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Outcome of Prior Budget Negotitations

Summer 1998 (v3#1)
1998-99 STATE BUDGET: MISSED OPPORTUNITIES
Overall Increase But No Reform

New York State’s 1998-99 budget of $71.5 billion represents an 8.3% increase over last year’s, but also represents a missed opportunity for reform. Driven primarily by another record year on Wall Street, the state ended the 1997-98 fiscal year with a surplus in excess of $2 billion, permitting passage of a typical election year budget that had a little something for everyone: tax cuts and program spending increases, including a hike of more than $900 million for education. However, the state failed to take advantage of the added revenues to create a more equitable school funding system or to reduce projected future budget gaps. By fiscal year 2000-01 the gap is expected to reach $5.5 billion, the largest budget shortfall ever, according to State Comptroller H. Carl McCall.

The legislature was intent upon passing the budget on time in this election year, especially since the press had been very critical that last year’s budget was adopted in August, 126 days late. This year they missed the April 1 deadline by a mere two weeks. There was also some change in the legislature’s budget process. Unlike past years when the budget was basically a three-way negotiation between the Governor, Speaker of the Assembly and Senate Majority Leader, this year conference committees were used to publicly debate legislative spending priorities, giving rank and file legislators more input and creating a more open, public process. This new process also came out of an election year promise by legislative leaders to "change the way budgets are adopted." This "new" process, however, resulted in a budget that contained only minor changes, except for substantial increases in education spending, from the Governor’s Executive Budget. Worse, the Governor vetoed many of the increases, such as $500 million slated for school facilities under the RESCUE program.

Education Investments
The one area where the legislature really did up the ante was education spending. Governor Pataki’s 1998-99 Executive Budget request submitted to the legislature on January 20 called for a school aid increase of $518 million statewide, or 4.7% over last year. This increase, coupled with the $724 million in school tax relief called for under the accelerated phase-in of the STAR program, was touted as "the single largest school aid increase ever recommended by a governor in an Executive Budget." The governor’s budget, however, proposed no new education initiatives, but only included aid increases called for under existing laws. According to the State Comptroller’s office, approximately two-thirds of the Governor’s proposed increases came from normal fluctuations in formula aid for inflation, enrollment increases, changes in wealth and so on. The remaining one-third resulted from the phase-in of multi-year programs passed last year, including universal pre-K, restoration of minor maintenance monies, adding a regional cost factor to building aid and additional funds for textbooks and computers.

The legislature, by contrast, added more than $300 million in operating and other formula aids alone, as well as passing the $500 million RESCUE program to deal with crumbling and overcrowded school buildings. At the time the legislature adopted the budget in April it was estimated that the overall school aid increase would be $851 million, a 7.8% increase over 1997-98 spending levels. Since that time, additional data has begun to come in on expected school construction projects which could substantially raise Building Aid, thus increase overall school aid possibly to as much as $967 million, an increase of almost 9%, to $11.8 billion in total school aid. The final increase in state aid won’t be known, of course, until the end of the fiscal year next July but should fall within that range.

One of the changes this year is inclusion of a new aid category, "Operating Standards Aid," to provide school districts with resources to help students meet the Regents’ new higher learning standards. However, the amount allocated under this new aid formula, $82 million statewide, is far less than the $200 million requested by the Regents. Recent research suggests that minor increments in aid such as this are insufficient to truly boost school district capacities to meet higher standards. The formula for distributing this aid, too, is extremely complex and not based on any factors related to the degree of difficulty a district will face in bringing its students up to the new standards. What is significant is that most of this aid, of which $33 million is slated for New York City, will be targeted for professional development services to teachers.

1998-99 is also the first year of the Universal Pre-K phase-in with initial spending set at $67 million, which reflects a last minute increase over the $50 million originally allocated. New York City will receive $46.7 million of these funds to serve 14,000 four year-olds in this first year of a four year phase-in, at the end of which 121,000 children will be served. Approximately $13 million of the city’s allocation, about 28%, will be used to support programs in private pre-kindergartens, although state law requires only 10% to be set aside for private providers. Presumably, this is due to a lack of space in city public schools.

Other major increases passed by the legislature include boosts in Extraordinary Needs Aid (ENA) and Education Related Support Services Aid (ERSSA). ENA, designed to provide extra assistance to districts with high concentrations of at-risk students, will rise to $660 million, an increase of $144 million or 28% over last year. New York City will receive an additional $89 million in ENA, also 28% more than last year. ERSSA, which supports programs to prevent special education placements, will rise by $14 million to more than $61 million, almost a 30% increase. New York City is expected to receive a $7.6 million increase in ERSSA funds to $29.8 million, a 34% raise. While it’s really positive that the legislature has seen fit to increase and uncap these two funding streams in an effort to prevent referrals to special education, regrettably, ENA and ERSSA combined are not sufficient to meet the extraordinary needs of the city’s student population.

Another significant change this year is in the "transition adjustment," a device used by the state to limit or cap increases in major aid categories as well as provide "save-harmless" protection against aid losses. For the first time all districts are guaranteed increases in aid, from a minimum of 1.8% to a maximum of 2.5% for low-wealth districts.

School Facilities
In terms of school facilities, Building Aid is slated to increase by 10% this year as well as include a regional cost factor to provide additional assistance to high-cost areas like New York City. Unfortunately, Building Aid is reimbursable which means a district must "spend to get." If school districts don’t have the money to spend in the first place they’re out of luck. Minor Maintenance Aid, amounting to $50 million statewide with $33.3 million for the city, has also been restored this year. This program provides funding for smaller maintenance and repair projects not eligible for reimbursement under Building Aid. The Assembly had also crafted a proposal to provide funding for major building repairs, technology expansion and to increase classroom space, dubbed RESCUE (Rebuilding Schools to Uphold Education) which would have cost $500 million over the next four years. Although the Governor vetoed the funding for this program, RESCUE did call for regulatory changes that will go forward. Among the new requirements are development of uniform codes for public school building inspection, safety ratings and monitoring; mandatory annual school building inspections; and improved capital planning using building conditions surveys done by licensed architect or engineer every five years. It’s too early to tell whether State Education Department oversight on facilities issues will be a help or merely an exercise in finger-pointing.

Disappointments
Obviously, the chief disappointment was the failure of this year’s budget proposal to provide greater funding equity for New York City, despite the Governor’s promise of last year to do so. New York City’s proposed overall increase of $306 million or 7.9 % is less than the statewide increase which could go as high as 9%. In addition, the budget contains no structural reform of the current inequitable and complex school aid formulas. According to a June 1998 report by the State Comptroller’s office entitled School Finance Issues in the 1998-99 Enacted Budget, "School aid should be allocated in a way that makes sense, and a reformed system should eliminate the many ‘spend-to-get’ formulas which reward spending increases and penalize efficiencies."

Another big disappointment is the lack of any major commitment of funding for school facilities in the wake of the defeat of the School Facilities Bond Act last November. Funds are sorely needed to increase school capacity to implement the Universal Pre-K and Class Size Reduction initiatives passed last year, as well as to repair hazardous physical conditions, upgrade technology and ease overcrowding. Though both houses of the legislature passed the $500 million RESCUE allocation to address these problems, Governor Pataki saw fit to veto these funds. The Governor’s failure to help fix up the state’s crumbling and overcrowded schools may become an issue in this fall’s election campaign.

Although funding to implement the first year of the Universal Pre-K phase-in was increased by $17 million statewide over the amount originally proposed, it is still woefully inadequate. The funding amounts to approximately $3,332 per child in New York City, up from the $2,300 per child originally targeted, but still less than is now spent per pupil on half-day Super Start ($3,700) or Head Start ($3,500) programs. Chancellor Crew complained loudly early on about the lack of funds and was instrumental in securing the increase. Advocates urge the Board of Education to try and "blend" this state funding with that from federal and other sources to create the full-day pre-K programs needed by most parents.

Special education is another area where changes had been expected but none materialized in this budget. The 1997 Congressional reauthorization of the Individuals with Disabilities Education Act (IDEA) requires that states change their school finance systems so as not to offer funding incentives for placement of students in more restrictive settings. The State Education Department has a plan to phase-in changes gradually over a seven year period, but no changes in special ed were passed this year.

Another setback for New York City is the failure of this year’s budget to increase the allocation for reimbursement of prior year claims. Statewide, the amount allocated is $40 million, with just $14.4 million earmarked for New York City, while the city’s backlog of prior year claims amount to more than $900 million. Failure to repay these outstanding claims at a faster rate may lead the City Comptroller to write off much of the balance as uncollectible, resulting in a hole in the Board of Education’s base budget. It is estimated that the Board of Ed will be running a large enough budget surplus to cover this deficit in the coming year. However, failure to step up repayment of prior year claims looms as a large problem in the long run.

Finally, in addition to his veto of RESCUE monies, the Governor vetoed two other programs that will be felt in New York City: Teacher Support Aid ($72.7 million) and Student Information Systems (SIS) Aid ($7.4 million). Teacher Support Aid is essentially a salary supplement for teachers in the Big 5 city school districts. The UFT and NYSUT, the state teachers’ union, lobbied mightily, but unsuccessfully, to have these funds restored. Loss of these funds could have meant that every public school teacher in the city would get a $1,000 cut in salary, thereby further enlarging the gap in salaries between city and suburban teachers. However, Chancellor Crew stepped up to say the Board Of Education would find monies elsewhere in its budget to keep salary cuts at bay. Student Information Systems Aid, which provides supplementary funding to the Big 5 to computerize student records and assessment data, was eliminated across the board leaving the Big 5 urban districts with the problem of covering these costs themselves.

STAR Increases Inequities
The Governor’s main agenda item this year was to accelerate implementation of his School TAx Relief (STAR) program by fully funding the tax exemption for senior citizens in 1998-99 rather than the four year phase-in originally proposed. The cost for 1998-99 is expected to go up to $724 million, an increase of $537 million, of which 18% would go to New York City. Exemptions for other homeowners will not begin until 1999 and will phase-in over three years, becoming fully funded in 2001 at a cost of $2.3 billion.

One of the worst features of STAR is that it actually increases inequities among school districts. STAR tax cuts go only to property owners, not renters even though they pay property taxes through their rent. The higher the property values and taxes paid, as in wealthy school districts, the higher the the tax cut. Poor and urban districts, in particular, have lower property taxes and values and much higher numbers of renters resulting in much smaller STAR payments. Since state funds are used to replace local property taxes cut from school budgets, STAR actually results in more state funding being directed to wealthy school districts. It is projected that when STAR is fully implemented in 2001, the state’s share of total statewide school spending will reach approximately 50%. However, if the plan remains unchanged, distribution of school aid by 2001 will be more inequitable than ever.

In the long run, STAR may create further debate about taxpayer fairness that could result in more progressive property tax relief efforts, for example an expanded "circuit breaker" program for low income households and the inclusion of tenants in STAR. In other words, the Governor’s property tax relief program can and should be reformed.

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