The Costs of Cutting School Spending Lessons from the Great Recession

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State budgets are in trouble due to the Covid-19 pandemic, with tax revenues in freefall and steep increases in spending on unemployment insurance, social-welfare programs, and emergency services. That spells budget trouble for schools, since states contribute about half of all public-school funding nationwide.

How might cuts to state education spending affect student achievement? We can learn something about what’s ahead by looking at education spending and student outcomes after the Great Recession, which began in late 2007 and ended in June 2009. The years immediately following that period represented the largest and most sustained decline in national per-pupil spending in more than a century. Spending fell by roughly 7 percent on average nationwide, by more than 10 percent in seven states, and by more than 20 percent in two states. The sheer magnitude of this historical episode allows us to examine whether large-scale and persistent education budget cuts harm students in general and poor children in particular.

This study looks at each state’s test scores and number of college freshmen from 2002 to 2017 to compare those outcomes before and after the funding cuts induced by the recession, taking advantage of the fact that the recession did not affect education spending in all states equally. Spending fell more in states where, prior to the recession, schools depended more on state funds. Yet those states were no more likely to experience high unemployment or poverty rates during the recession. This enables us to separate the effects of recession-induced cuts in school spending from the broader effects of the recession itself.

By and large, money matters. On average, a $1,000 reduction in per-pupil spending reduces average test scores in math and reading by 3.9 percent of a standard deviation and increases the score gap between black and white students by roughly 6 percent. A $1,000 reduction also lowers the college-going rate by about 2.6 percent. Declines in test scores and college-going tracked the recession-induced decline in per-pupil spending and did not abate as the economy recovered—providing further evidence that the declines are driven by spending changes rather than other effects of the recession.