Expert Commentary

Local government responses to fiscal stress: Evidence from the public education sector

2014 study in Public Administration Review on how K–12 public education fared during the recession to better understand the choices made by school districts

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The 2007-2009 recession hit state and local governments in the United States hard, and nearly every municipality had its own series of fiscal, political and societal constraints to navigate because of rising joblessness and falling revenues.

A 2012 study in State and Local Government Review analyzed the fiscal choices of 16 U.S. municipalities during the recession. Early on, the cities studied all employed similar cost-control strategies, trimming expenditures and not filling staff openings, for example. When revenues continued to contract, municipalities not constrained by state-level tax and expenditure limits sought to address budget shortfalls by raising revenues. But as the United States entered the depths of the recession, the choices made became much less predictable:

The culture of the community, external pressures from state choices, and the level of revenue loss in a community create unique conditions for each municipality. These unique conditions lead to a distinct set of strategies employed by municipalities after those choices that bear little operational or political consequences have been exhausted.

Some municipalities increased the use of volunteers, even for policing; others imposed pension reductions and required cost-sharing for health benefits; some expanded the use of public-private partnerships to provide crucial services. Other approaches included cutting back on infrastructure maintenance or refinancing municipal debt in the hopes that revenues will rise later on.

Education is an essential investment in the future for all communities, but it’s also a significant cost, and is anything but immune from budgetary pressures. The precise choices made aren’t always predictable, however: Philadelphia, on the heels of deep cuts to its school budget, may enact even more cost-saving measures. Meanwhile, Atlanta has chosen to open a new $147 million public school. The student body is majority-minority, yet some of the parents live in wealthy areas and pay significant taxes to support the new facility.

A 2014 study in Public Administration Review, “Local Government Responses to Fiscal Stress: Evidence from the Public Education Sector,” investigates how K-12 school districts fared during the recession to better understand the choices made by individual municipalities. The researchers — Ashlyn Aiko Nelson of Indiana University and Rekha Balu of MDRC, a nonpartisan education and research organization — analyzed data from California and Indiana to see how municipalities managed fiscal stress, be it through cost-cutting measures such as layoffs, raising revenues through voter referendums or a mixture of both. As Nelson and Balu note:

Differences in district policy responses raise important equity-based concerns, including whether districts serving high-needs students — often considered the costliest to educate — are more likely to face expenditure reductions, are less able to pursue revenue-raising strategies, or tend to bear inequitable property tax burdens after passing voter referenda.

The analysis uncovered “substantial cross-state variation in how fiscal and environmental characteristics explain district cost-cutting and revenue-raising behavior.” The findings include:

  • Over the 2010-11 academic year, 34% of school districts surveyed in California and 76% of those in Indiana had reductions in force (RIF), the term used for layoffs. “The results indicate that districts widely adopted RIFs during the Great Recession, and the likelihood of adopting a RIF does not vary systematically with school district demographic characteristics.”
  • California districts with a high proportion of poor students laid off fewer teachers on average, but layoffs were more likely in districts with higher percentages of English learners — a 1 percentage-point rise in the proportion of English learners in a district was associated with a reduction of 0.09 teachers per 1,000 students. Because the state’s average district enrollment is 6,400 students, the impact of this seemingly small difference can be significant: A district with 80% English learners would lose nearly 35 more teachers than one with just 20% English learners. With an average of 318 teachers per district, a decrease of 35 corresponds to an 11% cut.
  • Student wealth and achievement also played a role in California: Districts with a higher percentage of poor students were significantly less likely to pursue or pass a parcel tax (in California, these are ballot-based special taxes), while those with more high-achieving students were more likely to pursue and pass a parcel tax measure. The data suggest a connection, for example, between districts where students are better in math and the community’s willingness to raise more education money through a ballot measure.
  • Higher student enrollments were associated with increased revenue-raising behavior in both California and Indiana, but the types of tax measures differed: “In California, higher student enrollments are associated with significantly higher odds of both pursuing and passing a parcel tax measure. In Indiana, higher student enrollments are associated with significantly higher odds of pursuing and passing a construction referendum.”
  • Districts in California were about half as likely to pursue tax referendums as those in Indiana (6.7% versus 12.7%), but those that did in California had a much higher success ratio than did those in Indiana (74% versus 46%).

“Our analysis provides empirical evidence that public school districts behave as both rational and open-system actors when responding to fiscal hardship,” the researchers conclude. “We find strong suggestive evidence that California school districts operate as open system actors with respect to cost-cutting and revenue-raising activities, with significant variation in their behavior explained by differences in student composition…. Indiana school district behaviors reflect the traits of rational system actors, who respond to rational economic pressures and are less influenced by environmental characteristics such as student composition.” The authors theorize that the cross-state differences may result from “fiscal or other constraints, political processes and climates or community preferences.”

Keywords: education, children, youth

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