Examining a Stimulus Gift Horse in the Mouth: Education and the Recovery Act

Our nation is considering spending close to $1 trillion to stimulate the economy – a staggering amount. Americans are hurting, and there is consensus among economists and most of the American public that a stimulus is needed, and needed now.

So it’s important to read between the lines of the mammoth stimulus bill passed by the House, which is described by its authors as making “appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization, for the fiscal year ending September 30, 2009, and for other purposes [emphasis added].”

There’s the rub: consensus over a stimulus becomes much less certain when it comes to large increments in deficit spending for other purposes. Alice Rivlin, the first head of the Congressional Budget Office, recently testified before Congress that the anti-recession package should be distinguished from programs that will add to federal spending for many years. She recommended that Congress pass the stimulus package quickly and delay long-term programs until their elements could be carefully planned.

The education provisions in particular are very generous in the recovery bill. Thus, it’s worthwhile to break down those dollars in terms of immediate stimulus vs. longer-run investments. The bill would add $59.2 billion, or almost double, the entire 2008 appropriated budget of the U.S. Department of Education.

Four items account for 96 percent of the proposed spending: education for the disadvantaged, special education, postsecondary financial aid, and school modernization. Only one of these, school modernization, would unambiguously fall into the category of immediate stimulus. The other three are mostly for other purposes.

Let’s focus on one of the items, education for the disadvantaged ($13 billion increment). Under this program, called Title I, dollars flow to schools through a formula that is driven by poverty level. The stimulus money represents nearly a 50 percent increase in annual spending for this program. If the money is used by school districts to offset reductions in state support that might require staffing cuts, it could be anti-recessionary. However, the bill moves money out the door on a two-year timetable that only starts this fall, whereas the avowed purpose of the stimulus is to spend money this fiscal year to halt the slide in the economy. The bill also provides an unintended incentive to states to shift tax revenues away from education toward other needs, and takes the pressure off schools to reform costly and ineffective practices.

President Obama has called for a focus on “what works” in federal programs. Education is an area that very much needs more of what works and less of what doesn’t. Per pupil expenditures for K-12 education in the U.S. are already dramatically above the average for the rest of the developed world while the performance of our students is middling on international assessments. There is a real danger that the recovery bill will take opportunities for education reform out of the hands of the Administration and Congress for at least the next two years by guaranteeing large increments in federal funding to schools with no strings attached and little accountability.

Once that money starts flowing, it will be very hard to turn the spigot off. This portends a fundamental shift towards more federal and less state and local funding of public education, and probably towards much higher levels of spending in general. That may be desirable, but it is a policy that deserves robust public debate.

The Senate, as it crafts its version of the stimulus bill, should require that the total of state and local funding for schools be no less than 90 percent of the prior year’s level as a condition of receiving incremental education funding under the stimulus. This would place a floor under state efforts to balance their budgets by moving money out of education into areas where new federal funds aren’t flowing. The Senate bill should also authorize increased funding for disadvantaged and special education for one school year rather than two. This would signal the intent for a temporary rather than a permanent change in federal support, and would allow Congress to decide later whether the funding is needed for 2010-2011. It would also allow the Administration and Congress to consider carefully what conditions to place on new federal funding in order to leverage education reform.

Let’s have a stimulus now while keeping our options open on long-term changes in federal spending on education.