December 2002
Feast and Famine: The Effect of Good and Bad Economic Times on School Reform

A dismal fiscal picture may force state officials to compromise performance-based educational reforms launched in the 1990s. A new Urban Institute study explores how school districts allocate education dollars in the face of changing fiscal conditions.

On December 16, Jane Hannaway, director of the study's research team, presented its findings of budget allocations in several key states during the 1990s and their impact on performance-based school reform. Given the trying circumstances that confront states today and the challenges of implementing the performance-based No Child Left Behind Act, the session examined how state and federal officials can keep school improvement on track in the current financial climate. Dane Linn, education policy expert at the National Governors Association, responded and offered the states' perspectives on these findings.

Jane Hannaway
Urban Institute

Across the country, state budgets are in a crisis. In fiscal year 2002, forty-one states collected less revenue than expected and thirty-seven states made total budget reductions. Forecasts for fiscal year 2003 are no brighter, with twenty-four states planning to reduce enacted budgets by $8.3 billion. Although allocations for elementary and secondary education budgets make up the largest chunk of state budgets, in the past they were typically well-protected from budget shortfalls. However, due to these especially dire economic times, this is no longer the case, and states are being forced to cut education resources.

Education researchers must ask what budget cuts will mean for education reform. To answer this question my colleagues and I looked at how school districts have allocated resources when faced with budget cuts in the past. Using statistics from the Common Core of Data and the F-33 Fiscal Survey of the States, we examined resource allocation in 9,437 regular districts from 1993 to 1998. We examined the flow of resources to five areas: instruction, instructional support (libraries and media instruction), pupil support (guidance and health), district administration, and school administration.

The study found that the districts that had continued gains in per-pupil expenditure tended to be poorer and that those with consistent declines in spending were more affluent, possibly indicating a leveling trend. Districts experiencing bad economic times made the most drastic cuts in district administration, slashing an average of 15.1 percent of the staffing level and 17.9 percent of the expenditure level during the period. In districts experiencing overall gains, the sector that showed the greatest amount of investment was instructional support, which increased by an average of 24 percent over the period.

In terms of preferences in expenditures, the study shows that districts are willing to take money from pupil support and district administration to shore up instruction, and that when across the board cuts are necessary, the instruction budget experienced the smallest decreases.

Do these patterns bode well for school reform even in bad economic times? The study found that districts in states undergoing large-scale education reform cut district administration but increased school administration. Whether or not this is good news for reform remains undetermined.

Dane Linn
National Governors Association

There are twenty-four new governors claiming that they are or will be the "education governor." An examination of many candidates' platforms reveals that there are some very extensive education plans on the table. For example, in Pennsylvania's latest gubernatorial election, Governor Mark Schweiker (R) presented a thirty-page education platform that included an initiative to mandate universal pre-kindergarten.

Thus, while the newly elected governors have added to the number of far-reaching and expensive education reform plans in existence across the country, the economic outlook is no better than it was three years ago. At present there is a $50 billion deficit across the states, and state economies are facing the worst economic crisis since the Second World War. Even K-12 education, normally the most well-protected area of the budget, is undergoing steeper cuts than before.

The National Governors Association has several recommendations for the current situation. First and foremost, states must evaluate current investments before making cuts. Districts must ground their budget-cut decisions in concrete assessments of the data that are available. Second, when deciding where to send scarce resources, officials must target their investments to areas of need, once again basing such decisions on the available data. Finally, states may be able to make better use of technology investments. Despite vast expenditures on technology, the raw value of hard-wired schools and specially trained teachers has yet to be assessed and harnessed.

Some good is coming out of this economic crisis, however. Owing to the extensive demands of the No Child Left Behind Act, some states are making an effort to collaborate with each other to lower the costs of certain initiatives, particularly in the area of standards and assessment. States and districts can survive these tough economic times by collaborating, assessing current investments, and precisely targeting resources.

AEI research assistant Andrew Kelly prepared this summary.