Cutting to the bone: How the economic crisis affects schools

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Although the recession technically ended in 2009, district budgets are not expected to regain their pre-recession (2008) funding levels until late in the decade, for a number of reasons:

- Reduced local revenues from real estate taxes. Home prices are unlikely to get back to their 2006 highs for several years.

- Lagging state budgets. State revenues might recover to pre-recession levels by 2014, taking inflation into account, but the cost of providing the same services will have risen at a significantly higher rate, due to increased demand for Medicaid and other state programs with high cost increases. Most states will also have to increase their contributions to state employees’ retirement funds, which are substantially underfunded.

- Reduced funding from federal stimulus programs. State Fiscal Stabilization Funds (SFSF) from the American Reinvestment and Recovery Act (ARRA) have helped districts limit their budget cuts, but those funds are expected to run out by 2011. The new Education Jobs Fund could mitigate part of the blow in 2011 and 2012.

Just how bad is it?

Since the average school district receives about half (47 percent) of its funding from state coffers—ranging from 31 percent in Illinois to 86 percent in Vermont—districts are directly impacted by the health of state budgets (FEBP 2010). And “states are facing a protracted budget crisis like none seen in the last 30 years and perhaps not since the Great Depression” (Thomasian 2010).

In 2010, every state except Montana and North Dakota faced budget shortfalls totaling $200 billion, or about 30 percent of state budgeted general expenditures—the largest gap on record (McNichol and Johnson 2010). Such a large drop in revenues called for dramatic spending cuts. States spent nearly $75 billion less in 2010 than in 2008—an almost 11 percent decrease.

When such drastic cuts are made, no area goes unscathed, including education. In fiscal year 2011, 33 states and the District of Columbia cut their K-12 funding (Johnson, Oliff and Williams 2010) to help balance their budgets. The cuts were broad and deep, affecting even the most essential budget areas.

Some districts are finding ways to grapple with rising costs and limit the impact on students—for the time being. But what will be the long-term impact of this economic crisis on our next generation of students? This paper, from the Center for Public Education, describes what districts are up against and what the long-term impact might be.