As COVID-19 takes a toll on education budgets, federal and state leaders should take specific steps to minimize the damage done to high-poverty schools.
Recent research into the economics of education leads to the inescapable conclusion that if we want our public schools to serve all children well, then we must provide them with equitable and adequate funding. Viewed across several decades, school and district spending data from across the United States reveal a clear pattern: When budgets have increased, students have seen significant gains in achievement and a range of other desirable outcomes (Jackson, 2018). Conversely, when school funding has been cut, student performance has suffered; and the deeper those cuts have been — consider, for example, the sharp budgetary declines during the Great Recession of 2007-2009 — the worse the student outcomes (Jackson, Wigger, & Xiong, 2018; Shores & Steinberg, 2017). Simply put, money matters.
Due to the COVID-19 pandemic, public schools will likely experience even greater revenue losses in the coming years than they did during the Great Recession. Further, it appears that safely reopening schools in the fall of 2020 will itself be costly. In districts where school buildings are open, much smaller class sizes will be required to meet social distancing guidelines and contain the spread of the coronavirus; this, in turn, will require hiring additional personnel, finding new classroom space, and perhaps creating staggered schedules. It will mean more instructional hours for teachers, more staff hours spent cleaning and sanitizing facilities, and more complicated bus routes. Schools will have to budget for additional time and effort from maintenance and operations staff, food service workers, and other support positions. Nursing and other medical services — already inadequate in many schools (Willgerodt, Brock, & Maughan, 2018) — will need to be improved. And, to ensure equitable internet access when distance learning is required, districts will have to redouble their investments in broadband and portable computers. Finally, since learning losses due to this spring’s school closures are likely to be most severe for students who live in poverty (Herald, 2020; Rothstein, 2020), schools in low-income neighborhoods will face especially daunting challenges. In short, we can expect the costs associated with reopening schools to be significantly greater this fall than in previous years, particularly in high-poverty schools and districts.
Below, we offer four recommendations for mitigating the effects of this looming fiscal crisis, with an emphasis on protecting the most vulnerable children, whose schools suffered the greatest harm during the Great Recession and have never fully recovered from large cuts to their budgets (Knight, 2017).
1) Provide a robust federal aid package
Since the beginning of the pandemic, it has become increasingly clear that many states will be hard-pressed to continue providing essential public services, including primary and secondary education, unless they receive significant amounts of federal aid. Only the federal government has the ability to tax or borrow on the scale required to cover the states’ ongoing expenses in education, health care, and other sectors.
In an April 2020 event sponsored by the Albert Shanker Institute, Bruce Baker and Matthew Di Carlo outlined a plan for federal intervention to stabilize revenues for public elementary and secondary schools. It calls for a substantial infusion of funds to be allocated to states in two phases:
- Phase 1 — a major aid package, distributed over two years, to offset the initial shock to state revenue systems.
- Phase 2 — a gradual, three-year process of reducing federal aid back to pre-pandemic levels.
This two-phase structure draws on lessons learned from the Great Recession (Baker & Di Carlo, 2020). In 2009, states and local school districts received immediate fiscal relief from the American Recovery and Reinvestment Act, which helped to offset the early effects of the downturn. However, after two years, that aid came to an abrupt end, leaving school districts to face a financial cliff. Providing a second phase of federal aid will smooth the path to fiscal health for schools as the larger economy recovers.
Further, Baker and Di Carlo’s plan would require states not merely to maintain their present effort to fund schools (avoiding cuts when possible), but also to restore the funding levels that existed before the 2007-2009 recession. In the wake of that crisis, most states decreased their rate of effort — calculated as the percentage of overall state economic capacity spent on schools. Once the recovery hit its stride, however, those rates were never returned to where they were previously, resulting in de facto cuts in state support for public education. In much of the country, then, schools are now in an even worse position to weather a fiscal downturn than they were before the Great Recession.
Finally, Baker and Di Carlo caution states against adopting certain fiscal austerity measures, especially tax and expenditure limits, that thwarted many recovery efforts during the last recession. Quickly restoring investment in public education is critical to the nation’s long-term recovery, as having a well-educated citizenry benefits the economy on multiple levels (McMahon, 2009).
Education’s share of state budgets shouldn’t just keep pace with other priorities — it should increase, making up for past declines.
2) Put tax increases on the table
As economic capacity plummets over the coming months, people could easily get the impression that serious efforts have been made to boost education spending when, in fact, they haven’t. This is because, as the overall financial pie shrinks dramatically, the piece reserved for education will come to seem even larger than it currently is, in comparison to other pieces — even if it, too, has been cut back. During past economic recoveries, some state leaders have pointed to this illusion of growth as justification for reining in school spending. This time, though, the public should be on the lookout for this sort of budgetary sleight of hand. When the economy begins to grow again, so, too, should spending on public elementary and secondary education.
However, education’s share of state budgets shouldn’t just keep pace with other priorities — it should increase, making up for past declines. Despite clear evidence that adequate school funding is a necessary precondition for students’ success, the share of states’ economic capacity spent on K-12 schools is now at its lowest point since 1982 (Baker & Di Carlo, 2020), and the share of income paid in total state and local taxes is at its lowest point since 1984 (U.S. Census Bureau, n.d.).
For most states, we argue, the best means of increasing education’s share of state funding will be to secure new tax revenue. Of course, some readers may see that as a nonstarter, given that it has become bipartisan political dogma to declare that there is never a good time to raise taxes. Supposedly, increasing tax rates in difficult times will only dampen the private investment and consumption needed to jump-start the economy, while increasing taxes in good times will only put a halt to progress. But these are mere hypotheses, and their credibility is fading fast thanks to debacles such as we’ve seen in Kansas — under Governor Sam Brownback, the state responded to the last recession not by raising taxes or even holding them steady but, rather, by cutting them deeply. As a result, Kansas suffered large revenue losses, saw a steep rise in inequality among its citizens, and experienced slower economic recovery than other states (Leachman & Mai, 2014).
Given that state and local tax rates have mostly declined over the past several decades, we see more than enough room to raise taxes today, especially when it comes to the highest earners. Across the country, the bottom 20% in the income distribution now have an effective state and local tax rate of 11.4%, while the top 20% in the income distribution have an effective tax rate of less than 9%. The top 1% in income pay only 7.4% in state and local taxes (Wiehe et al., 2018). Further, lower-income households have been hit much harder by employment and income losses since the onset of the COVID recession (Parker, Horowitz, & Brown, 2020). Increasing state income taxes on the top 1%, even if by just a few percentage points, could raise significant state revenue to offset some of these declines.
3) Distribute state aid equitably
The vulnerability of state and local revenue systems to economic shocks has much to do with the mix of state and local taxes that support those systems. In the previous two recessions, revenues from state income taxes took the biggest hit. In 2009, income tax revenues were down 13% from 2008; by 2010, they were down another 6%. By contrast, sales tax revenues declined by just 2%, and then another 4%, over the same time period. Property tax revenues actually increased during this same period, but subsequently declined by 3% in 2011 and another 3% in 2012 as the collapse of the housing bubble continued to play out (Baker & Di Carlo, 2020).
Note that income taxes tend to be most progressive in their implementation — individuals with higher incomes pay higher rates, and the revenues flow into states’ general funds (which support state school aid programs, among other things), rather than into local coffers. By contrast, property taxes tend to be regressive. To provide adequate funding for their local public services, communities with lower property wealth typically pay relatively high tax rates. And even when wealthy communities choose to tax themselves at much lower rates, they often raise far more revenue for their schools and other services (Gardner Kelly, 2020). When properly designed and implemented, state aid systems help reduce these inequities by steering general aid to districts with lower property values.
Property taxes do, however, have an important feature that is useful for school districts when making budgets: They are a stabilizing force. Assessed property values fluctuate less than income, especially during an economic downturn. It is easier for school districts to make budgetary plans based on property taxes because those taxes are less volatile.
State leaders should keep this in mind if and when they make adjustments (redistributions or cuts) to the aid they provide school districts during and after the pandemic. Specifically, they should take into consideration which districts have the greatest ability to access the stabilizing force of property taxes. Those districts are the ones with the greatest property wealth and income (and, concurrently, the fewest students in economic disadvantage). To put it bluntly: States should cut or redistribute school aid away from affluent districts that can most readily make do with their own local revenues, and toward districts in high-poverty communities that take in relatively little revenue from property taxes.
As a longer-term solution, states should consider ways to make property tax a less inequitable source of funding for local schools. For example, one promising policy approach is to implement statewide property taxes on commercial and industrial properties to generate revenue pools for redistribution (Brent, 1999; Ladd & Harris, 1995). This would retain the stabilizing features of property taxes while allowing their benefits to be distributed more equitably among school districts. Indeed, this November, California will vote on a referendum (the origins of which predate the COVID-19 pandemic) to adopt a related plan in support of the state’s recently adopted school finance formula.
4) Cancel aid programs that favor affluent districts
In 2012, Bruce Baker and Sean Corcoran exposed what they called “stealth inequities” in state aid programs for education. These dis-equalizing programs — significant funding allocations that favor affluent schools and districts — take a handful of forms:
- Minimum aid provisions that guarantee that all districts, regardless of their local tax capacity or need, get some share of state aid.
- Hold-harmless provisions that continue to provide aid to districts that, under newly adopted reforms, would no longer receive aid.
- Tax relief provisions that are often specifically designed to buy down property tax rates in the most affluent districts.
- Other aid programs run “outside the formula,” which often take the form of flat allocations, or specific program supports allocated without regard for local capacity (Baker & Corcoran, 2012).
These programs tend to be the result of political compromises. In effect, their enactment was the price that had to be paid to gain support from more affluent communities that would otherwise not benefit directly from state school aid. For example, consider New York State’s STAR tax relief program, which provides state aid to districts that lose local revenue due to a property tax credit to homeowners — in other words, people who own their homes (who tend to be relatively well-off) get a tax break, which means less money for the local schools, so the state sends funds to help make up the difference.
Historically, that program has provided far more aid (on a per-pupil basis) to wealthier districts, allowing those districts to raise more revenue at lower tax rates than they otherwise would be able to do. As critics have demonstrated, this promotes both inefficient spending (by affluent districts) and inequity across districts (Eom & Killeen, 2007; Eom & Rubenstein, 2006). Yet, thanks to powerful political support, it has remained in place even as general aid cuts have taken a deep toll on the state’s high-poverty districts, both during the past recession (Atchison, 2019) and at the outset of the current one (Atchison, 2020).
Comparing the STAR program to federal education assistance shows just how badly it skews toward the state’s wealthiest communities. In 2018, for example, STAR aid amounted to roughly $2.53 billion, or significantly more than the $2.12 billion in total federal aid received by New York State public schools. That year, federal aid — most of which comes through the Title I program and is allotted based on schools’ poverty rates — averaged $1,313 per pupil in the lowest 20% of districts by wealth and $494 per pupil in the highest 20% of districts by wealth. In contrast, STAR aid averaged $690 per pupil in the lowest 20% of districts by wealth and $1,782 per pupil in the highest 20%. That is, the STAR program completely offsets the federal government’s efforts to promote funding equity in New York’s school districts.
In a time of crisis, however, stealth inequities become a luxury that states can no longer afford. There has never been a good reason to fund such schemes, but they are particularly hard to defend while the budget ax is falling on programs that provide urgent support to the most vulnerable schools and communities.
Getting through and moving forward
No doubt, many hard days and difficult spending decisions lie ahead for governors, legislators, and other state and local leaders, many of whom care deeply about education. However, while they may not be able to preserve current levels of funding for their public schools, they can at least take steps to minimize the pain for students, families, and educators.
We argue that the federal government must take urgent action to ease the fiscal burden for state and local governments, especially to provide support for the neediest school systems. States should then try as best they can to raise additional revenues to reduce the size of potential cuts. But if, after these actions, states do need to make cuts, they should do so in ways that promote equity in school funding and preserve educational services and programs for the most vulnerable students. Any crisis — even one as severe as this pandemic — cannot become a reason to deny equal educational opportunity for all of our country’s children.
Only when all other options have been exhausted should states consider cuts to need-based, wealth-equalized aid programs for schools. However, that’s not how things played out the last time they faced a major fiscal crisis. During and after the 2007-2009 recession, the school districts serving the neediest students took the biggest blows (Knight, 2017).
As Baker and Di Carlo (2020) explain, the design of the federal government’s aid package, though well-intentioned, was partly to blame. The American Recovery and Reinvestment Act required that federal education funds be distributed through the states’ primary aid programs, using their existing allocation guidelines, which tend to favor the neediest school districts. However, when the stabilization funds ran out, most states cut funding in the same proportions as the earlier allocations. Schools and students with the greatest needs were given the most funding; but then, two years later, states took the most funding away from them, without considering their needs.
States made other mistakes, too. In 2011, for example, in the face of serious fiscal shortfalls, governors in Ohio, Pennsylvania, and New York made across-the-board cuts to state general aid for school districts. That is, within each of these states, every district saw its aid cut by the same percentage. On the surface, this may seem fair. In reality, though, the highest-poverty districts suffered the most. Due to their limited ability to raise revenue by taxing their own residents, these districts were the ones most reliant on state aid, which meant that the funding cut took a much larger bite, proportionally speaking, out of their budgets. In contrast, New Jersey’s governor decided that each district’s spending cut would be calculated based on its total per-pupil spending, which lessened the pain inflicted on the districts with the greatest needs (Baker, 2011).
As they plan for the coming months, states ought to heed such lessons from the last recession. Specifically, we argue that states should seek revenue enhancement (tax increases, targeted to those who can best afford them) and revenue stabilization (rebalancing the revenue portfolio of property, income, sales, and other taxes) as alternatives to cuts. This will help restore and sustain fiscal support for elementary and secondary public education. Further, states should cancel any tax discounts or other fiscal aid programs that disproportionately advantage the most affluent school districts. And finally, if states do make any cuts to their primary aid formulas for public education, they should be careful to ensure that those cuts are equitable — or, at least, less inequitable.
References
Atchison, D. (2019). Forgotten equity: The promise and subsequent dismantling of education finance reform in New York State. Education Policy Analysis Archives, 27, 143.
Atchison, D. (2020). COVID-19 and the squeeze on state education budgets: Equity Implications for New York State. Washington, DC: American Institutes for Research.
Baker, B.D. (2011, May 5). Grading the governors’ cuts [Blog post]. School Finance 101.
Baker, B.D. & Corcoran, S.P. (2012). The stealth inequities of school funding: How state and local school finance systems perpetuate inequitable student spending. Washington, DC: Center for American Progress.
Baker, B.D. & Di Carlo, M. (2020). The coronavirus pandemic and K-12 education funding. Washington, DC: Albert Shanker Institute.
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ABOUT THE AUTHORS
Bruce D. Baker
BRUCE D. BAKER is a professor at the Graduate School of Education, Rutgers University, New Brunswick, NJ. He is the author of Educational Inequality and School Finance: Why Money Matters for America’s Students .
Drew Atchison
DREW ATCHISON is a senior researcher at the American Institutes for Research, Arlington, VA.
Mark Weber
MARK WEBER is an analyst for education policy at New Jersey Policy Perspective and adjunct instructor at Rutgers University.