School funding crunch, part 4
In addition to the factors I've already highlighted as contributing to a near-future financial challenge for public education, we should also consider the impact of the current subprime mortgage lending issue. Remember that close to half of the money for public education comes from local sources, primarily property taxes (see here), and unlike the federal government, state and local governments do try to maintain a balanced budget (see here - $$ required for full story).
It's possible that city, county, and state governments will get hit hard by challenges in the housing market, since there's a cascade effect involved here.
First, we'll see defaults on a certain number of subprime mortgages, and this is projected to get worse over the next year or so. According to this article, 2 million mortgages will reset this year and next to higher rates. And local governments will lose out on property taxes on these homes.
But these homes aren't out in a field somewhere - they're embedded in communities. And whether it's just one or two homes or a whole cluster, abandoned homes will bring down the property values of other homes in the area - and, as the Wall Street Journal notes (here again), homeowners will be quick to demand reappraisals.
Furthermore, with more homes on the market, fewer new homes will be built, which means few licenses and permits (also revenue sources for local governments), fewer construction jobs, and fewer sales of housing materials. And even beyond that (again, according to the WSJ), we can expect to see reduced sales in home improvement, home services (landscaping), and even luxury items, as people see their equity go down.
All of this will tighten local tax purses, which will certainly hit public education at some point in the very near future; in fact, the National Council of State Legislators have already stated that revenues have peaked and are on their way down. Adding this to other, longer-term issues, like the aging population, and it looks like the long-term funding crisis may see something of an early start.
How will schools and districts react? Will they batten down the hatches, or reach out their community stakeholders to ensure their vitality?