A Broken Senate Fails America’s Children

500px-Train_wreck_at_Montparnasse_1895Yesterday the minority in the Senate ended the chances that the Extender’s Bill would pass the Senate. While 57 Senators – a clear majority – wanted to do the right thing a determined minority used procedural votes to force mass layoffs of teachers, firefighters, and police across the country (300,000-500,000).

There are rumors that the two sides are still talking – but most analysts say that any action will likely take place after the Summer Recess in mid-Fall.

It isn’t just education that is affected. Over a million people will be dropped from unemployment rolls. As a side benefit Hedge Fund Managers get to keep paying taxes on their multi-million dollar bonuses at a rate (15%) lower than most of the formerly employed teachers and cops (25%).

There is no way this is good news for the economy – none.

They may blather about other stuff – but that is the real effect of yesterday’s vote. Don’t forget that.

States and Local Governments (SLG) are facing $300 billion in budget shortfalls this coming year. Unlike the Federal Government they can not run deficits. They pay their bills or they go bankrupt (which cities like San Diego are actively considering). The only solutions to this problem is a Keynesian infusion of support from the Feds or mass layoffs and drastic spending cuts.

Keep in mind that 80% of education spending is for staff. The only way to address a significant shortfall in school budgets is to lay off lots and lots of teachers. Schools will cut the other stuff – but there is only so much they can do with that other 20%.

The impact on education will be long term and devastating. The children in the system now will bear the brunt of these cuts in the form of increased class sizes, shortened school hours, and over burdened teachers. This is the choice that was made in the Senate yesterday.

In crisis management mode simply keeping the lights on will be the priority – not reform. We’ll continue to hear lots of bombast about global competitiveness, but when an entire state (HI) is considering a 4 day school week that rings a little hollow. If schools are facing a choice between laying off even more teachers or delaying materials purchases another year or two that is an easy choice from their perspective.

The political calculus appears to be aimed at the elections in November. I guess the theory is that if the economy is wrecked even further than it already is then the minority party will benefit from voter unhappiness. Sadly, as political bets go it will probably work.

I know. to many of you this is a harsh indictment. Given the history I don’t see any other conclusion. Lets take a look at the two primary reasons given for voting against the bill.

“It wasn’t bipartisan”

Hard work and real compromises went into crafting something the minority could support. The original $200 billion deficit financed proposal was cut in half to $110 billion, and to ally concerns of the minority only $30 billion of that was deficit financed. No one denies there is a crisis, there just appears to be one party determined to do nothing about it even when they are included.

We can’t forget that a solid majority of 57 supported the bill. It is only the procedural votes – which are not Constitutionally defined – that require super majorities. If you want to see where requirements for super majorities on budget issues will take us just look to California. Feel better?

When this post on bipartisanship in the current political climate was written in February I thought it was over the top:

Imagine trying to negotiate an agreement on dinner plans with your date, and you suggest Italian and she states her preference would be a meal of tire rims and anthrax. If you can figure out a way to split the difference there and find a meal you will both enjoy, you can probably figure out how bipartisanship is going to work the next few years.

In the wake of this vote the analogy is eerily prescient.

“OMFG The Deficit!”

Yes the deficit is a concern. But it has been a concern for 30 years and according to most credible economists we are not in any danger there. If we were in danger the bond markets would be sending a clear signal – they are not.

I have a hard time with lectures about fiscal responsibility from the folks who supported $1 trillion in off the books deficit financed wars. Or $700 billion in TARP money for the Wall Street. Or the Airline bailout after 9/11. Yet when it comes to $30 billion in deficits to support teachers and kids it is “the end of America as we know it.” Sigh.

What these clowns should understand (and probably do) is that State and Local Government funding lags the general economy by 3 years. It takes this long for economic swings to be reflected in tax receipts and budgets – particularly property taxes which fund a huge amount of education spending.

That means that we are just entering the worst phase of the recession from local government’s perspective. While the general economy may be picking up – SLG needs the ongoing support of the Feds for a year or two more.

Where to from here?

July will tell the tale for school budgets. Normally it is our busiest month of the year. We will see if it signals a pullback to keep what funds schools do have in reserve while States sort out funding priorities in the crisis. That will take some time, meanwhile all our business could suffer.

Is it the end of the world? No – billions will still be spent on education. But decisions will take longer, new initiatives will be fewer and farther between, and genuine reform will be put off for another day. Marginal suppliers will go under, others will have to scale back and hold on. The learning opportunities of a generation will suffer.

As an industry we should not forget this vote. It directly affects our customers in an extraordinarily negative way and it does so for pure political gain. There is no argument that can be sustained about good governance in opposing this bill.

Note: The opinions expressed here are my own.


One response to “A Broken Senate Fails America’s Children”

  1. Doug Stein says:

    It seems as if SLGs were asking for a bridge (to carry them over the chasm with level funding) or at least a parachute so they could land at a lower level with minimum damage. Unfortunately, like Wily E. Coyote, they’ve been handed an anvil.

    Given that 80% of the costs are labor – and a lot of that labor cost is biased towards the longest-serving teachers (whether or not they’re the most-effective ones) – which of the options do you perceive as most likely? Are there other alternatives that could lead to a “best-worst” outcome?

    Option 1: Act as if this is a bigger-than-usual funding blip but do more of the same belt-tightening. Throw all non-teacher spending under the bus and apply last-hired/first-fired policies enshrined in union contracts. You have to layoff a lot more junior teachers to close a funding gap (because they’re much cheaper).

    Option 2: Restructure costs the same way a corporation in an aging/dying industry does. Cut the senior/expensive staff (and give more responsibility to any stars that have been stuck due to lack of growth opportunities), flatten the administrative hierarchies and paperwork, and outsource non-core functions ruthlessly. I’m not sure that education has figured out its “core business” given all that they’ve taken on as a generalized social services delivery mechanism.

    Option 3: Use what little capital exists to fundamentally change the business model. In industry, the percentage of companies that succeed is small (although the performance of turnaround successes are great). I think only the strongest districts could attempt this without dedicated capital – and they’re the ones most likely to try and hold on (because they can and because it minimizes risk).

    The scary thing about a pending collapse is that it will be uneven. Some schools and districts have sufficient finances (via conservative budgeting over the years) and sufficient social capital that they will get through this. Others will have a collapse so complete that they’ll look like Detroit (or worse yet, like Ciudad Juarez). We may not be able to afford to fully fund education, but that’s far cheaper than permanently subsidizing citizens and immigrants forever closed off from family-wage opportunities!
    States will need to restructure their budgets for the long haul. Oregon, for example, built its budgets for this year and next assuming no further stimulus would pass. The outgoing governor had also created a “Reset Commission” whose recommendations have just been revealed. Rather than continually cutting and squeezing across the board, the proposals call for government to divest itself of a number of missions and permanently shut down those services deemed less necessary to the long-term health of the private-sector.

    This in the end is the big battle – what level of public services are we willing to pay for? One vision says “pay less for less” and another says “pay more for more”. I’m not sure we get either of those options because we’ve had a number of years of “pay less for more” using debt financing and we’re not likely to be happy about the “pay more for less” that we may have to endure over a generation to work down those same debts.

    I’ll close these (rambling?) comments with a quote on Democracy from Lord Macaulay that reminds me of the dangers we’ve been running for most of my adult life:
    “A democracy cannot survive as a permanent form of government. It can last only until its citizens discover that they can vote themselves largesse from the public treasury. From that moment on, the majority (who vote) will vote for those candidates promising the greatest benefits from the public purse, with the result that a democracy will always collapse from loose fiscal policies, always followed by a dictatorship. The average age of the world’s greatest democratic nations has been 200 years. Each has been through the following sequence:
    From bondage to spiritual faith.

    From faith to great courage.

    From courage to liberty.

    From liberty to abundance.

    From abundance to complacency.

    From complacency to selfishness.

    From selfishness to apathy.

    From apathy to dependency.

    And from dependency back again into bondage.”
    – Lord Thomas MacCauley, May 23, 1857