Education spending patterns have been abnormal for several years. Publishing used to follow very predictable patterns – no more.
Between the Great Recession and ARRA Stimulus funds we have been living in an era of seesaw budgets for three years. Since education spending lags the general economy by up to 3 years this will continue until at least 2014.
I can remember entire decades where budget flows were so steady that you could predict the entire year within +/- 10% after the first three months. In 2008, 2009, and 2010 the first half of each year told you very little about the second half.
Let us review.
2007 – This was generally a normal year but the slowdown began to appear in the summer when property values began to decline. District Administrators could see the writing on the wall for state and local budgets that depended on property assessments and started to pull back discretionary spending.
2008 – The first of half of the year was slow but relatively normal. As the economy tanked the market dropped off a cliff in the second part of the year. The uncertainty of the election contributed – which Districts harboring funds to make sure they had enough to meet payrolls.
2009 – This year started like 2008 ended, but with the ARRA stimulus there was hope in the air. By September the market flipped to a boomtown through the end of the year as ARRA kicked in.
2010 – Stimulus spending continued to fuel unseasonably high purchases right through the summer months. In the fall the market began to stutter – one month up, one month down. The elections and the uncertainty about the role the Federal Government is going to play in backstopping State and Local budget shortfalls has got many Districts sitting on their hands again – just like 2007 and 2008.
So what will 2011 look like? The honest answer is “who the hell knows?” But that has never prevented me from having an opinion.
The big story this year will be the disaster in State budgets. Since over 50% of all spending on education nationally (and more depending on the specific state) comes from this source the crisis here will have a significant impact on education spending no matter what happens at the Federal level. Every penny of stimulus will help – but I don’t see a scenario where the Feds can cover the shortfall – palliative care is all we will get.
January to to May – the market will look more like the second half of 2008, with schools and districts conserving funds as the Feds and States sort out who is going to pay for what. A government shutdown over the debt ceiling or other partisan wrangling in DC would exacerbate this further, particularly if the threat of recisions are in the air (which they are).
June-September – Barring changes to ARRA the remaining funds have to be spent by mid-September. Educators will scramble to make sure they maximize their access to these funds before they expire leading to a boomlet in instructional materials. One option on the table is extending the spending deadline – which may actually be a good thing for publishers if Districts get another year to spread the funds over.
This presents a unique challenge to publishers who will need inventory and staff to supply the boomlet. Sustaining this commitment through the first few months of the year will require some fortitude and more attention paid to the pipeline than to actual bookings.
October-December – Free fall. Post stimulus and deep into state budget crises I expect spending in these months to fall to late 2008 levels. Districts will be struggling to meet payrolls and funding for other resources will be very very tight.
The politicians are in an unenviable position. On the one hand the money really isn’t there – particularly at the state and local level where balanced budgets are the law. On the other hand a child’s need to learn isn’t linked to the economic cycle – and in fact the forces driving the realignment of our economy call for a more educated workforce.
Short changing education helps balance out of whack budgets – but it also puts us as a competitive disadvantage on the world stage. How this question is resolved in the next 2 years will be THE central factor in how the instructional materials market evolves. The ESEA reauthorization will be the pivot point for this national conversation.
As always – getting involved in legislative affairs is one of the best investments a publisher can make. Even if you don’t have an impact on actual legislation staying in the loop on what is coming out of the budget sausage maker will give you a leg up on the market.
Update – See this New York Times article for details on how this is playing out in Illinois. ht Tim McHugh at Saddleback.