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TO:††††††††††††††††† Superintendents of Schools and School Board Chairs

FROM:††††††††††† J. Duke Albanese, Commissioner

DATE:†††††††††††† November 8, 2001

RE:††††††††††††††† †† The Economy, the Effects of September 11th, and School Budgets


††††††††††† As we follow the daily news broadcasts, it is evident that the Maine economy, already showing signs of slow growth, is now quite vulnerable in the aftermath of September 11th.While we have concerns and need to be prepared, Maineís situation is far more favorable than that of many other states.


††††††††††† The implications of an economic downturn for Maine public schools are obvious:

1) lower revenues at the state level could impact General Purpose Aid; 2) the timing of this downturn could translate into adverse effects in both years of the stateís biennium budget, FY 2001-02 and 2002-03; and 3) economic impacts could adversely affect the capacity to raise local revenues as well.


All of us can and must begin to take steps to anticipate and ameliorate the effects of lower revenues.


At this writing all state agencies, as well as the University and Technical College systems, have been directed to make some initial, moderate expenditure reductions in this fiscal year 2001-02, while gearing up for the continued effects of reduced revenues in FY 2002-03.Though it is relatively early in the fiscal year, all agencies, including the Department of Education, are challenged to react to these immediate funding cuts.Although some initial reductions may be attainable without significant impact on services, we know larger cuts will be necessary if the current economic outlook persists.


††††††††††† In light of this reality, my advice to each of you, your school boards, and the communities you serve is to act with prudence, taking careful measures regarding this fiscal year,while planning conservatively your school budgets for FY 2002-03.Specifically, I would recommend that you examine expenditure items in your present budget that you can hold in abeyance while following closely the trends in Maineís economy.At this juncture, the shortfall for the stateís biennium budget may exceed $300 million: a number, if it holds true, that is sure to affect the financial planning of virtually all of our schools.


††††††††††† At this time, there is no plan to reduce General Purpose Aid in this fiscal year.But, as you know, there is a precedent for such state action, having reduced GPA in the midst of the 1990-91 fiscal year.In that instance, the Legislature was faced with a considerable shortfall and could no longer persist in keeping GPA, the largest single line in the state budget, from being part of a solution to address an out-of-balance budget.


††††††††††† Managing this yearís budget carefully, by holding back expenditures where and when you can, will provide a contingency if FY 2001-02 becomes more problematic.If present action by Governor King is not sufficient to deal with the state revenue shortfall, then you will have also built up some reserves to help with 2002-03.


††††††††††† Regarding the next fiscal year and your budget process, it is clear that youíll need to do some early forecasting of your own.If revenues continue to decline, it will be very difficult for the Governor and the Legislature to increase GPA in 2002-03 from the amount approved last spring.All along, the plan has been to elevate the $718 million (2.3% increase) targeted for GPA in 2002-03 to a level in the 5-6% range.In fact, Iíve submitted a budget request that would do just that.However, an already slowed economy has been affected by September 11th, and we just donít know how long the economy will be challenged.


††††††††††† While each of you are strongly encouraged to work with your respective boards around contingency planning for this year, and as you build budgets for next year, I and staff here at the Department will be reexamining our options for the recommended funding level to be presented to the State Board, the Governor, and the Legislature in just a few weeks.Though there are targets in statute for increasing the Per Pupil Guarantee, as well as finally eliminating the percentage reduction (now Ė 4.98%) on Program Costs such as special education, vocational education, transportation, I will be considering alternatives that will slow our pace in reforming school funding as we move to an Essential Programs and Services model.For instance, we could improve the Per Pupil Guarantee by a lesser amount, and do the same for the reduction percentage, moving our work forward at a slower pace.Itís unfortunate that we must consider alternatives to our long range plan for school funding, but Iím optimistic that any correction will be short-lived, and we will be able to stay focused on implementing Essential Programs and Services in 2004-2007.


I will keep you apprised of any new developments regarding the present fiscal year and the budget process for next year.In the meantime, please undertake some planning of your own as we ride out these challenging times.Weíve experienced them before, and they were challenging, but Maine schools and their leadership have always been up to the challenges.