GOVERNORS AND PUBLIC EDUCATION:
A TREND ANALYSIS
OF GUBERNATORIAL MESSAGES
2004-2008

"No other investment yields as great a return as the investment in education. An educated workforce is the foundation of every community and the future of every economy."
— Governor Brad Henry (D-Oklahoma)

"The smartest thing we can do to create high-wage jobs and grow our economy is to keep our focus on education."
— Governor Bill Richardson (D-New Mexico)

"As countries such as China and India move more and more of their citizens into advanced studies, this challenge will only grow. Missouri is no longer just competing with states like Kansas and Illinois, but we are now in the global economy competing with India and Singapore, Shanghai and Hong Kong. If we are to make Missouri families even more prosperous, we must ensure that students are equipped with advanced skills in math and science."
— Governor Roy Blunt (R-Missouri)

"Innovation, the new ideas which change the way we work and live, is first and foremost powered by people. So we must redouble our efforts to educate and train ALL of our citizens for jobs in this new marketplace. Quality education is essential to a prosperous future."
— Governor Kathleen Sebelius (D-Kansas)

EXECUTIVE SUMMARY

In the past five years, governors have offered a variety of educational proposals, all with the goal of improving their states' economic positions. Most fall into these categories:

Establishment or expansion of state support for early childhood education, including pre-school and full day kindergarten.
Modifications to existing K-12 education programs, including redesign of high schools and introduction of curricula emphasis on science, technology, engineering and math.
Support for K-12 teachers, including increases in salaries, and added support for teacher training and development.
Establishment or expansion of scholarships for students to attend career, technical or higher education institutions.
Increases in funding for all levels of education, when economic conditions allow added spending.

Sustaining funding for expanded educational programs is a greater challenge for governors. The states did not emerge from their "fiscal crisis" until 2004, the first year this report covers. As state revenues grew, governors proposed more funding for educational priorities.

During better economic times, however, few governors proposed remedies to the "structural deficits" that are viewed as one cause of the 2000-2004 fiscal "crisis." Instead, many took the opportunity to propose targeted tax cuts. These tax cuts were on top of the many tax reductions that governors and state legislators provided during the "go-go" economic times of the 1990's.

With another economic downturn beginning in FY2008 and projected to have a strong impact on state revenues, governors are struggling with how to pay for the education programs they laud as necessary for economic prosperity.

Thus, for gubernatorial visions of economic growth through educational excellence to come to fruition, strong leadership is needed to ensure consistent and reliable state funding.

INTRODUCTION

Universally, gubernatorial state of the state messages extol the importance of education in preparing citizens for productive, prosperous lives. Governors speak eloquently about the value, necessity and importance of public education to the future of their respective states. From early childhood education to K-12 schools to career training and institutions of higher education, governors spent more time discussing education in their 2004 though 2008 state of the state messages than on any other single topic. [1]

This focus is for good reason: More than 90% of funds that support K-12 public education come from state and local sources. [2]

But what can these gubernatorial statements reveal about the trends in education? What directions have governors proposed taking education? What are their priorities, and are there common priorities among the governors?

What can we learn about the foundational commitment to public education beyond the soaring rhetoric of annual speeches? And have governors been able to secure reliable sources of revenue to pay for the promises of early childhood education, a strong system of K-12 schools, a vibrant educational system for career-oriented citizens, and affordable, accessible institutions of higher education?

This paper provides an analysis of gubernatorial state of the state messages delivered from 2004 through 2008 in an effort to answer those questions. Additionally, a review of state fiscal conditions during the same timeframe offers a glimpse at states' abilities to finance public education in the long run.

EMPHASIS ON EDUCATION

The economic recession in early 2000 created fiscal crises in state budgets that lasted until 2004. [3] During those years, governors and state legislators grappled with closing budget gaps as much — if not more than — issues surrounding public education.

When 2004 state of the state messages were delivered, governors turned their attention back to education, linking strong schools to the promise of economic prosperity. From 2004 through 2007, governors overwhelmingly stressed the importance of education to economic growth and stability. [4]

"The first investment I want to talk about will come as no surprise. As I just suggested: Oregon must have the best trained, best skilled, best educated workforce in America.

"There is only one way to reach that goal: Invest — from pre-school to graduate school — in the tools that build minds and train hands ... because those minds and hands are what will build our economy." — Governor Ted Kulongoski (D-Oregon). [5]

Beyond broad brush linkages between sound education systems and strong state economies, governors also highlighted specific education issues such as school finance reform and education funding; investment in early education; the importance of teachers, accountability, standards, career and technical education; and the accessibility and affordability of higher education.

Examining issues individually indicates some trends in gubernatorial proposals that provide insight into the past and future direction that governors view as priorities.

SCHOOL FINANCE AND BUDGETS

In 2005, 19 governors addressed school finance issues, with most focused on reforming how formulas distributed state funds to local school districts. [6] This emphasis is most likely due to the number of states that faced lawsuits over school funding. [7]

As economic conditions improved, 28 governors talked about increased education funds in 2006 and 36 mentioned added money in 2007. [8] A common theme for these two years, governors emphasized the need to add back or make up for funds that had been cut in prior years during the states' fiscal crises.

"Under the approach I offer state support for schools would increase by $131 million. We would fully fund this year's allowable growth including restoring state funds cut from last year's budget. We would continue and expand the teacher compensation student achievement effort started two years ago. State resources would act as incentive for local districts to reduce administrative costs and redirect those savings into greater support for teacher compensation and professional development. Important efforts to reduce class sizes, improve reading and prevent dropouts would continue without interruption. New efforts to meaningfully tackle the achievement gap among minority students would be launched in places like Waterloo and Sioux City..." [9] — Governor Tom Vilsack (D-Iowa), 2004

Fifteen governors proposed increased funds for schools in 2006, and 23 offered budgets with added money in 2007.

State policymakers, including governors, were put on notice that fiscal conditions were changing in mid 2007. A report issued by the National Governors' Association (NGA) and the National Association of State Budget Officials (NASBO) warned that worsening economic conditions nationally would have a significant impact on state budgets for Fiscal Year 2008, as well as into Fiscal Year 2009 and beyond.

"This report shows that most states are moving from peak fiscal conditions to a period of much slower spending and revenue growth," said NASBO Executive Director Scott D. Pattison. "State spending growth is expected to slow in fiscal 2008, and long-term spending pressures suggest more states will face very tight budgets in the next few years." [10]

As a result, only 18 governors addressed K-12 funding in their 2008 state of the state messages, with 14 calling for state aid increases. Four governors proposed education funding cuts to balance state budgets.

"(Governor) Schwarzenegger (R-California) announced an emergency budget to address the state's $14.5 billion deficit in January. He called for cutting education funding by 10 percent, which would require suspending the 1988-approved Proposition 98 that guarantees a minimum level of funding to schools." [11]

Local efforts to finance schools, which most often rely on property taxes, began coming under the scrutiny of governors in 2007 when two proposed in their state of the state addresses that legislators impose caps on local property taxes. That theme picked up momentum in 2008 with nine governors suggesting to legislators that they pass a limitation on local taxing entities.

"First, immediate relief to every homeowner, taking Indiana property tax levels to some of the very lowest in America. The plan I sent you would place our state among the lowest eight or nine states anywhere, and by far the lowest in the Midwest.

Second, permanent protection against the return of unaffordable taxes, through a permanent, constitutional cap of one percent of a home's value, an absolute ceiling beyond which no homeowner would ever pass. Make the cuts further secure by lifting permanently the costs of child welfare protection and school operations off the property taxpayer altogether.

Third, reform of our hopelessly unfair assessment system, with its unexplained inaccuracies and its unequal treatment of like properties.

And fourth, genuine limits on total local spending and borrowing, with none of the loopholes and exceptions that have permitted such spending to balloon in recent years. I hope you will join me in giving citizens what they have in most states, a final say over major capital projects through a straightforward referendum. I do not share the fear of some that Hoosiers cannot be trusted to weigh the pros and cons of big investments for which they will pay the costs. I say, trust the people; give them the facts, and let them vote." — Governor Mitch Daniels (R-Indiana). [12]

Florida voters approved a referendum to reduce and cap property taxes in early 2008, [13] creating a squeeze on local efforts to fund schools and giving potential momentum to state legislatures in other states to either approve such caps, or refer them to voters.

EARLY EDUCATION

The success of early childhood education in improving student performance, particularly among low-income children, led governors to re-emphasize pre-school and full-day kindergarten programs. A national initiative in 2002-03 on early childhood education sponsored by the NGA focused on how such programs benefit children.

"High-quality comprehensive services for at risk families with young children can improve children's life outcomes. As they grow up, children who attend high-quality early childhood programs show a reduced need for special education, improved high school graduation rates, fewer arrests, and higher earnings than children who do not receive a high-quality early childhood experience. Based on these outcomes, leading economists have concluded that investments in young children yield the highest cost-effective returns and are the best strategy for improving children's odds for success in school and in life." — "Building the Foundation for Bright Futures," NGA [14]

With evidence from the empirical data they received, 17 governors proposed expansion or establishment of early education programs in 2004. That number grew to 22 governors in 2005, 23 governors in 2006, and 29 governors in 2007. [15]

Expansion of these programs, however, seemed to have peaked, with 17 governors referencing early childhood education in 2008. Analyses indicate that providing stable sources of funds for pre-K and full day kindergarten programs is a problem that both governors and state legislators face. Many programs were started or expanded with revenue streams that are not consistent or reliable.

"Even though state spending on prekindergarten has grown $1 billion nationwide over the past two years, a report says, state policymakers looking to sustain and expand their programs — especially in tough budget times — are still scrounging for more money...

"The bottom line always is: How do you get the money?" said Diana Stone, a senior fellow at the Seattle-based Washington Appleseed Center for Law in the Public Interest, who conducted the finance research for Pre-K Now." [16]

TEACHERS COUNT

One of the more consistent messages on education that governors emphasize is the importance of quality teachers in classrooms around the states.

"Of course, we all know that a teacher's workday begins long before the first class starts and continues long after the last bell sends the students home.

"As the son of a teacher, I also know this from personal experience. My mother taught English, but she taught her students much more than the fundamentals of reading, writing and grammar. She taught them lessons of character and responsibility and helped them gain the confidence and skills they needed to succeed.

"Each of us recalls those teachers who inspired us and challenged us to excel. Those of us who are parents know the importance of good teachers in our own children's' lives. And everyone recognizes the critical role teachers play in preparing the next generation to assume their roles in society." — Governor Sonny Perdue (R-Georgia) [17]

Increasing salaries for teachers was a central education topic for 10 governors in 2004, 14 in 2005, 18 in 2006, 17 in 2007, and 12 in 2008. In most cases, governors stressed that additional state funds for K-12 education should be used by local school districts to increase salaries for teachers.

South Dakota Governor Mike Rounds (R) noted in his 2008 state of the state speech his continued disappointment that state funds were ending up in the general reserve accounts of local school districts instead of being used to reward instructors.

"Please remember that in my first four budget years, the legislature appropriated $43 million in ongoing state aid general fund increases. In those same 4 years, reports from the school districts, after those four school years ended, show that the school districts put $46 million into their general fund reserves.

"Another educator said that total general fund reserves for all schools are under 25 percent, and that's partially true. Total general fund reserves for all schools is over $170 million, which is 23 percent, but 96 school districts are carrying more than 25 percent in reserves and 51 of them have more than 40 percent in reserves — and that does not include an additional $81 million in their capital outlay reserves.

"I think there's an impression that I'm angry with local school boards or administrators. I'm not. But I have to express my disappointment, because the legislative body makes decisions about where to send a limited number of tax dollars every single year, and you decide whether you want the money to go back for enhancement of education, you decide whether or not you want the money to go into taking care of people who are in nursing homes, you decide whether or not you want to put the money into the State's Children's Health Insurance Plan (SCHIP), a whole multitude of very good programs, and each year you are challenged to make the best judgment calls that you can.

I think the intention when the legislature passes those types of increases, is that the dollars would be utilized instead of going into the cash reserves." — Governor Mike Rounds (R- South Dakota) [18]

How teachers are paid also was a topic for governors in the past four years. In 2005, 15 governors proposed establishing systems of "merit" or "differential" pay. [19] This topic was addressed by 11 governors in 2006, 12 governors in 2007, and only two governors in 2008. The declining number of mentions could mean this is one topic that is losing support.

Enhancing teacher training and development through mentoring or stronger professional development programs received gubernatorial attention as well. Ten governors proposed teacher training initiatives in 2004, 18 offered such suggestions in 2005, 13 stressed the issues in 2006, 12 in 2007, and 11 did so in 2008.

" Next, we need to recognize that the education of the teachers themselves shouldn't just stop when they graduate from college. To teach with excellence, they have to keep learning, stay in step with the world of knowledge; it's how they best teach their students.

That's professional development, and it is our job to ensure that teachers get it. We need to hold them accountable for mastering it. And we need to reward them when they do." — Governor Janet Napolitano (D-Arizona) [20]

Although many organizations have tried to focus policymakers' attention on the shortage of qualified teachers in specific areas, governors are only now beginning to stress the changing demographics that will bring about a shortfall of educators. Eight governors mentioned measures to address teacher shortages in 2008, the first record of such mentions in the past five years of state of the state messages.

"...We are facing a challenge: this year our State was 400 teachers short of our schools' needs, which doubled last year's shortage. This trend is increasingly corrosive. It is time we put educators back on a pedestal. To do this we must improve two things: compensation and capacity...

"...We must increase the number of educators being trained in our colleges. Right now 2,300 teachers graduate annually. In four years we can, and should, have 1,000 more teachers coming out of our colleges every year to teach in our classrooms." — Governor Jon Huntsman (R-Utah) [21]

ACCOUNTABILITY AND SCHOOL REFORMS

"Accountability" became the buzzword even before President Bush signed the 2001 federal Elementary and Secondary Education Act, known as the No Child Left Behind law. Most states already had established state reforms, such as standards-based education, when the federal law came along. Overlaying the federal mandates on top of state standards proved a challenge for most state policymakers.

State of the state messages in 2004 referenced accountability 20 times. [22] However, that number fell to 10 times in 2005, with 12 mentions in 2006, nine in 2007 and only six in 2008.

That does not mean governors have not proposed some changes to enhance educational performance. The trend appears to be stronger for incremental change rather than full-scale reforms.

Programmatically, governors increasingly have focused on specific measures that would improve their state's economic position by boosting student learning in targeted areas, including science, technology, engineering and math (STEM). [23]

"Science and math education are lynchpins of success in the knowledge economy. Business tells us this; common sense tells us this. So let's listen. Arizona currently requires two years of math in high school — let's make it four. Let's also increase learning about technology and how to use it. Our science programs teach memorization — let's teach understanding and analysis. We set the standards, so let's set them in a way that matches our hopes and dreams, and gives our children nothing less than the very best.

"The One Arizona Education Initiative requires four years of math, three years of science, as well as a solid grounding in language arts, civics and the fine arts.

"...We want technology embedded in our schools — to enhance the learning process and to improve students' understanding of it." — Governor Janet Napolitano (D-Arizona) [24]

The STEM initiative is supported by the NGA, with the NGA Center for Best Practices awarding grants to states to form STEM education centers. The grants are funded by the Bill and Melinda Gates Foundation and the Intel Foundation. [25]

The focus on science, technology, engineering and math education was central to Governor Janet Napolitano's (D-AZ) "Innovation" initiative as NGA Chair in 2006-07. As a result of this initiative, 14 governors talked about STEM in 2006 addresses, 21 offered proposals in 2007 messages, and 11 governors added to the call for STEM efforts in 2008. [26] To date, NGA is tracking STEM initiatives in 25 states.

Another educational redesign effort that governors embraced focused on improvements in high schools. This initiative, supported by the Bill and Melinda Gates Foundation, has received widespread acceptance and promotion by governors. [27]

"Every state has some good — and not so good — high schools. With the limited financial resources available, governors must resist the urge to create "islands" of success. Instead, we must target our resources as reorganizing the lowest-performing schools.

"Not every high school needs to be redesigned and there is no "one-size-fits-all" model for high schools that work. States should expand high school options in all communities, but they must share a common goal to prepare every student in every high school for a successful transition to career, college, and citizenship.

"State policy can also support students who want to begin working toward industry-recognized certification while still in high school. Governors and higher education leaders can also help finance new types of high schools that accelerate learning, such as the "early colleges" being created in North Carolina and Utah.

"We must also provide special support to low-performing students. There are kids in every community — urban, rural, and suburban — whose needs are not being met adequately by their high schools. States have a special responsibility to ensure students at risk of failure receive the help they need — no matter what kind of high school they attend." — Governor Mark Warner (D-Virginia) [28]

In 2004, only five governors mentioned the need to redesign high schools. But in 2005 and 2006, more than half — 26 governors — addressed high school reforms in their state of the state addresses. The emphasis continued in 2007 with 27 governors talking about high school redesign efforts underway or offering proposals for changes in high schools. In 2008, 11 governors talked about continuing or starting high school reform efforts.

Although the ESEA/NCLB federal law had a strong emphasis on reading programs, interest in this issue is waning among governors. In 2004, 13 governors promoted reading programs and in 2005, 14 governors mentioned reading improvements in their state of the state messages. That number dropped to nine governors in 2006, zero mentions in 2007 messages, and only two governors referencing the issue in 2008. [29]

Similarly, issues around school choice, including expansion of charter school programs and implementation of vouchers, have received declining interest from governors. In 2005, 15 governors mentioned charters or vouchers in their state of the state messages with an identical number referencing these issues in 2006. In 2007, only seven governors talked about school choice issues (and one of those, Governor Ted Strickland (D-Ohio), called for a reduction in the number of charter schools). Two governors mentioned support for a charter or school choice program in 2008.

WORKFORCE DEVELOPMENT THROUGH CAREER AND HIGHER EDUCATION

Governors share the strategy of investing in improvements to state career and technical education, community colleges and higher education as a means toward economic prosperity.

While all levels of higher education sustained significant budget cuts in the 2000-2003 recession, [30] the economic recovery allowed state policymakers to untie the purse strings and make more investments in higher education.

The importance of higher education was mentioned in 30 state of the state addresses in 2004, and 41 in 2005. Continuing that theme in 2006, 38 governors emphasized the importance of higher education to job creation with 46 governors following suit in 2007 and 20 in 2008.

"... There are few programs that state government supports with greater potential for benefiting Idaho's economy than higher education. Educating our citizens, meeting the needs of business for trained employees, and supporting Idaho industry and our society at large through research are only a few of the ways that our colleges and universities benefit the state.

"It's an important investment in our future, so I'm recommending that higher education be among our top priorities for using the one-time money available in fiscal 2008." — Governor Butch Otter (R-Idaho) [31]

Following through with their statements on higher education, 17 governors proposed increased funds in 2006, 27 offered added money in 2007, and 10 did so in 2008. [32]

Governors also responded to concerns about access and affordability of higher education, proposing significant expansions of student scholarships and aid programs. Coming out of the recession in 2004, 14 governors called for measures to expand access and make college more affordable. Thirty governors proposed similar moves in 2005, 24 did so in 2006, 29 in 2007 and 20 in 2008. [33]

"...We worked together to implement the SEED scholarship program, offering free college tuition to any student who works hard, stays out of trouble, and gets good grades. Today, more than 1,300 Delaware high school graduates are successfully attending college and on the path to a degree, a good job, and a better life.

"...Let's continue building on that record by passing the Student Academic Reward scholarship program, or STAR, this year. The STAR scholarship would enable high-achieving SEED graduates to continue on to a four-year, tuition-free bachelor's degree. This is a tremendous opportunity for our students and would result in a better educated workforce for our business community." — Governor Ruth Ann Minner (D-Delaware) [34]

Reflecting new budget concerns in 2008, however, four governors proposed decreases in higher education funding.

Table 1. Education Issues Mentioned in Gubernatorial State of the State Messages 2004-2008

ISSUES EMPHASIZED	2004 # of govs	2005 # of govs	2006 # of govs	2007 # of govs	2008 # of govs
Education and Economy	43	50	45	50	29
School Finance/ Budgets		19	28	36	18
Increase K-12 Funding			15	23	14
Decrease K-12 Funding					4
Impose Local Property Tax Cap				2	9
Early Education	17	22	23	29	17
Increase Teacher Pay	10	14	18	17	12
Merit or Differential Pay		15	11	12	2
Teacher Training, Development	10	18	13	12	11
Teacher Recruitment for Shortages					8
Accountability K-12	20	10	12	9	6
STEM (Science, Technology, Engineering, Math)			14	21	11
High School Reform	5	26	26	27	11
Reading and Literacy	13	14	9		2
Expansion of Charters, Vouchers		15	15	7	2
K-12 School Facilities					8
Higher Ed Importance	30	41	38	46	20
Increase Higher Ed Funding			17	27	10
Access and Affordability of Higher Ed	14	30	24	29	20
Decrease Higher Ed Funding					4

Table 1 Notes:

** The numbers in each box represent the number of governors mentioning the issue in their state of the state messages.

*** Information for 2004-2007 is from the National Governors' Association summaries; not all issues were mentioned in each summary.

**** Data for 2008 messages was compiled from information provided by Communities for Quality Education, the Education Commission of the States, and an interim report from NGA. Note that the governor's state of the state address from Louisiana, which will be delivered on April 18, 2008, is not included in totals.

STATE BUDGETS AND EDUCATION

State budgets took a beating from the national economic downturn that began in 2000. What became known as the "states' fiscal crisis" forced governors and legislators to cut $150 billion from state budgets. [35]

According to the Center on Budget Policy Priorities (CBPP), states' general fund spending, adjusted for population growth and inflation, declined almost four percent between Fiscal Years 2001 and 2003, [36] with more cuts in FY 2004. State spending reductions during this time had a direct impact on people, as more than one million lost state-supported health care coverage, 35 states cut K-12 education spending, and tuition for higher education shot up more than 30% as colleges and universities made up for losses in state funding.

"During the fiscal crisis states cut education, health and other programs. For example, spending on elementary and secondary education did not keep up with inflation or enrollment increases. School districts in 35 states got less money per student, after adjustment for inflation, from state revenue in fiscal year 2004 than they did in fiscal year 2002. In 17 states, the declines exceeded five percent.*

"State support for higher education was cut significantly; states budgeted 7 percent less on higher education for fiscal year 2005 compared to 2002 after adjusting for inflation.** One result of these higher education cuts is that average tuition and fees at public institutions are 35 percent higher than they were four years ago after adjustment for inflation.***

"In addition, during the depths of the fiscal crisis, states made cuts to Medicaid and the Child Health Insurance Program that caused more than one million people to lose eligibility for health insurance coverage — much of which has not been restored.

"*Andrew Reschovsky, The Impact of State Government Fiscal Crisis on Local Governments and Schools, Robert M. La Follette School of Public Affairs, University of Wisconsin-Madison, December 2003.

"** CBPP calculations of data from the Center for the Study of Education Policy, Illinois State University.

"*** The College Board, Trends in College Pricing 2004, Oct. 19, 2004." [37]

While states' fiscal condition could be tied to the weakness in the U.S. economy and the drop in the stock market, states contributed to their own problems in several ways. A booming economy in the 1990's gave states an opening to expand programs, such as children's health care, while also presenting an opportunity to cut taxes.

"States had an opportunity to do various things. And they did spend on salaries, they did expand programs, they did expand eligibility for Medicaid and the State Children's Health Insurance Program (SCHIP). But they also returned billions of dollars in tax rate reductions. And states were building up their reserves to the largest levels in 20 years." [38] — Arturo Perez, fiscal analyst, National Conference of State Legislatures.

State tax cuts totaled $37.5 billion from 1995 to 2001 [39] which, in part, contributed to the revenue squeeze that forced cuts in spending just a couple of years later as these tax cuts reduced revenue by even higher amounts.

Additionally, states did not take advantage of economic good times to examine carefully and thoughtfully what CBPP identifies as "structural deficits."

"To the degree states have failed to step up to the plate to reform their tax codes they are responsible for their current fiscal problems," says Nick Johnson, a senior policy analyst with the left-leaning Center on Budget and Policy Priorities.

"Johnson says states should have been asking themselves: 'What do we need to do to modernize our tax codes? How can we have a tax base that's going to raise enough revenue over good times and bad to cover expenses?' Instead, they pressed on with business as usual, he says." [40]

STRUCTURAL DEFICITS — LESSONS LEARNED?

Did the difficult spending decisions that governors and state legislators had to make during the state fiscal crisis of FY 2001-2004 provide an incentive for governors and lawmakers to modernize state revenue systems when better economic conditions returned?

A CBPP report issued in 2005 — when the economy strengthened — suggested:

"...State revenues face a more enduring problem often called a structural deficit, or the chronic inability of state revenues to grow in tandem with economic growth and the cost of government. States have structural deficits largely because they have failed to modernize their revenue systems to reflect far-reaching changes in the economy.

Several states have changed their revenue systems little since the 1930s or 1940s; others have revenue systems that are twenty to thirty years out of date. While tax reform can be a difficult undertaking, failure to modernize state revenue systems can cause substantial problems." [41]

Among tax reforms CBPP suggested were: shifting sales tax from goods to services, halting the erosion of corporate income taxes, initiating taxes on growing Internet sales, means testing tax breaks for senior citizens, and reversing the flattening of state income taxes.

Few states, however, took up the challenge to change tax structures, opting instead to fall back into previous patterns of taxing and spending.

STATE ACTIONS ON TAXES AND SPENDING

When state budgets improved, governors recommended increases in spending on health care, K-12 education, and higher education. Too, states enacted additional targeted tax cuts, mostly to spur business growth and economic development.

"On balance, states cut taxes and fees by $2.1 billion for the current fiscal year — (FY 07) the first time that tax cuts have outweighed increases nationwide since the economic boom of the late 1990s through 2001. They especially took aim at the income tax. All told, states reduced payroll taxes by $2.3 billion and corporate income taxes by $240 million.

"While states are collecting fewer taxes overall this year, sales and tobacco taxes are on the rise..." — Stateline [42]

The National Association of State Budget Officers produced the chart below, which demonstrates the net effect of tax law changes over time.

In their state of the state messages from 2004 to 2008, governors described the economies of their states in glowing terms during the few years of economic recovery. However, as Table 2 shows, gubernatorial descriptions of "strong" economies waned in 2008.

Table 2. Number of Governors Who Described Economic and State Budget Outlook as "Good" or "Strong" 2004-2008

2004	2005	2006	2007	2008
5 (32 said "improving")	42	38	34	18 (with another 18 discussing need to stop spending growth and 4 offering cuts)

** Table 2 data as reported by National Governors' Association summaries of gubernatorial state of the state messages.

No governors proposed tax increases to fill state coffers in 2008 messages; however, there were two proposals to raise sales taxes to offset gubernatorial proposals to reduce local property taxes.

In the most harshly worded fiscal message of the governors, Governor Jon Corzine (D-New Jersey), addressing the need to reduce the state's $32 billion bonded indebtedness and its $3 billion budget gap, stated:

"We are in a hole, and if we want to get out, we have to stop digging...Pigs will fly over the Statehouse before there's a realistic level of new taxes or spending cuts that can fix this mess." — Governor Jon Corzine (D-New Jersey) [43]

State budget observers from the National Association of State Budget Officers, the National Governors Association, the National Conference of State Legislatures, and the Center for Budget Policy Priorities (CBPP) all warned in the fall of 2007 that state revenues would fall and that the states would face budget gaps similar to those experiences during the last state fiscal crisis.

In March 2008, CBPP issued a report based on its survey of state legislative fiscal officers, noting:

"At least twenty-five states, including several of the nation's largest, face budget shortfalls in fiscal year 2009. Of these 25 states, specific estimates are available for 21 states and the District of Columbia; the combined deficits of these 21 states plus the District of Columbia are expected to total at least $37 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.

"The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend." [44]

TABLE 3: 21 STATES PLUS DC WITH PROJECTED GAPS FOR FY2009

	Amount	Percent of FY2008 General Fund
Alabama	$784 million	9.20%
Arizona	$1.7 billion	16.20%
California	$16 billion	15.40%
District of Columbia	$96 million	1.50%
Florida	$2 billion	6.50%
Illinois	$1.8 billion	6.60%
Iowa	$350 million	6.00%
Kentucky	$266 million	2.90%
Maine	$124 million	4.00%
Maryland	$808 million	5.50%
Massachusetts	$1.2 billion	4.20%
Minnesota	$935 million	5.50%
Nevada	$565 million	7.80%
New Hampshire	$50 million — $150 million	1.6 — 4.8%
New Jersey	$2.5 — $3.5 billion	7.6 — 10.6%
New York	$4.7 billion	8.70%
Ohio	$733 million — $1.9 billion	3.6 to 9.4%
Oklahoma	$114 million	1.60%
Rhode Island	$380 million	11.20%
South Carolina	$160 million	2.40%
Virginia	$1.2 billion	6.90%
Wisconsin	$652 million	4.80%
TOTAL	$37.4 — $39.6 billion	8.5 — 9.0%

Source: Center for Budget and Policy Priorities [45]

CONTINUED BUDGET GAPS AND EDUCATION

With anticipated budget cuts in the current FY 2008 and in FY 2009, the promises of educational progress to enhance states' economic positions may go unfulfilled. Gubernatorial proposals for new investments in expanded early education programs, K-12 initiatives, higher education scholarships, and investments in educational infrastructure are not likely to survive scrutiny of state legislative leaders. The only exception could be in states that are not yet suffering from the housing and credit crunch — such as those that draw income from energy sources or from soaring agricultural prices.

"A long-projected revenue chill is beginning to bite in a number of states, putting pressure on education policymakers to defend existing programs—and, in some cases, forcing them to prepare for the worst if budget cuts become a reality.

"The causes vary, from slack property-tax receipts in Florida to a chronically sluggish economy in Michigan. But the result is the same: financial uncertainty as school districts head into the 2007-08 school year and begin planning in earnest for the next budget cycle.

"Complicating that picture is worry on the part of some economists—reinforced by the continued national housing slump and a gloomy Sept. 7 jobs report from the U.S. Department of Labor — that the worst is yet to come.

"I'm concerned we are going to have an economic downturn in the next couple of months," said Michael P. Griffith, the school finance analyst for the Education Commission of the States, in Denver. "If we do, that means you're going to have almost every state go back and revise their 2007-08 school year spending amounts." — Stateline, September 2007 [46]

With education funding dependent on economic trends, expectations are that gubernatorial intentions will remain unfulfilled until state leaders focus on changing tax structures to eliminate states' structural deficits.

"In states with structural deficits, revenues do not grow at the same rate as the cost of government. As a result, these states are unable to continue providing their current level of services, let alone respond to voters' demands for new investments in education and other areas.

"Structural deficits have received little public attention to date, largely because states have adopted various ad-hoc measures to mask them. For example, many states raised sales taxes: the average sales tax rate rose by about 50 percent between 1970 and 2003. Sales tax revenues, on the other hand, rose by only 20 percent during this period because of the shrinkage of the sales tax base. Raising tax rates is not a permanent substitute for fixing underlying problems because it places unfair burdens on a narrow segment of the population and undermines public confidence in government." — "Faulty Foundations: State Structural Budget Problems and How to Fix Them," Center on Budget and Policy Priorities, 2005. [47]

Additionally, governors and state policymakers often do not take long-term views to provide the stable resources necessary to achieve both education and economic goals.

"Today American states and elected officials are faced with fiscal crises that sometimes lead them to cut the funding streams for these public services. Over the long haul, however, states will position themselves better if they develop practical, long-term plans for sustained investments in education, workforce preparation, and retraining. A key element of these plans must be increased accountability in school spending, reform of the tax systems that finance education, and reform of business tax incentive programs that siphon away revenue for no productive purpose." — "Smart Money — Education and Economic Development," Economic Policy Institute, 2004. [48]

Notably, one governor did propose long-term, more stable funding for K-12 education in her state of the state message in 2008.

"Our Three-year Education Plan invests more than a billion dollars each year. We must forward-fund education, letting schools plan ahead. We must stop pink-slipping teachers, and then struggle to recruit and retain them the next year.

"We will enable schools to finally focus on innovation and accountability to see superior results. We're asking lawmakers to pass a new K-12 funding plan early this year. This is a significant investment that is needed to increase the base student allocation, district cost factors and intensive needs students. It includes $100 million in school construction and deferred maintenance.

"There is awesome potential to improve education, respect good teachers, and embrace choice for parents. This potential will prime Alaska to compete in a global economy that is so competitive it will blow us away if we are not prepared. Beyond high school, we will boost job training and University options. We are proposing more than $10 million in new funding for apprenticeship programs, expansion of construction, engineering and health care degrees to meet demands." — Governor Sarah Palin (R-Alaska) [49]

A few other governors in the 2004-2008 messages analyzed have proposed education funding beyond one year at a time, most in response to school finance lawsuits. Those states include Kansas and New Jersey, with the governor of Arkansas proposing long-term funding for higher education.

"A wonderful high school diploma is a good thing. But it is not an adequate thing in order to prepare one for the future and to have a job that will give him or her the ability to succeed and prosper and provide for a family. We have to ensure that every Arkansan has something beyond the 12th-grade year, whether it's vocational and trade training or whether it's a full university degree. Higher education is not a luxury. It is a necessity in tomorrow's economy. In fact, it is a necessity in today's economy.

"We're proposing a formula that would be implemented over a four-year period and has gained the support of the presidents and chancellors of our 32 colleges and universities in the state...the funding for our colleges and universities ought to be done on the basis of some objective criteria — productivity, the number of students attending classes and the cost of providing those classes in those particular career fields. It ought not be left to the political muscle of any one senator or representative as to which colleges get good funding and which ones don't. A clear, objective funding formula is a must." — Governor Mike Huckabee (R-Arkansas) [50]

These long-term proposals are the exception rather than the rule.

List of references

[1] See Table 1 outlining key educational themes, 2004-2008.

[2] NCES Common Core of Data, 2005:
http://nces.ed.gov/pubs2007/expenditures/findings2005.asp

[3] http://www.cbpp.org/9-13-04sfp.htm

[4] See Table 1.

[5] http://governor.oregon.gov/Gov/speech/speech_032108.shtml

[6] See Table 1.

[7] http://www.schoolfunding.info/litigation/In-Process-Litigations.pdf

[8] See Table 1.

[9] http://www.stateline.org/live/details/speech?contentId=16188

[10] http://www.nga.org/portal/site/nga/menuitem.6c9a8a9ebc6ae07eee28
aca9501010a0/?vgnextoid=caf434a66d5a6110VgnVCM1000001a01010aRCRD

[11] http://www.paloaltoonline.com/news/show_story.php?id=7155

[12] http://www.stateline.org/live/details/speech?contentId=272867

[13] http://www.miamiherald.com/548/story/399006.html

[14] http://www.nga.org/Files/pdf/0501TaskForceReadiness04.pdf

[15] See Table 1.

[16] Education Week, February 27, 2008

[17] http://www.stateline.org/live/details/speech?contentId=80376

[18] http://www.stateline.org/live/details/speech?contentId=271444

[19] NGA's summaries of state of the state addresses do not differentiate between "merit" and "differential" pay, thus making it difficult to ascertain how many governors proposed "pay for performance" measures and how many suggested "differential" pay. "Differential" pay systems include proposals to pay teachers more for teaching specific subjects such as math and science, or paying them more to teach in hard to staff schools.

[20] http://www.stateline.org/live/details/speech?contentId=79587

[21] http://www.stateline.org/live/details/speech?contentId=274861

[22] See Table 1.

[23] See Table 1.

[24] http://www.stateline.org/live/details/speech?contentId=169995

[25] http://www.nga.org/portal/site/nga/menuitem.6c9a8a9ebc6ae07eee28a
ca9501010a0/?vgnextoid=16fe9886dc773110VgnVCM1000001a01010aRC
RD&vgnextchannel=4b18f074f0d9ff00VgnVCM1000001a01010aRCRD

[26] See Table 1.

[27] http://www.nga.org/portal/site/nga/menuitem.6c9a8a9ebc6ae07eee28aca
9501010a0/?vgnextoid=5e5c5f0d60c05010VgnVCM1000001a01010aRCRD
&vgnextchannel=4b18f074f0d9ff00VgnVCM1000001a01010aRCRD

[28] http://www.nga.org/portal/site/nga/menuitem.5cd31a89efe1f1e122d81fa65
01010a0/?vgnextoid=c2edcc1d03da2010VgnVCM1000001a01010aRCRD

[29] See Table 1.

[30] http://www.highereducation.org/reports/affordability_supplement
/affordability_1.shtml

[31] http://www.stateline.org/live/details/speech?contentId=169146