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TO:                  Superintendents of Schools, State Board of Education


FROM:            J. Duke Albanese, Commissioner


DATE:             June 19, 2002


RE:                  Governor’s Response to Budget Shortfall: Effects on General Purpose Aid and Selected Other Education Programs


This afternoon Governor Angus S. King, Jr. will be convening a session with the leaders of the Maine Legislature, outlining his plan for addressing the revenue shortfall facing the State in this biennium.  I will join the Governor for this session, responding to questions regarding the effects of curtailment on public education.  I am communicating with you as early as possible, recognizing your need to know while respecting the Governor’s responsibility to meet and discuss this challenging situation with legislative leadership.


Over the last few weeks, I have cautioned school superintendents about the magnitude of this revenue shortfall and the need for all of us to be prepared to share in the state’s solution to this problem.  As you know, unlike the federal government, the state must adhere to a balanced budget, so it has been incumbent on the Governor to adjust the State’s spending plans to align with expected revenues.  Today he will announce a plan that will include action that he can take now through his curtailment authority, as well as what he will recommend to the Legislature for their action.  He will not recommend when a special session of the Legislature will occur.  Instead, he will indicate that more information is needed about the trend in the economy and what the federal government might do to help states before convening the Legislature in special session.


After considerable analysis, the Governor has prepared a comprehensive plan to bring into balance the biennium budget for FY 2001-02 and FY 2002-03.  The curtailment that the Governor is authorizing cuts across state government and education, including the public schools, the University of Maine System, Maine Maritime Academy, and the Maine Technical College System.  Given the potential for much deeper cuts, it is clear that the Governor worked hard to temper as much as possible curtailments to General Purpose Aid.  Compared to cuts in several agencies and in higher education, the public schools will, indeed, be affected, but not to the same degree as others.


The major curtailments that affect our public schools are as follows:


1)                  There will be no curtailment of GPA with the June, 2002 check that you will receive shortly, nor will there be a reinstitution of the so-called “GPA Push”, whereby the June check would be held until July, 2002, providing a one-time saving for the State.  At this stage, there is no plan for a “GPA Push” next June either, recognizing that such a tactic has appeal in the short run, but contributes to a structural gap and imprudent financing in the long run.


2)                  On July 1, 2002 – the start of the 2002-03 fiscal year – the total amount of General Purpose Aid to schools at the State, aggregate level, will be curtailed by $10 million.  Thus, General Purpose Aid to schools will be reduced from $730,817,941 to $720,817,941.  This curtailment represents a 1.37% reduction. 


In actuality, the impact of the curtailment on subsidy checks will total $8 million since we have determined, due to favorable bond interest rates and a good construction market, that we can apply $2 million in unneeded funds from Debt Service to cover our curtailment.  The curtailment will be applied over the twelve subsidy checks of FY’03, commencing with the July check which should be mailed on or around July 24, 2002.   


In essence, the Governor has agreed to curtail GPA to a smaller level of growth – basically at a point where the Legislature found itself before the improved revenue reforecast in late February.  At that time, the Legislature and the Governor worked to add $10 million to GPA.  Now with the revenue falling short, that $10 million is being curtailed.  Total GPA at $720,817,941 will represent an increase of 2.69% instead of 4.11%.


3)                  At this writing, I am working with staff and the Attorney General’s Office regarding a curtailment methodology to carry out reductions at the school unit level.  It is our intent to adhere to the law and to the elements of the school funding formula in the budget bill adopted by the Legislature last spring, designing an emergency curtailment that would adjust each school unit’s bottom line on the ED261 subsidy printouts.  Please note that the curtailment will be applied to all components of General Purpose Aid, except Debt Service – from which a lump sum of unneeded funds is captured instead.  To implement this approach, the methodology for the curtailment will likely mirror the “ability to pay” provisions in the operating component of the school funding formula – that is a curtailment based on 85% property valuation and 15% income.


4)                  Our staff is working diligently to prepare revised ED261 subsidy printouts for each school unit in Maine.  We are striving to have these printouts available by mail to Superintendents on Friday, and also as we gather at the annual meeting next week. 


5)                  Be further advised that Adult Education subsidy will be reduced by 2% or $87,764.  Thus, Adult Education subsidy will increase by 4% instead of 6%.


6)                  Governor King has proposed, as part of his comprehensive plan, a $9.6 million reduction in the Maine Learning Technology Initiative Fund.  In essence, this additional, sizeable reduction means that while we will proceed with implementing the program for 7th graders and their teachers this fall and 8th graders and their teachers next fall, funding will turn to an annual appropriation at the end of the next biennium.  Please note that only the Legislature can enact this reduction.


7)                  State employees will experience “three temporary days off without pay”, while the Executive Order will continue to affect hiring at the Department of Education and at other State agencies.  Further, the DOE has experienced other reductions across several additional accounts.


8)                  The planned, second 5% increase in teacher retiree health benefits is postponed.  These benefits will rise from 30% to 35% on July 1, 2002 as planned; however, the additional increase in benefits from 35% to 40% that was scheduled to occur April 1, 2003 will be delayed due to curtailment. 


Hopefully, this information, while not good news, provides an early alert to the financial challenges of the new fiscal year.  Sparing reductions in FY’02 for local schools was part of the Governor’s plan and minimizing the curtailment in FY’03 has been his clear intent as well.  Though these cuts will be difficult, particularly as many school districts have been experiencing a tough budget approval season, I trust that you will all provide leadership in striving to insulate our students from the effects of this challenging financial climate.


            In closing, I want you to know that we at the Department will work closely with you on any further developments regarding the State’s budget shortfall and the impact on local schools.  All of us are hoping that Maine’s economy proves resilient in the months ahead so that we will not have to experience any further reductions.