible,” the report says. “The same applies to spending reductions; for example, many cuts in education spending are likely to take effect next summer, at the start of the 2010-11 school year.”

The report calls the revenue decline in this recession “unprecedented; it is the largest on record in the post-World War II period.”

Michael Strauss, chief economist at asset-management company Commonfund, which serves about 1,300 college and university endowments, told administrators at the Washington Higher Education Coordinating Board that while the world economy is beginning to look up, income tax revenue is predicted to decline for the bulk of 2010 and could decline into 2011, which will cause state and local governments to make more budget cuts.

“[Next year] is going to be worse than this year for two reasons–first, states have spent down their reserves, so what’s left is bone-on-bone,” Muir said. “Second, we’re running out of federal stimulus money. ARRA was a tremendous lifeline, and you can see the work that it is doing in schools every day.”

Muir said he suspects that 5 percent of the operating funds many colleges received from states came directly from ARRA. Some states, he said, might have used ARRA funds for as much as 10 percent of public schools’ operating budgets.

“I’m very concerned about the next 18 months or so,” Muir said, when ARRA funding ceases.

Although job worries abound, retiring baby boomers are clearing the way for recent teaching graduates to find employment. And Muir said some districts are offering early retirement incentives for experienced teachers in an attempt to save money by paying lower salaries to new, inexperienced educators.

An opportunity for change

But despite economic woes, states have not taken the opportunity to revisit how they do business, Sims said.

“Almost no state is doing anything different today than they were before the downturn–they should be,” he said. “They should be restructuring systems, reorganizing priorities–they’re on track for more of the same.”

A smaller number of economists are predicting a “W” recession, in which the economy improves, but slides back into a recession.

“When you cut education–89.5 percent of education dollars go for payroll–you can only cut so many school buses, so you cut jobs, and when you cut jobs, it has a quick and devastating effect,” Sims said.

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Laura Ascione

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