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Education Funding Formulas in a Fiscal Stimulus Package

January 12, 2009

One of the most productive proposals to stimulate jobs and shore up distressed local communities is direct federal assistance to states through formulas for funding public education. 

1.  State education formulas serve to equalize pupil funding across a state’s school districts and are typically the largest or one of the largest single items in state budgets.  Direct federal relief for state education funding formulas would not only provide direct support for education but, by taking funding pressure off of states’ largest and generally most popular programs, would also provide across the board relief to every other item in a state’s budget.

2.   Funding formulas are specifically designed to provide disproportionate assistance to economically distressed communities.  Consequently, jobs would be saved precisely in the communities where they are needed the most.

3.   State education funding formulas touch every single community.  Few, if any, of the other forms of stimulus that have been discussed have such broad-based effects.

4.   For each dollar invested, education typically creates more jobs in communities than any other major industry.  The vast majority of education budgets, around 80 to 85%, go directly for labor.  By contrast, in corporate American, labor typically receives less than half, and often much less, of overall budgetary outlays.  In addition, the product of public investment in education is a more productive, competitive workforce.  That improved workforce, in turn, becomes an integral part of all firms most valuable asset, their human capital.

5.    In FY 2005, states provided a little over $243 billion to local school districts.  Based on recent trends, that figure will probably rise to around $256 billion in FY 2010.  The majority of these funds are allocated to local districts through formulas.  As the crisis deepens, states are increasingly hard pressed to maintain their commitment to local schools. 

Even after recent massive cuts, states currently face a $97 billion dollar budget gap over the next two years.  Forty-three states have already announced budget cuts.  Local schools will be further impacted by local tax collections.  Local property taxes account for over a third of education funding and will continue to decline and pull down education budgets for years to come.

By supplementing states’ own priorities as expressed in their existing funding formulas, the federal government will be helping states to achieve the educational equity and adequacy goals states have set for themselves in their constitutions and statutory enactments.  A federal supplement to state educational formulas, even a temporary one, would stimulate states’ economies while recognizing and respecting states’ unique institutions and decision-making autonomy.