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Hill: Why furloughs were needed
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Recently, the teacher furloughs have dominated the news. This column examines the teacher furloughs in the context of the overall budget as well as in comparison to other state budget choices.

Final FY09 state revenues came in below projections moving the true FY09 “hole in the budget” from $2.7 billion to $3.4 billion, around a $687 million decline since the legislature left in April. Two billion dollars of this “hole” was covered with cuts and the remaining $1.4 billion was covered with stimulus funds and reserves.

FY10 was originally based on a $3.1 billion shortfall from the original FY09 general budget, but now the governor is projecting closer to $4 billion. If revenues do not turn around, the number could be closer to $4.5 or $4.6 billion.

Education funding compared to the budget overall

Education funding at $7.9 billion now makes up 42 percent of the state’s total budget.  Almost all of this amount is formula grant funding for local school districts. Teacher salaries make up 80 percent of the total or around $6.3 billion. Another way of saying this is teacher salaries make up about one third of the state budget.  

In FY09, the Department of Education was relatively protected from cuts. An analysis of the true impact of cuts across state agencies shows that the median agency reduction in FY09 from the original FY09 general budget was -9.45 percent, while the comparable reduction for education was -2.2 percent.

Comparing cuts to the FY09 general budget though is somewhat deceptive because there were increases in the original budget that the state never implemented. Comparing cuts to FY08, perhaps a fairer basis of comparison, the median agency reduction was -5.86 percent, while education funding actually grew 1.77 percent. Many state agencies took over a 10 percent cut, including the Department of Natural Resources, the Department of Economic Development and the Department of Community Affairs.  

Because education is formula funded there are automatic increases built into its budget based on student growth and teacher salary increases. Some of the increases are tied to student growth, but some also to pay increases. In FY09, teachers received a 2.5 percent pay increase plus step increases for training and longevity, while other state employees did not.  At the end of the year, on an inflation adjusted per student basis, funding for education grew by .1 percent in FY09 — so even including student growth and inflation, education netted positive. Teacher step increases and experience increases alone cost the state $90 million per year.  

Because education has been somewhat protected, it’s share of the total state budget has increased by 3 percent, going from 39 percent of the state budget in 2008 to 42 percent in 2010.  Again, in FY10, education is relatively protected. The governor is proposing that all agencies take at least a 5 percent cut from their current FY10 budget and three furlough days.  Education and Medicaid are currently capped at 3 percent reductions.

Translating this cut to total reductions from our base year of FY08 means that most agencies will be facing reductions of around 10 percent, while education will only see a 3.2 percent decrease (including furlough days).

Importantly, education funding is also being supported by $413 million in stimulus funding from the federal “budget stabilization funds.” Without these stabilization funds, education cuts would be equivalent to a FY08 to FY10 reduction of 8.43 percent, still below the state median, but significantly greater than 3.2 percent.  

While furloughs are serious to state employees and teachers, most believe they are preferable to cuts in pay and lay-offs because furloughs are temporary and preserve jobs.  The problem has become that the state is running out of places to turn. Without growth in revenues, the budget becomes a zero sum game and every cut not taken from education has to come out of another agency’s budget.  

Other states — misery loves company

Other states are also struggling. A recent report by the National Conference of State Legislatures tallied a total state shortfall of $113.2 billion in FY09 and a gap of $142.6 billion in FY10.  Sixteen states, including Georgia, have unemployment rates over 10 percent.  Georgia is one of 18 states facing a budget gap of 20 percent or more of its current budget.

These changes cannot help but affect education. Utah has enacted a shorter school year and legislators reduced funding for education by 13 percent (although part of this cut has been “backfilled” with stimulus). North Carolina cut state employee salaries, including teachers, by .5 percent, giving them 10 hours of furlough “leave.” Also, according to their Legislative Budget Office, teachers will not receive step increases in FY10. California has laid off 27,000 teachers. Nevada cut K-12 teachers salaries by 4 percent. New Mexico has cut all state employee pay, including teachers, by 1.5 percent but will put the funds back as an increased contribution to employee pensions.

Turn around

As with all downturns, this is not going to last forever. Economists are starting to say that the economy appears to be reaching bottom. FY10 is likely to be a very tough year for the state because the state will feel the full impact of the recession in its revenues. However, if the recovery starts at the end of this year, then the outlook for FY11 will be much better.   From 1990-2005, Georgia’s average growth rate was 6 percent per year and from 1977-2005, it averaged 8 percent.  

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