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Fiscal Cliff For Education

Whiteboard Advisors is a policy consulting practice that provides “policy counsel, strategic consulting, and market research for education investors, entrepreneurs, philanthropies, and government leaders.” Their recent newsletter had this to say about the looming fiscal cliff.

 

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Fiscal Cliff May Cause School Closures: If a budget deal is not reached by January 1, there will be an 8.2% decrease in federal education spending which reduces funding by about $4 billion. These cuts could trigger layoffs, increased class sizes, and significant facility/operations limitations. While a typical district’s budget is 12% federal dollars, for some districts this figure is as large as 85.5%. These cuts would also seriously limit Title I funding, impacting a high percentage of low-income students.”

That sure sounds pretty dire, but let’s take a moment and look at the numbers White Board is mentioning.

We must assume that 8.2% decrease in federal education spending they are referring to is the amount that will automatically be cut as per the Joint Committee on Deficit Reduction (aka “the supercommittee”), a bipartisan committee which was charged with finding a way to slash the nation’s government spending by $1.2 trillion over the next ten years if some other agreement is not met before January 1, 2013. Let’s set aside the discussion of whether these are actual cuts to today’s spending (which they aren’t really) or whether they are cuts to future increases in spending (which is closer to the truth) and just assume they are cuts to what everyone has gotten used to spending on education right now.

That $4 billion becomes $400 million a year if we do some basic math and spread it evenly over ten years.  Now let’s divide that number across the basically 14,000 school districts nation wide.  That cut comes out to $28,571 per district. Kind of puts it in perspective, don’t it? It may mean a large district might have to slash one or two teachers, or have two to three fewer aids, but that’s not exactly the picture the Whiteboard Advisors paints.

This was very simplistic math which doesn’t paint an accurate picture for all districts. You have to look at the second part of WA’s point to see how the impact varies for different school districts and understand why they predict some schools may have to close next year.

They claim the average school district receives 12% of its funding directly from the federal government. This is a little like saying the average weight of a class of first graders plus their teacher and bus driver is sixty one pounds.  According to the National Center for Education Statistics only ten states receive more than 12% federal funding, with a few outliers at 15% (Louisiana) and 16% (South Dakota). Twelve percent may be a statistical average, but the low number of states receiving more than 12% gives you an idea how much more those ten states get on the whole. Twenty three states receive less than 10%.  Missouri only gets 8.3%. A clear majority of states (40) receive below 12% of their education funding from Washington. Damage from federal spending cuts is going to be disproportionately felt by states who have been used to a higher portion of their education funding coming from the Feds. That makes WA’s prediction regarding the fiscal cliff a minor bump in the road for New Jersey which has kept their federal input to the enviable 4.1% of their total education budget.

How much of that money makes it to individual districts is more complex to calculate. Title I funding, the main mechanism by which federal education dollars are allocated, was meant to improve equity for disadvantaged kids in all communities in all states. However, the formula used to calculate which districts get what actually tends to penalize smaller districts (which are typically rural and have higher poverty rates) because of a provision known as “number weighting.” You can read more about the effects of number weighting herehere, and here.  This accounts for about a third of the inequity in the formula.

The other two thirds occurs because they use “statewide average per pupil expenditure” to calculate where the money goes. Simply put, states that spend more per pupil get more money from Washington. In theory this appears to promote the agenda of those who think we need to make per pupil spending on education our number one priority. The reality is that states with better economies and higher local tax rates for education spend more per pupil because they can and they are rewarded for doing so.

This means that school districts most likely to be hit the hardest by any federal spending cuts to education are those in states with already low per pupil spending rates, small districts and those with high poverty rates. I feel for the districts that have 85% of their annual budget funded by federal dollars, but I am also tempted to ask “What were you thinking?”

In Missouri, our funding formula tries to counter some of this effect by essentially pooling all the district funds and reallocating them more evenly across all districts. That was the intent anyway. The problem comes back to decisions made at the very local level. To read a good summary of the impact of the funding formula check out this article by the Rural School and Community Trust. The upshot is this. Districts that decided to fund their school system primarily with money from outside their district (whether federal or state) are hit hardest by budget cuts from those entities and a down economy. Some districts in our state have as much as 60% of their budget coming from the state funding formula. The RSCT article refers to an Ozark school which is having to let go of several teachers because the state allocation dropped recently. It dropped equally for everyone in terms of real dollars, but dropped more in districts which, percentage-wise, used more of those dollars.

When districts rely so heavily on outside sources of income they are truly at the whim of their bankroller in terms of operability. They are put in the position of doing whatever the people/agencies holding the purse strings tell them to do, or trying to get away with whatever the rules tell them they can. In our state that means that there is incentive for smaller rural districts to overreport their total enrollment to keep their formula funding up to their current spending levels. Several of them do this. An education system that requires a teacher and a classroom must pay that teacher the same amount whether there are twenty students in her class or eight. A system that pays them in this way will squelch any attempts to investigate other delivery methods for education. With guaranteed money coming from the state, there is less incentive to try to collect funds from local taxes. It will also enable them to avoid consolidation which could help them in the long run.

The folks at the Whiteboard Advisors will provide, for a fee, advice on policy, strategic planning and market research. Their main customers are education investors, entrepreneurs, philanthropies, and government leaders. Districts who will be hit hardest by any spending cuts are not likely to have the money to pay WA’s consulting fees even though they are the ones most likely to need “strategic” advice. They will have to rely upon the education philanthropies and government leaders to help them out of the financial bind. I wonder if anyone will advise them to restructure their local funding formula to be less reliant on other people’s generosity.

Sources: http://febp.newamerica.net/background-analysis/school-finance
http://www.ruraledu.org/articles.php?id=2479
http://www.cbsnews.com/8301-505123_162-57509298/what-is-the-fiscal-cliff-a-q-a/
http://us1.campaign-archive1.com/?u=7e133da16e3b0d7bc54c3a1ec&id=ecf5c36532&e=b41a28b8ce

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