Public Schools (K-12) Spending

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I received the following E-mail on March 15: "Is anyone mad enough to call someone now that our most precious commodity, the education of our children, is being threatened. We cannot afford to lose out on these children’s education, regardless of what it costs. It’s a sad world when children are used as pawns in politics."

Informed Hoosiers can use all the facts about Indiana’s budget shortfall to let their elected representatives know that harmful K-12 public school cuts are unnecessary. All the budget shortfall facts are included in the November 15 O’Bannon-Kernan balanced budget plan and the House Bill 1004 versions passed by the Indiana House of Representatives on February 4, passed by the Indiana Senate on February 28, and proposed in the March 13 Conference Committee report. When the facts from these varied sources are organized together in a spreadsheet format, it is clear that teacher layoffs and other harmful public school cuts do not need to occur.

First, consider the size of the budget shortfall this biennium. The largest estimated budget shortfall to date is $1.896 billion, broken down as follows: $1.280 billion revenue shortfall; $323 million for retroactive Medicaid payments to 18,000 claimants; $251 million for Medicaid spending in excess of what was appropriated; $42 million to comply with mandates in the federal Health Insurance Privacy and Portability Act.

Next, the Informed Hoosier should review all the state spending cuts proposed or implemented the past four months. There have been a total of $1.543 billion in spending cuts identified, of which $1.007 billion would be implemented by the General Assembly and a different $536 million implemented by the Governor. The proposed public schools cut is a $289 million monthly payment the Governor is authorized to delay until the 2005 fiscal year.

A total of $712 million in fund transfers and shifts have also been proposed to deal with the budget shortfall. Public schools funding will be affected by House Bill 1196, which reduces the tuition support public schools receive from the state by $57.7 million the last six months of 2002 and $57.7 million the first six months of 2003. However, House Bill 1196 also allows the public schools to offset reductions with transfers from their debt service, capital projects, and transportation funds.

Now, do the math. There have been $2.255 billion in proposed spending cuts and fund transfers or shifts. The budget shortfall is only $1.896 billion. This means that $359 million of the proposed spending cuts are not needed. This $359 million should be used to reduce the announced public schools spending cuts.

The Governor should not delay the $289 million public schools payment. All school superintendents assume this delay is a sure thing, and they have not included it in their budgets. Eliminating the delay would generate a public schools windfall that makes harmful cuts, such as teacher layoffs, unnecessary.

The $57.7 million cut in public schools tuition support the first six months of 2003 should be eliminated by the General Assembly. The $57.7 million cut left in place the last six months of 2002 is only 0.62 percent of the state’s $9.312 billion public schools budget this biennium. Also, this small tuition support cut can be offset with the public school fund transfers allowed by House Bill 1196.

Informed Hoosiers need to contact Governor Frank O’Bannon and instruct him to not delay the $289 million public school payment. Also, the following General Assembly leaders must be told to eliminate the $57.7 million public schools tuition support cut scheduled for the first six months of 2003: Bob Garton (Senate President Pro Tempore), Lawrence Borst (Senate Finance Committee Chairman), Vi Simpson (Senate Finance Committee Ranking Minority Member), Chet Dobis (House Speaker Pro Tempore), Patrick Bauer (House Ways and Means Committee Chairman), Jeff Espich ( House Ways and Means Committee Ranking Minority Member), Brian Bosma (House Minority Leader).

The truth is evident when all the budget shortfall facts are analyzed. No partisan politician should continue to insist that harmful public school spending cuts are necessary.

Best regards,

Aaron Smith

The spreadsheet documentation for this letter follows:

K-12 Public Schools Budget Solution For The 07/01/01 To 06/30/03 Biennium

Changes To State General Fund And Property Tax Replacement Fund

(amounts expressed in millions of dollars, compiled March 17, 2002)

Description Of Budget Shortfall



Revenue Shortfall (see Note 1)


Medicaid Spending Increase From Day Court Case (see Note 2)


Medicaid Spending In Excess Of Appropriation (see Note 3)


Health Insurance Privacy Measures (see Note 4)


Total Budget Shortfall


Description Of Legislative Changes To Governmental Units



State Government Operations Reversions (see Note 5)


Medicaid Spending Cuts (see Note 6)


State Government Appropriations Cuts (see Note 5)


Local Taxing Units PTRC Delay (to FY 2005, see Note 7)


State Capital Projects Cutbacks (see Note 5)


Higher Ed. Repair And Rehabilitation Cutbacks (see Note 5)


Personal Service Contingency Fund Reversion (see Note 5)


Legislative Spending Cuts Subtotal


Description Of Spending Cuts Proposed By Governor



School Corporation Payments Delay To FY 2005 (see Note 8)


State Agency Cuts (7% except education and property tax relief, see Note 8)


Higher Education Payments Delay To FY 2005 FY (see Note 8)


State Employee Pay Raises Suspension (through 06/30/02, see Note 8)


Teachers Retirement Fund Cost Of Living Appropriation Cut (see Note 8)


Horse Racing Industry Subsidy Cut (see Note 8)


Governor Spending Cuts Subtotal


Combined Spending Cuts Subtotal


Description Of Legislative Changes To Reserve/Other Funds



Tobacco Master Settlement Fund Trust Acct. Transfer (for Day Case, Note 5)


Local Schools Tuition Support Transfers (see Note 9)


State Police Funding Shift (to MVHA & Motor Carrier Reg. Fund, see Note 5)


Higher Ed. Operating Exp. Replacement (from Build IN tech. funds, Note 5)


Legislative Reserve/Other Funds Transfer And Shift Subtotal


Description Of Changes To Reserve Fund Proposed By Governor



Rainy Day Fund Transfers (see Note 8)


Governor Reserve Fund Transfer Subtotal


Combined Reserve/Other Funds Transfer And Shift Subtotal


Grand Totals



Grand Total Increase From Spending Cuts And Fund Transfers/Shifts


DELETE School Corporation Payments Delay


REDUCE Local Schools Tuition Support Transfers


REDUCE Medicaid Spending Cuts


Grand Total Spending Cut/Transfer Deletions And Reductions



1. Revenue Shortfall from 11/14/01 forecast updated with February 2002 monthly revenue report.

2. Actuarial projection on 03/07/02 for retroactive Medicaid payments to 18,000 claimants.

3. Medicaid Spending In Excess Of Appropriation based on OMPP December forecast.

4. Cost of change to comply with mandates of federal Health Insurance Privacy and Portability Act.

5. Included in the HB 1004 Indiana Conference Committee report proposed on 03/13/02.

6. Included in the House Bill 1004 version passed by the Indiana Senate on 02/28/02.

7. PTRC distributions delay in HB 1004 version passed by IN House of Representatives on 02/04/02.

8. Included in the 11/15/01 O'Bannon-Kernan Balanced Budget Plan.

9. HB 1196 passed by IN Gen. Assembly 03/14/02 allows K-12 debt serv./transp./cap. proj. transfers.



Page 145 of Indiana’s Comprehensive Annual Financial Report for the fiscal year ended June 30, 2001, shows that statewide education spending in fiscal year 2001 totaled almost $6.1 billion, or $994 per citizen. The $994 each Indiana citizen spent for education in 2001 was a 20.48% increase over the $825 spent in fiscal year 1997. Inflation for this same four-year time period only increased 11.04%. Per capita education spending the last four years has increased 1.86 times more than inflation. In other words, Indiana's citizens provided, and the Indiana General Assembly spent, $697 million more on education than necessary to keep up with inflation and population increases. About  $527 million of this excess spending went to K through 12 education.

What did we get for this generous investment of our hard-earned tax dollars? The Fall 2001 ISTEP+ results for Indiana’s public schools show that only 57 percent of third grade students met the standards in both English/language arts and mathematics. Only 46 percent in the sixth grade, 58 percent in the eighth grade, and 58 percent in the tenth grade passed both tests. For test results this bad, Indiana’s public schools get an "F" grade.

These bad test results might be acceptable if there was improvement. But there is almost no change from the bad ISTEP+ results of Fall 1997. At that time only 57 percent in the third grade, 50 percent in the sixth grade, 60 percent in the eighth grade, and 54 percent in the tenth grade passed both tests. 

While per capita state funding for K-12 public schools from 1997 to 2001 increased 1.86 times more than inflation, public schools spending has not increased as dramatically as state funding for other purposes. Total per capita state spending increased 2.69 times more than inflation the past four years. It is clear that other areas of state spending need to be cut first before additional public school spending cuts are made.

Some Hoosiers believe increased spending is necessary for better education. Past results do not justify this belief. However, an unneeded erosion of current public schools spending could be harmful.

The Governor, and certain special interest groups, are trying to use the threat of unnecessary K-12 spending cuts to increase taxes. Informed Hoosiers need to speak out against this cynical political maneuver to avoid unneeded tax increases.


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This page was last updated on 03/19/10.