The DeHavilland Blog

Thursday, October 11, 2007

The coming funding crisis, part 5

I’ve written before about what could be a fundamental change in funding for K-12 education in the near future. A couple of recent news items that reinforce that premise:

The Wall Street Journal,
through an in-depth analysis (subscription required), noted that the subprime lending issue is going to be far worse, and far more widespread, than people thought at first. Remember that property taxes are a substantial source of revenue for local governments, which in turn provide close to 50% of the funding for local schools.

Increased property values over the past several years, and the property tax revenue that has resulted, has made it easy for local officials to increase funds to K-12 education. Once property values are readjusted downward, and defaults increase, there will be much less revenue available – and schools will feel the pinch.

The United Auto Workers (UAW) just
inked a deal with GM that shifts much of the burden of healthcare costs to a union-established trust fund, a move that transfers up to $51 billion in liabilities to the union. This highlights the issue of healthcare costs, which are rising at approximately 10% annually. According to USA Today, the cost of Medicare alone has risen from $7.1 billion in 1970 to an expected $787.4 billion in 2015.

The implications here are twofold. First, government employees (including those in the K-12 system) typically enjoy a solid benefits package, and the cost of healthcare for these employees is substantial and will continue to grow. Money spent on benefits packages will be unavailable for other areas, such as facilities and instruction; considered against a static or shrinking budget for the system, these costs will create a major challenge for school and district budgeting.

Next, as the boomer generation continues to age, federal, state, and local healthcare obligations will continue to grow, effectively removing more and more funds from public budgets. Again, K-12 education will feel that pinch.

It’s certainly true that this country has faced economic crises in the past and that we’ve always found a way through (though not always along a painless path). And it’s certainly true that there could be a way to address all the major changes I’ve been flagging over the past few months.

But I haven’t seen it – and I believe the wiser course of action would be to prepare for a harsh economic climate for K-12 education than to look for a “white knight” solution that can make all of these issues disappear.

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