The Coming Recession Threatens Severe Cuts to Public Schools

An economic recession is inevitable and public schools are likely to suffer. Across many states, the public schools have finally recovered from deep cuts to state funding during the 2008 recession; other states have not yet caught up. Now we are headed into another recession.

The Learning Policy Institute’s Michael Griffith describes the recession we can expect in the coming year and explains why school funding is so vulnerable:  “In the past 5 weeks alone, since sates began to issue shelter-in-place orders, virtually all 50 states have significantly reduced economic activity… and almost 22 million Americans—more than one in ten working adults—have applied for unemployment insurance. The International Monetary Fund has predicted that this will be the worst economic downturn since the Great Depression. This downturn will impact state tax revenue and thus result in reduced state PreK-12 education spending.”

How much do public schools depend on state revenue? Griffith reports: “According to the U.S. Census, 47.1% of public PreK-12 education finding comes from state sources. Another 44.9% comes from localities, and typically just 8% comes from the federal government. While localities rely on more stable property taxes, the vast majority of state revenue (just under 90%) comes from two sources—sales and income taxes. Retail sales started to take a hit in February, while state unemployment numbers—which will ultimately affect overall wages and taxes—did not begin to climb until the end of March…. I have spoken to revenue and budget experts from around the country, and none of them currently feels confident in projecting how far state revenues will fall this year and next. Some preliminary estimates from states are showing state revenue drops of between 10% and 20%. These drops are likely to be even larger in 2021-22, when the income tax effects will be felt more fully.”

While the CARES Act provided some relief to states, assistance for state and local governments falls far short. It appears that President Donald Trump and Senate Majority Leader, Mitch McConnell may be playing politics when it comes to future relief bills by holding back state assistance to put pressure on Democratic governors. How dangerous are these political games right now? The Center on Budget and Policy Priorities’ Robert Greenstein explains: “The White House’s refusal to provide more relief to states—whose revenues are plummeting due to the virus’ effect on economic activity—will almost certainly lead many states to cut education and other critical services, including even health care, and to lay off teachers and other workers as states struggle to balance their budgets both for the fiscal year ending June 30 and the new fiscal year that starts July 1. The approaching state budget cuts (and possibly tax increases in some areas) will cause the U.S. economy to contract further… State budget shortfalls could total more than $500 billion over the next few years, which will dwarf the roughly $65 billion in aid in earlier COVID-19 packages that is readily available to narrow those shortfalls. Without substantially more aid, states—which are required to balance their budgets every year, even in recessions and depressions—will almost certainly lay off teachers and other workers and cut health care, education, and other key services…”

Greenstein reports that states are already experiencing shortfalls in this fiscal year: “Maryland, for example, projects a 15 percent shortfall for this fiscal year. Michigan projects shortfalls of up to 12 percent. And the shortfalls for the new state fiscal year that starts July 1 in most states will likely be much greater and could well be of a magnitude not seen since the Great Depression, nearly a century ago.”

In New York City, the schools are under mayoral control, and Chalkbeat reports that New York City Mayor Bill de Blasio has already proposed a significant reduction in the budget for the city’s enormous school system that enrolls 1.1 million students: “Citing the coronavirus pandemic, officials announced a series of cuts to New York City’s budget on Tuesday (April 7, 2020), including hits to school budgets and some of the mayor’s core education priorities such as expanding free pre-K to 3-year-olds. Some $121 million in education department cuts will go into effect this fiscal year… The biggest single cut to the education department’s budget will take effect next fiscal year: $100 million will come out of the ‘fair student funding’ formula, a city funding stream that directly finances school budgets and is designed to funnel more money to the highest-need schools. That represents a roughly 1.6% reduction to that funding stream.”

And in Ohio, Innovation Ohio’s Steve Dyer spells out the dire fiscal situation of many school districts: “We’re starting to see stories about districts preparing for massive cuts next year. When you add the continuation of the hotly contested school voucher expansion… (school districts) are looking at millions of dollars in budget cuts next school year…. if we don’t have a fourth stimulus (Education groups are seeking $200 billion nationally.), then we could be looking at crippling school cuts that would make the 2011 cuts seem like a little finger splinter.”

The NY Times‘ columnist and Nobel Prize winning economist Paul Krugman explains that another generous federal stimulus bill directed toward state governments is not only essential but also precisely what economists prescribe: “Yet, this necessary slump doesn’t have to be accompanied by severe financial hardship…There’s also no reason we should see punishing cuts in essential public services… When I say that we have the resources to avoid severe financial hardship, I’m referring to the federal government, which can borrow vast sums very cheaply. In fact, the interest rate on inflation-protected bonds, which measure real borrowing costs, is minus 0.43 percent. Investors are basically paying the feds to hold their money. So Washington can and should run big budget deficits in this time of need. State and local governments, however, can’t, because almost all of them are required by law to run balanced budgets. Yet these governments, which are on the front line of dealing with the pandemic, are facing a combination of collapsing revenue and soaring expenses.”