A funding slope, but not a cliff

Eric Knox of Support Our Schools has written a helpful analysis of Indiana’s budgetary and school-funding problems and their implications for the Monroe County Community School Corp. It’s posted on the Bloomington Online community forum.

His key point: The so-called “cliff effect” – the impact on education and other programs from the state’s loss of $2 billion in federal stimulus funds – may not be the problem that MCCSC Superintendent J.T. Coopman and other school officials have sometimes suggested. “The State of Indiana has a self-inflicted budget problem, but there is no $2 billion ‘funding cliff’ and 2012 is likely to be better than 2011,” writes Knox, who relies on budget data from Purdue professor Larry DeBoer’s website.

It’s true that Indiana was awarded $2 billion in federal stimulus dollars in 2009 under the American Recovery and Reinvestment Act, and the state has been using that money to balance its budget during the economic downturn. The money has been used to fund both education and the Medicaid health-care program. But by design, the funding was “front-loaded” — about half was budgeted in the first half of 2009 and Indiana’s reliance on stimulus is being gradually phased out.

In other words, the big drop in stimulus funding has already happened, and the decline is leveling out as the money nears zero. The phase-out, together with a slowly improving economy and the $800 million in spending cuts that Gov. Mitch Daniels ordered last winter, should help Indiana get by without the stimulus funds when they run out in 2011, Knox writes.

For the MCCSC, the absence of a “funding cliff” in 2011 doesn’t eliminate the need for the Nov. 2 referendum, in which voters will be asked to approve a 14-cent increase in the property-tax rate to raise $7.5 million a year for school operations. But it provides assurance that passing the referendum should enable the MCCSC to restore and maintain programs and staff that were cut this year.

Will more state funding cuts be forthcoming after the November election? Both Knox and DeBoer suggest that, if the economy improves sufficiently, they may not be needed. The State Budget Agency reported this month that the balance in the state’s general fund was an almost-healthy $830 million as of June 30, 2010. The rainy day fund and reserve funds had been drained, however. And the general fund balance was projected to fall to $181 million by June 30, 2011 – well below the 5 percent of annual spending that, DeBoer says, is the “rock-bottom minimum” for responsible budgeting.

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