Regents flunk finance (again)

by E.J. McMahon |  | NY Torch

Budget deficit? What budget deficit?

With today’s state Board of Regents budget request, New York’s education establishment is united in proposing that state aid to America’s best-funded preK-12 public school system be increased next year by at least $2 billion. The figure is nearly double the amount projected in Governor Cuomo’s recent Mid-Year Financial Plan Update—which showed the state is running deeply in the red and facing its largest budget shortfall since the Great Recession.

In keeping with a perennial tradition of disregarding fiscal reality, today’s Regents’ spending proposal comes a few weeks after the Education Conference Board, a statewide alliance of school boards, administrators and unions, called for an aid increase of $2.1 billion.

Meanwhile, back in the real world, Governor Cuomo has projected a $6 billion budget gap for FY 2021, ballooning to $8.5 billion by FY 2023, due mainly to $4 billion in over-spending on Medicaid. His financial plan assumes that, under the current statutory formula, school aid would increase by $1.1 billion—a 4 percent boost (on a July 1-June 30 school-year basis) at a time when the consumer price index is growing at a 2 percent annual rate and public school enrollment statewide is declining.

The Regents recommendation for 2020-21, as formulated by its state aid subcommittee, recommends a total increase of $2 billion. Nearly all of that amount would be distributed as “foundation aid,” the revised school funding formula first enacted a dozen years ago under then-Governor Eliot Spitzer but sidetracked by Governor David Paterson during the fiscal crisis touched off by the Great Recession. It also calls for $108 million to be spent on a variety of other education programs.

Under the Regents’ proposal, General Support for Public Schools in the next budget would rise by 7.3 recent, from $27.5 billion to $29.5 billion. That would be just the down-payment on a three-year phase-in of the foundation aid formula’s automatic annual “inflation adjustment”—which, as figured by the formula, would be higher than consumer inflation.

In its own recommendation for a $2.1 billion increase, the Education Conference Board also renewed its call for loosening the statewide cap on school property tax levies, which was permanently enshrined in state law this year. In districts outside New York City, Yonkers and the four largest upstate cities, the cap requires approval by a 60 percent supermajority of district voters for any proposed school budget exceeding an allowable levy growth limit of 2 percent or the rate of inflation, whichever is lower (subject to varying local allowances). The ECB wants the cap raised to a flat 2 percent, which would apply even in years when base inflation is lower (as it has been several times since the cap was first effective in 2012).

Fitting it all in

To comply with a self-imposed state spending cap of 2 percent, Cuomo will have to reduce all projected spending by $6 billion in the Executive Budget he’ll submit next month for FY 2021, which begins April 1. Assuming he cuts $3 billion from Medicaid, as indicated in his financial plan, another $3 billion will have to come from all other budget categories—the largest of which, by far, is school aid.

The Regents traditionally don’t worry about where the money will come from to finance their spending wish list, and neither does the Education Conference Board. However, the NYSUT front group Alliance for Quality Education perennially pushes a further increase in state income taxes on high earners to finance bigger school spending increases. Faced with Medicaid deficit, Assembly Speaker Carl Heastie said last week that Assembly Democrats would favor higher taxes over reductions in prospective spending. The Assembly’s one-house budget this year included such a tax hike—despite the new federal cap on state and local tax (SALT) deductions, which has raised New York’s net effective marginal tax rate on millionaire earners to the highest level ever.

According to the latest U.S. Census data, New York’s spending on elementary and secondary education reached a record $23,091 per pupil in 2017, once again topping all other states in this category. As noted here back in May, the education spending gap between New York and the rest of the U.S. has grown considerably over the past 20 years. The Empire State’s per-pupil spending was 45 percent above average in 1997, and 65 percent above average in 2007. As of 2017, New York spent 89 percent more than the national per-pupil average.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.