Education Spending

Recent Trends In The Sources Of Public Education Revenue

Every year, the U.S. Census Bureau issues a report on the overall state of public education finances in the U.S. There is usually a roughly 2-3 year lag on the data – for example, the latest report applies to the 2011-12 fiscal year – but the report and accompanying data are a good way to keep an eye on the general education finance situation both in individual states as well as nationwide, particularly among those of us who are somewhat casual followers (though it bears keeping in mind that these data do not include many charter schools).

One of the more interesting trends in recent years is the breakdown of total revenue by source. As most people know, U.S. public school systems are funded by a combination of federal, state and local revenue. Today, although states vary considerably in the configuration of these three sources, on the whole, most funding comes from state and local revenue, with a smaller but still significant contribution from federal government sources (total revenue in 2011-12 was about $595 billion).

But there has been some volatility in these relative contributions over the past few years (at least the past few years for which data are available). The graph below presents the percent of total elementary/secondary education revenue from federal, state and local sources between 1989-90 and 2011-12.

Unreliable Sources: Education Revenue During The Recession

For the better part of the past century, U.S. public education revenue has come predominantly from state and local sources, with the federal government contributing only a relatively small share. For most of this time, local revenue (primarily property taxes) comprised the largest proportion, but this began to shift gradually during the 1970s, to the point where state funds constituted a slightly larger share of overall revenue.

As you can see in the simple graph below, which uses data from the U.S. Census Bureau, this situation persisted throughout the 1990s and most of the 2000s. During this period, states provided roughly 50 percent of total revenue, localities about 45 percent, and the federal government approximately 5-8 percent. Needless to say, these overall proportions varied quite a bit by state. Vermont represents one of the most extreme examples, where, as a result of a 1997 State Supreme Court decision, education funding comes almost entirely from the state. Conversely, since Hawaii’s education system consists of a single statewide district, revenue on paper is dominated by state sources (though, in Hawaii's case, you might view the state and local levels as the same).

That said, the period of 2008 to 2010 was a time of pretty sharp volatility in the overall proportions contributed by each level of government.

The Relatively Unexplored Frontier Of Charter School Finance

Do charter schools do more – get better results - with less? If you ask this question, you’ll probably get very strong answers, ranging from the affirmative to the negative, often depending on the person’s overall view of charter schools. The reality, however, is that we really don’t know.

Actually, despite uninformed coverage of insufficient evidence, researchers don’t even have a good handle on how much charter schools spend, to say nothing of whether how and how much they spend leads to better outcomes. Reporting of charter financial data is incomplete, imprecise and inconsistent. It is difficult to disentangle the financial relationships between charter management organizations (CMOs) and the schools they run, as well as that between charter schools and their "host" districts.

A new report published by the National Education Policy Center, with support from the Shanker Institute and the Great Lakes Center for Education Research and Practice, examines spending between 2008 and 2010 among charter schools run by major CMOs in three states – New York, Texas and Ohio. The results suggest that relative charter spending in these states, like test-based charter performance overall, varies widely. In addition, perhaps more importantly, the findings make it clear that there remain significant barriers to accurate spending comparisons between charter and regular public schools, which severely hinder rigorous efforts to examine the cost-effectiveness of these schools.

New Report: Does Money Matter?

Over the past few years, due to massive budget deficits, governors, legislators and other elected officials are having to slash education spending. As a result, incredibly, there are at least 30 states in which state funding for 2011 is actually lower than in 2008. In some cases, including California, the amounts are over 20 percent lower.

Only the tiniest slice of Americans believe that we should spend less on education, while a large majority actually supports increased funding. At the same time, however, there’s a concerted effort among some advocates, elected officials and others to convince the public that spending more money on education will not improve outcomes, while huge cuts need not do any harm.

Often, their evidence comes down to some form of the following graph:

Are Americans Really Unwilling To Pay More To Prevent Education Cuts?

In a speech earlier today, President Obama asserted, “We will not cut education," and implied that doing so would be “reckless” and “irresponsible." The president’s heartening remark, however, comes as  education funding is taking a massive hit at the state and local levels in most states, including New Jersey, Pennsylvania, Florida, and, yes, Wisconsin. The damage will likely last for many years.

In all the debate about what to cut and how deeply, there seems to be an assumption that an increase in revenue for education – to avert these massive cuts - is not an option. Although there are exceptions, very few Democratic governors are supporting tax increases to make up their states’ shortfalls, while Republicans governors are, of course, adamantly opposed.

Among many members of both parties, the presumption seems to be that raising revenue is simply a non-starter, because the American people are unwilling to pay more.

I’m not so sure. There is some evidence to suggest that this assumption deserves a second look.

Revisiting The Effect Of Teachers' Unions On Student Test Scores

The Wisconsin protests have predictably spurred a great deal of information-seeking, with union supporters and opponents alike searching for evidence that supports their cases. One of the most prevalent topics over the past week or so is the effect of teacher collective bargaining on student test scores. As a result, a couple of our previous posts have been shared widely. The first (also republished here) compares NAEP scores in states that allow binding teacher contracts with those in states that do not (or have only one or two); the second, follow-up post offers some additional, multivariate analysis.

Although it is true that the first post (which was at least partially satirical - see the last few sentences) shows that states without binding contracts are among the lowest-performing in the nation, I want to clear something up: As I noted in both posts, neither the data nor my argument offer any conclusive proof that teacher contracts act to increase student test scores. The intention of those posts was to address the age-old counter claim – that teacher contracts are somehow injurious to student achievement – and to provide very tentative evidence that the contracts appear to have little discernible impact either way (which is what the follow-up post, using state-level models that controlled for basic student characteristics, indicated, along with the requisite caveats).

This speaks directly to those who seek to blame unions for poor achievement in the U.S. - if union contracts were in fact a major contributing cause of low test performance, it might be reasonable to expect to find at least some clear differences between states that did and did not allow them. Although my analysis was extremely limited, I found no such evidence.

But this also applies to those who have been claiming recently – many in the Wisconsin context – that teacher bargaining clearly improves these outcomes.

Do Americans Think We Spend Too Much On Education?

Cost-cutting is all the rage in education policy. This makes a lot of sense during a recession (the next few years will be brutal), and even during good times we all want money to be well-spent. But much of the discussion on this topic is less about weathering the storm than about a long-term effort to stop the growth of spending on public education. The underlying assumption, hardly unique to education policy, is that people are tired of increasing school costs, and want to start cutting back.

So, I wanted to take a quick look at what Americans think of education spending, now and over time, using data from the General Social Survey (1972-2008), a nationally representative sample of U.S. opinions and other characteristics (run by the National Opinion Research Center).  The question queries whether respondents believe the U.S. is spending too little, too much, or about the right amount on improving the nation’s education system (note the question’s use of "improving," which likely influences responses to some degree).  Also keep in mind that these are pre-recession data.

The 2008 data in the table below (non-missing sample size is 993) show that there’s actually a lot of agreement about education spending levels: Almost 3 in 4 Americans (71 percent) believe that we should spend more on improving education, while only about 1 in 20 feels that expenditures are too high.

Attention To Pay

The debate over how best to restructure teacher salary systems is older than I am—with good reason: Instructional salaries represent roughly 40 percent of current K-12 public school expenditures.  And some of the arguments for changing current salary structures make sense, at least in theory. 

For instance, there is a case for tying step increases (typically awarded according to years of service) to additional measures, such as strengthened evaluation systems and curriculum-linked professional development (as is the case in the recently-ratified Baltimore contract). These types of changes, if they are bargained and approved by teachers, could be of real benefit to all stakeholders.

At the same time, it’s unfortunate that some of the talking points used commonly by those who wish to overhaul teacher salary systems are rather misleading and oversimplified. Not only do they sometimes seem designed to inspire outrage against teachers, they also tend to obscure or ignore important facts about the relationship between teacher pay and teacher quality.  Three such arguments seem particularly pervasive.

Evasive Maneuvers

In a previous post, I showed how the majority of funding for education and other public services comes from state and local tax revenue, and that low-income families pay a disproportionate share of these taxes (as a percentage of income). 

One of the reasons why this is the case is that many corporations – especially the largest and most profitable – have managed to avoid paying most of the state taxes that they owe (45 states have some form of business tax).  State corporate income taxes (CIT) are levied on business profits – so, for the most part, it’s only the highest-income individuals who are liable (through the businesses they own) for corporate taxes (the top 10 percent wealthiest individuals own about 90 percent of all corporate stock).

A 2005 joint report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy took a close look at state CIT payments by 252 Fortune 500 companies between 2001 and 2003. Their findings were astounding. These corporations were able to shelter roughly two-thirds of their actual profits from state taxation, while 71 of them paid not a penny in state taxes during at least one year between 2001 and 2003.  During the years they paid no taxes, these 71 companies reported $86 billion in profits to their shareholders.

Who Pays For Education?

In education debates, especially these days, there is endless talk about spending – how to spend money, what programs to cut, and how to increase the bang-to-buck ratio. This is not surprising: In 2007-08 (the last year for which national U.S. Census data are available), we spent almost $600 billion. That’s quite a figure, and we all have an interest in spending that money wisely.

What is sometimes surprising is how little we hear about how we get that money. Of course, we all know that our tax dollars fund our public schools, and most of us know that state and local revenue is the primary source of this funding (about 90 percent; on average, about half state and half local). Less commonly-known, however, is who pays these bills – who bears the largest share of the tax burden, relative to their income? At the federal level, taxation is largely progressive, which means that, on the whole, higher-income families pay a larger percentage of their earned income to the federal government than lower-income families. This is, very simply, due to the fact that higher income brackets are taxed at higher rates.

But when it comes to state and local taxes, the picture is different. The poorest families pay far more of their income than the richest (i.e., taxes are regressive). In other words, the money that funds public education is a burden disproportionately borne by poor and middle-income Americans. And the lower your income, the more of it you pay. Given this situation, combined with a fiscal crisis that threatens to linger for several years, the best solution – raising revenue through a more equitable system – may be the only one not on the table.