Coming recession could devastate school funding

A recession is coming, and the consequences are likely to be devastating for public schools – unless state and federal policymakers learn from the last downturn and take smart steps to cushion the blow.

That’s the message of “The Coronavirus Pandemic and K-12 Funding,” a new report from the Albert Shanker Institute. It points out that schools in many states never recovered from the 2007-09 recession. Now they are about to be hit with another one, and it may be worse.

“That is, many jurisdictions will be facing a possibly unprecedented funding crisis while they are still digging out from the last one,” co-authors Bruce Baker and Matthew Di Carlo write.

Using school funding data adjusted for labor costs, the report shows that school funding fell sharply in the last recession, bottoming out in 2011 at 6% below pre-recession levels. Before the pandemic, the economy recovered, but school funding in most states did not.

What happened? Baker and Di Carlo point out that many states decreased their “fiscal effort,” the share of the state economy devoted to funding schools. State tax revenue declined for a variety of reasons. And high-poverty schools, which relied more on state funding, suffered most.

The federal government helped bail out schools and state and local governments with the American Recovery and Reinvestment Act in 2009. But the funding lasted only two years. When it ended, state budgets reached a “fiscal cliff,” and schools fell off.

Indiana is a case in point. Gov. Mitch Daniels responded to the recession by cutting $300 million from school funding. He and Superintendent of Public Instruction Tony Bennett boasted that decreased funding was the “new normal,” and schools would just have to do more with less.

At the same time, they expanded Indiana’s charter school program and instituted a new private-school voucher program, which quickly became one of the nation’s biggest and most generous. Vouchers now cost the state over $150 million a year, about 2% of what we spend on K-12 schools.

Indiana also cut individual and corporate income taxes and amended local property tax caps into the state constitution, all measures that have hurt funding for schools. A previous report by Baker and Di Carlo found that Indiana spent only 2.85% of its economic output on K-12 education in 2016-17, the latest year for which data were available. That was one of the lowest fiscal effort ratings in the country.

On the positive side, Indiana built up a large budget surplus that will help prevent cuts to school funding in the early stages of the downturn. But as the recession continues, the surplus is likely to disappear.

Baker and Di Carlo argue there is a “path forward” if elected officials learn from the last recession.

“It will not prevent all damage,” they write, “and it will require forward-thinking policymaking, but it can mitigate the severity and duration of the coronavirus pandemic’s impact on public school funding, as well as make states and districts better prepared for the next crisis.”

As an immediate response, they recommend a large federal aid package for schools, continued over five years in recognition that the recession won’t end overnight. Conditions should be attached to the funding, they say, to ensure the money gets to schools that most need it.

In the long run, they write, states should restore or increase their own fiscal effort toward school funding and adopt “progressive” funding systems that target more money to high-poverty schools.

Indiana legislators, are you listening?

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