Research & Commentary: School District Budgets

Published May 10, 2012

School districts often finalize budgets in the spring, so it’s an opportune time to consider how they can convert the “new normal” of budget cuts into benefits for schools and children.

U.S. analysts almost universally agree public education budgets in the foreseeable future will experience cuts or no growth, certainly not continued budget increases as was normal for three decades. States are burdened by increasing unfunded pension liabilities for public workers including school teachers, who usually form the largest contingent of state workers. State budgets also are pressured by rising Medicaid costs. Property taxes, a prime source of school funding support, are likely to stay flat for some time. And voters generally reject education tax increases.

Those in favor of increased education spending say spending less on education will reduce its quality, shortchanging children.

Other observers note education spending nationwide has increased steadily for the past 40 years, even when adjusted for inflation. So have school staffs. Yet student achievement has remained flat. They also note many high-performing school districts and states spend much less than high-spending, low-performing counterparts, indicating money does not buy education quality.

Given the national average per-pupil public school spending of more than $10,000, and given that most private schools offer a much better education at less than half that price, school choice advocates suggest policymakers and administrators use the current need for penny-pinching as a lever to institute serious reforms. These include restructuring teacher pay, pensions, and layoff procedures; employing technology to replace unnecessary personnel; and unbundling schools to give parents and students more flexible, customized, and cost-efficient education options.

The following documents offer strategies for school districts to increase productivity while cutting costs.


Silver Cloud, Dark Lining
A truly tough budget situation would force and enable administrators to make long-overdue reforms, write Michael Petrilli, Chester Finn Jr., and Frederick Hess in National Review. Policymakers and administrators could rethink staffing, take a hard look at class sizes, trim ineffective personnel, consolidate tiny school districts, replace some workers with technology, weigh cost-effective alternatives to popular practices, reexamine statutes governing pensions and tenure, and demand concessions from unions.

How to Steer the Tough Budget Road Ahead: Accelerate Your Performance
School budgets will likely stay tight for the foreseeable future, writes Frederick Hess in the Phi Delta Kappan, but school leaders should not make excuses, assume progress comes only with more spending, think budget cuts will be debilitating, or allow unacceptable employee responses. Instead, he writes, they should use the crisis to make necessary changes that would otherwise have been ignored, which means innovatively boosting productivity.

Facilities Financing: Monetizing Education’s Untapped Resource
One of schools’ biggest expenses is updating and building new facilities, and local budgets often cannot accommodate these needs, writes Himanshu Kothari in an American Enterprise Institute working paper. Private investors could be an excellent partner, but they often are stymied by inconsistent regulation and fickle state and local politics. To create a more stable environment, he says, administrators must be held accountable for academic and financial performance, states should loosen regulations on charter schools and other nontraditional education options, and governments should expand financing options beyond government loans and tax increases.

Do Teachers Want Traditional Pensions?
Teacher pension costs are on the rise in many states, and unfunded pension liabilities are an increasing problem. A solution many teachers seem to agree with is switching from traditional defined-benefit pensions to defined-contribution systems, writes Chris Tessone for the Thomas B. Fordham Institute

How School Districts Can Stretch the School Dollar
Although the economy may be slowly improving, school districts nationwide continue to struggle mightily, writes Michael Petrilli in a Fordham Institute policy brief. The “new normal” of tougher budget times is here to stay for American K-12 education, he writes, and quick fixes won’t solve the problem Creative, thoughtful, fundamental changes are needed to address our budget crisis without hurting children. These include a leaner, more efficient, and better-paid workforce; eliminating current salary schedules to pay teachers for productivity; and integrating technology such as blended learning.

Curing Baumol’s Disease: In Search of Productivity Gains in K–12 Schooling
Because labor-intensive services such as education must compete with other economic sectors for workers but cannot cut staffing without reducing output, costs rise constantly. This problem, labeled “Baumol’s cost disease,” is rampant in education, write Paul Hill and Marguerite Roza in a working paper for the Center on Reinventing Public Education. Other labor-intensive industries, however, have beaten back this disease, the authors write, and the same is possible in education. They recommend more and better use of information technology, deregulation, redefining the service offered, making the supply chain more efficient, fostering production innovations, and redesigning workforce policies.

Managing the Teacher Workforce in Austere Times: The Implications of Teacher Layoffs
Laying off teachers by seniority rather than effectiveness is likely to reduce the quality of education because the system does not retain its best teachers and shed its worst, conclude Dan Goldhaber and Roddy Theobald in a working paper for the Center for Education Data and Research. Under a seniority-based system, statistical research shows no link between teacher effectiveness and the likelihood of being laid off in tight economic times.

The Economic Value of Higher Teacher Quality
Replacing the bottom 5 to 8 percent of teachers with just average-quality teachers could move the United States near the top of international math and science rankings and generate an estimated $100 trillion in increased student lifetime earnings, concludes Eric Hanushek in an National Bureau of Economic Research working paper. This extra $100 trillion would be a massive boost to U.S. gross domestic product, standard of living, and tax revenues.


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If you have any questions about this issue or The Heartland Institute, contact Heartland education policy research fellow Joy Pullmann, at 312/377-4000 or [email protected].