October 7, 2008

Bad Economy Could Get Even Worse, Hurting State Spending on Higher Education

A new report from the Nelson A. Rockefeller Institute of Government warns that state tax collections could fall even further this year, making a bad fiscal situation even worse for much of the nation. The trend could hurt spending on higher education, among other state budget lines.

“Superficially, tax collections appeared to be doing OK — certainly not the leading edge of a fiscal crisis — but below the surface, great trouble is brewing,” said Donald Boyd, a senior fellow at the Albany-based research arm of the State University of New York. “Some states have already made midyear budget cuts, and more widespread cuts are virtually certain as revenues deteriorate further,” Mr. Boyd said in a news release accompanying the report.

While state income-tax collections in the second quarter of 2008 were 6.6 percent higher than they were for the same period in 2007, state sales taxes dropped 1.4 percent, corporate income taxes fell 8.3 percent, and motor-fuel taxes declined by 3.4 percent, according to the institute’s analysis.

At the same time, state and local governments are suffering more from inflation than the overall economy is, the report says, with the costs of goods and services jumping 6.6 percent in the second quarter.

So far, Arizona, California, Florida, Michigan, and Rhode Island have suffered the most from the nation’s financial woes. The Wall Street meltdown will spread the fiscal problems to Connecticut, New Jersey, and New York “due to those states’ reliance on the financial-services industries and steeply progressive income taxes that extract much of their revenue from individuals with high wages and investment income,” the study found.

“The last fiscal crisis for states, which occurred in the midst of a mild recession, was dubbed a perfect storm,” said Mr. Boyd in the news release. “This one could be more perfect.” —Eric Kelderman

Comments

1. Add Tennessee to the list of states occupying the handbasket.
   http://www.knoxnews.com/news/2008/oct/07/ut-must-cut-17m-budget/

   — Michael    Oct 7, 03:58 PM    #

2. Something tells me that we’re going to look at this report in six months calling 2Q2008 “the good old days.”

   — Ugh    Oct 7, 04:01 PM    #

3. Add Hawaii to the list, with education cuts in the tens of millions in the past few weeks due to a projected revenue shortfall of over 900 million this fiscal year.

   — JB    Oct 7, 04:09 PM    #

4. I see NJ is already on the list. Surprise, surprise. The state’s higher ed. budgets continue to be cut, no capital money provided and there’s rumor of a mid year cut for higher ed. due to a shortfall in tax revenues. Pretty soon the only higher ed. institution in the state will be Princeton.

   — zoom    Oct 7, 05:47 PM    #

5. Colorado is right in there with freezes in state spending. We’ve spent so much time cutting budgets over the past 20 years there isn’t much state money left to cut. This one feels like it will be long and painful, but somehow the basics usually survive.

   — Been there...still there    Oct 7, 08:44 PM    #

6. I am not so sure that this will be a ‘perfect storm.’ The demand for higher education is counter cyclical with the economy: that is, as the economy recedes demand for higher education increases.

   So while State appropriations for higher education may fall in the next year, private higher education institutions may benefit from stronger student demand and public institutions may enjoy stronger demand from out of state enrolments for which they charge higher tuition.

   — Gavin Moodie    Oct 7, 11:34 PM    #

Previous: American Anthropology Association Tries Out Open Access
Next: $125-Million Pledged to Harvard Program in Biologically Inspired Engineering