The Agenda

Why More Federal Education Spending Is Not the Answer

Rather than shift the tax burden from households with children to relatively high-earning households without children, Felix Salmon of Reuters proposes increasing federal education funding. This strikes me as ill-conceived for a number of reasons. If anything, I would suggest that we move in the opposite direction. Though federal spending represents a relatively small share of K-12 spending at present (13 percent of the total as of 2010), this understates the extent of federal influence, as federal mandates shape how much of the remaining spending is disbursed. And so the U.S. has a far more centralized, far more tightly-regulated K-12 system than is commonly understood. The chief virtues of a decentralized system — the potential for innovation as different jurisdictions and educational providers embrace new approaches to instruction, management, compensation, recruitment, and scaling successful approaches, among other things — are greatly undermined by the prescriptiveness of federal education policy, which has grown worse under the Obama administration thanks to its use of policy waivers to impose its vision of education reform on local districts. We thus have the worst of both worlds: we have a theoretically decentralized system plagued by a lack of creativity and experimentation outside of charter schools, which serve fewer than 4 percent of K-12 public school students; and we have a federal government that imposes enormous compliance costs on K-12 schools without actually providing much in the way of resources. Salmon’s strategy is to double down on centralization; let’s keep imposing compliance costs, yet let’s at least do more to finance schools as well. Another approach would be to foster creativity and experimentation by having the federal government take on the tasks to which it is best suited.

As Rick Hess and Andrew Kelly of the American Enterprise Institute have argued, the federal government could play to its strengths by abandoning its efforts to tightly regulate local schools and instead (a) promote basic research in cognitive science and human learning; (b) serve as a “scorekeeper” that measures educational outcomes and, just as importantly, spending levels across districts and student populations so that the public will have more reliable data on the return on investment; (c) encourage competition and innovation not by prescribing that local communities embrace charter schools or vouchers (though both ideas could do a great deal of good, and state and local electorates ought to embrace these ideas of their own volition) but by addressing the compliance costs created by federal mandates, encouraging alternative paths to teacher certification to expand the teacher talent pool and get around onerous licensing requirement; and (d) develop a bankruptcy-like mechanism that would allow dysfunctional school districts to restructure their obligations without first having to appeal to state education authorities. One of the more attractive aspects of this agenda, incidentally, is that it largely allows contentious questions about the best approach to educating children to state and local officials while providing parents and policymakers with meaningful yardsticks to evaluate the success or failure of different approaches.

To return to Salmon, he offers a series of observations and arguments to make his case. First, he objects to the fact that K-12 education in the U.S. is financed primarily at the local level, as this structure “encourages the idea that education is more for the benefit of individual children than it is for the benefit of the nation as a whole.” Parents will purchase access to what they take to be high-quality schools by purchasing or renting homes situated in well-regarded school districts, which are often well-regarded because of the composition of the student population and not the quality of instruction as such. Nonparents living in the same jurisdictions are obligated to pay higher property taxes, whether directly as homeowners or indirectly as renters, and real estate prices that finance local schools and that reflect the value of access to local schools, and some are inclined to resent this subsidy of other people’s children.

But this resentment makes little sense, and I question its pervasiveness. Much depends on the extent to which expenditures on local schools translates into perceived school quality, and the extent to which perceived school quality translates into higher home values. Massachusetts has had a property tax cap since the passage of Proposition 2.5 in 1980. Local governments can override the cap by securing the support of a simple majority of local voters, and local voters routinely vote to lift the cap. Why would this be? Is it because parents represent a much higher share of the Massachusetts electorate than the national electorate (36 percent of 2012 voters lived in a household with children 18 or younger)? That doesn’t appear to be the case. The most straightforward hypothesis is that the value of access to local schools is capitalized in the value of homes, and so voters without children capture some of the benefits of high-quality local schools. Problems arise when the connection between the perceived quality of local schools and property taxes is broken, as we have seen in California since the 1970s-era Serrano decisions, which found that local property-tax bases could no longer be the basis for spending inequalities across districts. Back in 2012, I discussed Dartmouth economist William Fischel’s hypothesis that California’s 1978 property tax revolt was precipitated by the loosening of this connection. The result of the centralization of school financing in California does not appear to have been improved quality across the state. It has, however, led to the hollowing out of local government.

Fischel’s Making the Grade, a history of U.S. school districts, offers further thoughts on the merits of local school financing. Among other things, he suggests that local public schools provide localized social capital, or “Rolodex-enhancement,” for the parents of local children. This isn’t in itself a strong case for local financing. It is worth keeping in mind, however, that while there is a broad consensus that urban and rural public schools serving low-income students tend to be of very poor quality, middle-income and affluent parents tend to choose their schools, through their real estate decisions, and to be satisfied with them. (I recommend listening to Russ Roberts’s interview of Harvard Kennedy School economist Lant Pritchett, author of The Rebirth of Education.) And if I’m right (contra Salmon) to believe that nonparents in well-regarded school districts understand the ways in which they benefit from financing local schools, it’s not clear what problem federal financing of these schools would solve, leaving aside the potential benefits of decentralization.

To address the supposed problem of local financing, Salmon proposes sharply increasing federal education expenditures. Having addressed the wisdom of centralizing expenditures, let’s assume that Salmon believes that increasing federal expenditures is meant not to crowd out state and local financing but rather to lead to a net increase in per pupil expenditures. Do we have any reason to believe that increased K-12 expenditures will yield improved performance? No, I don’t believe we do. As a Manhattan Institute scholar, Josh Barro assessed the difference in educational outcomes between Massachusetts, a state that has seen relative restraint in the growth in per pupil spending since 1980, and New Jersey, a similarly affluent state which has not. “Despite their lower spending levels,” Barro observes, “Massachusetts’s public schools are the country’s clear top performers,” and their performance far surpasses that of New Jersey across all demographic groups with the exception of students of Hispanic and Asian origin. Notably, Massachusetts outperformed New Jersey among low-income students and English-language learners, despite lower spending levels.

A two-state comparison is hardly dispositive, and because the federal government doesn’t gather useful dating on return on investment, we don’t have very good data to assess the return per pupil expenditures across jurisdictions. That said, a number of scholars, led by Stanford economist Eric Hanushek, have contributed to our understanding of this issue. Hanushek’s finds that there is “no systematic relationship between resources and outcomes once one considers families and other factors that determine achievement.” This is not to suggest that additional resources wouldn’t lead to improved performance; instead it tells us that adding resources to current schools won’t yield much if any improvement. The real challenge is to raise productivity, and there is no reason to believe that centralizing K-12 financing will raise productivity.

Moreover, Salmon claims that the student-loan crisis is “essentially an artifact of the way in which US society forces individuals to pay for their own education, even though that education will ultimately benefit society as a whole,” a misconception that fails to reckon with the role of graduate student debt, which accounts for 40 percent of the $1 trillion in outstanding student loans. Though I’m sure that graduate education generates spillover benefits in some cases, it’s not obvious that it generates spillover benefits in all cases. Does the U.S. benefit from having a larger number of JDs, for example, or do the students completing law school capture the lion’s share of the benefit, and should they pay for their JDs as a result? Primary care providers serving underserved neighborhoods might fall in a different category. It seems to simplistic to suggest that some undifferentiated thing called education will always and in every case ultimately benefit society as a whole. (This is one reason, incidentally, why data transparency is crucially important.) The student-loan crisis reflects underlying cost growth coupled with low completion rates and underemployment. The cost growth problem won’t be solved by reducing net prices through increased subsidies. It can only be solved through the emergence of new low-cost instructional models. If anything, simply increasing subsidies to nonpoor students in the absence of a commensurate increase in the supply of providers might actually exacerbate cost growth, as higher education incumbents will capture some share of the increase. This is not to suggest that the federal government can’t play a constructive role — Andrew Kelly has convincingly argued that it can. And increased spending for poor students might very well be worth it. But the issue isn’t the level of spending.

While I agree with Salmon that we need much better federal education policies, his thesis — that it would be smarter to “just spend a lot more money, at the federal level, on education” — fails to reckon with the real barriers to improving educational and labor market outcomes for American children, which are first and foremost barriers to the emergence of innovative instructional models.

Reihan Salam is president of the Manhattan Institute and a contributing editor of National Review.

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