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Fiscal Problems and Education FinancePublished: January 30, 2008 || Availability: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. The text below is an excerpt from the complete document. Read the full paper in PDF format. AbstractRelative to previous recessions, the 2001 recession was short and not very deep. Even so, it had a significant effect on the fiscal condition of state and local governments. This report examined how the recession affected state and local government spending on K-12 education in the three years since the recession. We track the historic pattern at the national level of state and local spending on K-12 education and then turn to a state-level analysis of how K-12 education was affected by the recession, including correlations between local education spending patterns and state patterns. IntroductionRelative to previous recessions, the 2001 recession was short and not very deep. Even so, it had a significant effect on the fiscal condition of state and local governments.1 Figure 1 (next page) shows the pattern of own-source revenue in real terms for state and for local governments over the period 1992- 2004. As can be seen, own-source revenue increased both for state and for local governments until the recession began in mid-2001, at which point state revenue fell dramatically, by 3.4 percent. Although local government own-source revenue did not fall, it did not grow as fast; between 2001 and 2002, local real own-source revenue increased by 1.6 percent, compared with an average of 2.7 percent for the previous 10 years. How did the recession affect state and local government spending on K-12 education in the three years since the recession? That is the issue we examine in this report. Holahan et al. (2004) and others have argued that state and local governments do not like to cut spending on education and that at the time of the recession there was strong public support for states to increase spending on K-12 education. However, during the recent recession, many state and local governments did cut education spending (Holahan 2004). Reschovsky (2004) and Kalambokidis and Reschovsky (2006) considered the effect of the more recent budget shortfalls on education spending. In particular, Reschovsky (2004) documented the change in state fiscal assistance to local school districts in 2003 and 2004. He also estimated a current-services education budget so that the reduction in assistance can be compared not just with the previous year’s but with what would be required to maintain the same level of education service. Based on the current-services budget, Reschovsky (2004) estimated that for the entire nation, real state aid for education fell by 1.6 percent from fiscal 2003 to fiscal 2004, and by 3.6 percent from fiscal 2002 to fiscal 2004. Although real state revenue declined, property tax revenue continued to increase, part of which was presumably used to finance education. (In related work, Ladd (1996) investigated how local districts in Texas and New York responded to the fiscal pressures generated by the economic conditions of the early 1990s; she estimated how the level of fiscal stress affected various budget categories within education.) The remainder of the report is organized as follows. In Section II we track the historic pattern at the national level of state and local spending on K-12 education. We then turn in Section III (p. 640) to a state-level analysis of how K-12 spending was affected by the recession, including correlations between local education spending patterns and state patterns. We conclude in Section IV (p. 647). (End of excerpt. The entire paper is available in PDF format.) |
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