Planning for FY2003 Budgets

Many of you have already started working on your budget requests for fiscal year 2003, and have been asking what to expect in state aid given the deteriorating economic climate.

The first eight years of education reform, from FY93 to FY01, saw extraordinary increases in state funding for elementary and secondary schools, pre-school programs, and adult basic education programs. The Department of Elementary and Secondary Education's budget increased by an average of $285 million each year. We will not see increases of that magnitude in the next few years.

The Governor has made it clear that education will continue to be a priority. For FY03, the rate of increase in the Department's budget is expected to be in line with the projected increase in state revenues. Only education, health care, and public safety agencies are likely to see significant increases next year; most other state programs will at best be level funded.

This week the Board of Education began reviewing FY03 budget proposals which I have prepared in consultation with the Board's budget and finance committee. These proposals include increases for high-priority programs, as well as some cut-backs in other programs in order to keep within our budget target. Everyone should remember that these initial proposals will undergo considerable revision by the Governor and the Legislature. Final decisions will not be made until next spring or summer at the earliest, which I know makes your budgeting job even more difficult.

Our top priority remains full foundation funding under the Chapter 70 program. One of the basic promises of education reform was that every district would receive sufficient operating funds, as defined by the foundation budget. The Governor, the Board, and I are intent on maintaining that commitment, through good times and bad. I have included in my budget proposal sufficient funds to keep every district at foundation, taking into account inflation and enrollment growth. But it is not clear that we will be able to provide an increase in aid to every district in FY03, as we have done in recent years. We will continue to work with the Legislature on developing long-term improvements to the Chapter 70 formula, but for next year, I would advise above-foundation districts not to count on an increase in Chapter 70 aid.

The state's new special education reimbursement program, also known as the "circuit breaker" program, is scheduled for implementation in FY03. This important new program will nearly double the state's financial assistance for high-cost special education placements. As you can imagine, trying to fund such a large, new commitment in this fiscal environment is extremely difficult. I have included full funding for this program in my initial budget proposal, but if the economic situation worsens, it may be necessary to either delay its implementation or only partially fund it in its first year. For this reason, I would recommend that you include in your FY03 budget requests the full amount needed for special education services. Although we will make every effort to fund this program, you should not assume at this point that we will be able to do so.

School building assistance is another area which has seen huge increases in funding over the past several years, increases which cannot be maintained in the current environment. Projects which have already been approved and are on the waiting list for funding will have to wait longer before payments begin. The implementation of the new SBA statute also requires us to give closer scrutiny to new applications for funding, and only those projects which are needed to address critical needs are likely to be approved. We will be issuing more detailed guidance regarding the SBA application process within the next few weeks.

With respect to other state aid and categorical grant programs, it is likely that most will be level funded or see slight reductions. A very small number of high-priority programs may receive modest funding increases, while some low-priority programs will be considered for elimination. Until the budget process is complete, it will be difficult to predict the expected funding level for any particular program.

My advice is to be as conservative as possible in preparing your own FY03 budget requests. Don't count on any major state funding increases, and be prepared to deal with small decreases in some areas. Move ahead with new initiatives only if they are critical to the learning process, and take a close look at existing programs to make sure they are effective and efficient. As much as possible, allow for contingencies and unexpected shortfalls.

We are all hoping that this recession will be short-lived. As decisions are made at the state level, I will keep you informed. In the meantime, if you have questions about specific programs, please feel free to contact me or Jeff Wulfson, associate commissioner for school finance.