(More) Storm Clouds Brewing

The economy has already had a huge impact on education budgets. But if you think it is bad now wait until the ARRA stimulus goes away. This chart tells the whole story.


Bright Green – Over 30%
Olive Green – 20-30%
Dark Green – Under 20%
White – Surplus

Nine States have deficits of over 30%, and this groups includes powerhouses like California, New York, Illinois, and New Jersey. Only Montana and North Dakota are not in deficit.

This is being driving by two factors. First, the sharp decline in property values is finally catching up to tax receipts. There is a three year lag in this mechanic. IF housing prices bottom out this coming summer as predicted that means we have three years from then before real estate taxes stop falling. 2013.

The second factor is the sour economic situation and the unemployment that goes along with it. The impact here is already moderating as these numbers turn. Unemployment has a relatively immediate impact on state incomes – as payroll taxes fall so do sales taxes while unemployment benefits soar. But it also bounces back faster when things improve.

Impact on School Budgets – No Posse Coming

This crisis is going to have a long term impact on education and the companies that serve this market. The Stimulus dollars have moderated the situation this year (and next). But, after 2011 the Feds are not coming to the rescue.

Investing in education is a high priority for the administration and makes sense in a downturn – but don’t let that stop congress from sitting on their hands. Anyone who looks at DC right now and thinks there is political will to spend more is fooling themselves.

In comments please discuss how you think districts will react to this new reality.

I’ve written other posts on the choices districts face in this situation. See:
Government Spending on Children

Budgeting for Stimulus (company view)

SIIA Ed Tech Business Forum

Horrible News on Education Employment

Holy Crap What is a Major Crisis?

Life on the Tip of the ARRA Spear

Will ARRA Funds be used for Change or Propping up the Status Quo?

History, Poetry, Hope, and Fear

And much more on the Economy and Education Tab


6 responses to “(More) Storm Clouds Brewing”

  1. Doug Stein says:

    Hi Lee,
    A good article on the underlying colliding air masses causing these storms can be found at Feeding the Blue Beast by Walter Russell Mead.

    According to the hypothesis, the underlying social model established among big government, big business, and big labor (now mostly found as civil service employees of big government) needs to experience the same transforming pressures that the rest of us in the private sector have dealt with the past 35 years or so. This implies that ARRA is unlikely to succeed in the long run; at best it piles up the pain for another generation. That generation will have even less capability to deal with the bigger problems engendered by the profligate spending within ARRA.

    Are education businesses necessarily Blue? Do we end up becoming like our customers under the pressures of their highly-regulated procurement processes?

    I guess if we’re feeling Blue, we need to take a good dose of “Disruptive Innovation” to get better. (Boy, that sounds like a bad name for a laxative, doesn’t it?)


  2. Doug Stein says:

    Oops – one more point. I think the dose of Disruptive Innovation we are going to swallow will have RttT and i3 as the active ingredients. The trick for Arnie Duncan is to reformulate the ESEA with the right strength of these ingredients and make it part of our daily regimen – without adulteration or spoilage.


  3. Doug Stein says:

    Hi Lee,
    Since you wanted us to give specific data, let me give some from one district. This is my home district (Lake Oswego in Oregon). It’s the highest ranked in the state (the only one with more than one school where every school had a state rating of “outstanding”). It has almost no Title I (only one elementary school gets anything) and less than 5% of the students are eligible for free or reduced lunch. In addition to the state capitation funding, the residents renewed the maximum 5-year local option tax for the schools and support a town-wide charitable foundation that raises between $1-2 million per year (100% of which goes to add teachers to the classroom). ARRA funding is only about 2% of the total budget. Both high schools were named Silver Medal Schools by US News & World Report in its annual ranking of America’s Best High Schools.

    This is all for a district with 13 schools and a about 6500 students. You’d probably agree that this is as well-funded and well-supported as it gets (at least in a Western state). NOW let me point you to the cuts that recession has caused for 2009-2010, 2010-2011, and the plans for worse in the next biennium (2011-2013).

    First, see this one page summary describing what the district needed to do to close the gap in 2009-2010. Part of this was deferrals of textbook purchases and building maintenance – which the district warns is not repeatable. Note also the declines in state per-pupil funding – which are reversed in 2010-2011 only because Oregon just voted to raise its top income tax bracket to 11% and to add a new 1% corporate gross receipts tax. (That will bring companies to Oregon and broaden the tax base – NOT!)

    Next, see this document describing the staffing model framework for 2010-2011. It also notes that part of the 2009-2010 gap was filled by teachers foregoing a contracted salary increase – but the “reward” is the elimination of 16 FTEs in 2010-2011.

    If a rich district which has done everything it can to fund schools is going to be whacked, then it’s really grim for others that can’t draw on local wealth. This district isn’t directly dependent on the Feds for the bulk of its funding. It is dependent on the state; which is in trouble as your original posting noted. State pain flows downhill because the state collects far more in income taxes from this town than it returns in the per-student funding formula. Hence, instead of the old days when rich districts perpetually prospered and poor districts were perpetually devastated, all districts now suffer mediocre budgets in good times and broken budgets in bad times. Lake Oswego has done as well as it has partially because the families inherently provide educational opportunities outside of school – and because the town has done as much as it legally can to make the public schools simulate a multi-campus private school.

    I think it only gets worse the more we attempt to centralize funding and make it more equitable. Obama might want to “spread the wealth”, but government doesn’t create any. Therefore it is capable only of spreading poverty. That’s what we’re seeing with the application and removal of ARRA funding! It’s meant well, but is turning out to be a head-fake. The only long-term benefit would have been for districts to treat is as “CapEx” to restructure themselves towards a more efficient and effective model; unfortunately it has been used as “OpEx” to sustain what they’ve already been doing.

    I’m still waiting with bated breath to see if RttT and i3 succeed as the (small) CapEx spending that starts to shift how we educate kids in this country.


  4. Lee Wilson says:

    Thanks for your insights. I do disagree with you on one big point. ARRA was never sold as a reform tool, it was a stimulus meaning primarily jobs. In that regard it has been a real success – imagine the layoffs of teachers if it was not there. That some schools have used it for CapEx is a bonus but it should not be judged by that yardstick.

    Rttt on the other hand is explicitly about reform and it should be judged on its success there.

  5. Doug Stein says:

    Hi Lee,
    Point taken. ARRA did head off an unmitigated disaster for education and is a success in that. I guess I’m just a little disappointed that too many districts have kept driving straight for the funding cliff rather than using a piece of the money to change course.

    It is definitely a bonus that some districts and states had enough vision to do more than backfill budgets. I only wish more did so. Fortunately, the strong response to RttT and i3 is a sign for hope – as are the signs such competitions will be a permanent part of the ESEA reauthorization.


  6. Michael Baum says:

    Scary stuff, but true. And assuming property taxes come back in three years may be optimistic – considering that values are still falling in a lot of places, there are still a lot of delinquent loans that haven’t gone into foreclosure, and commercial real estate is just now starting to suffer.

    Districts will continue to do what they’re already started to do. First, try to use as much federal funding as they can to keeping teachers employed, even if it means diverting the funding from its nominal purposes. Second, delay anything they can delay, including facility maintenance and adoption of new textbooks (except in areas where there is dedicated funding). Third, look for things that can help them do more with less – flexible materials, technology, etc. The opportunities for marketers are probably number two (areas with dedicated funding) and three. But keep your powder dry in the meantime.