March 7, 2021
Our Biggest Economic Challenge Is School Funding
Last week’s column on school funding in Indiana stirred a great deal of conversation around the state. I am glad it did, but cannot take credit for the interest. Most Hoosiers are keenly attentive to their local schools and concerned about the economic performance of their cities and towns. These issues are intimately linked, yet too few Hoosiers appreciate how fully they are connected. For example, more than one person tried to explain that we could not afford more money for schools because higher taxes would slow the economy. He was wrong.
My column is not politically biased; a desire for a better economy is hardly a partisan position. I’m an economist, and insofar as I have anything useful to write about education, it is about its effect on the economy.
Among the most repeatedly demonstrated facts in the social sciences is the link between educational attainment and economic performance. On average, better-educated people are more productive, which means they produce more per year in goods or services and earn a higher income. Likewise, better-educated counties are more productive and earn more income. This relationship holds for cities, states, nations and continents. This is no accident.
Better educational attainment both causes and is caused by a better economy. Educational attainment is the most important factor in determining regional economic conditions, and the performance of schools is the most important factor in household location decisions. A well-educated place attracts more well-educated families. Those relationships can hardly be in doubt. But, how import is school spending on educational attainment?
The report from the Teacher Pay Commission mentioned several studies from the nation’s top education economists. Among the 379 footnotes were studies from the Hoover Institution, a highly respected conservative think tank. They raised precisely the same concerns I did last week. The report also cited the nation’s top K-12 researcher, whom I would describe as a center-left economist. His study notes that when it comes to educational outcomes, “the question of whether money matters is essentially settled.” He is right; education dollars do matter, and it is time for Hoosier taxpayers and policymakers to acknowledge this. As I wrote last week, if we spent the same share of our state’s GDP on education that we did in 2010, it would be $1.3 billion more per year for schools.
I am well aware of Indiana’s claims and nationwide reputation for having a good business climate, low taxes, a modest regulatory burden and a ready workforce. Unlike some, I have no doubt that Hoosier policymakers who undertook these policies did so with the best of intentions. They want the economy to grow, and they felt this was the right path forward. I used to believe that myself. But when the facts change, I change my mind, as should we all.
From the summer of 2009 when the recession ended, through the end of 2019, Indiana grew at only 41 percent the rate of the nation as a whole. For all our claims about having a strong workforce, a good business climate and smart regulatory policies, the facts say otherwise. Businesses and families are overwhelmingly choosing places other than Indiana. It’s time to do something differently.
As I described last week, Indiana spent the last decade reducing inflation-adjusted school spending by a full 7.0 percent per student. This happened during the longest economic expansion in U.S. history, when we should have been making historic investments in people and places.
This won’t be popular, but I think the evidence demonstrates the school choice reforms were largely effective and should remain an integral part of education policy. I think both micro studies of student performance and the state’s overall test scores suggest school choice is a net benefit. But, simply imposing competition on local schools was not enough. We took the wrong lessons from the early successes of school choice and neglected the rest of public education.
The best way to think about this is to consider what Hoosier families did when they were offered educational choice. Most chose to stay where they were, in part because family location decisions are so heavily influenced by local school quality. So, 86.4 percent of kids attend their local public schools.
But, among families who chose other schools for their kids, the number one choice was another public school. Even with vouchers, private school enrollments crashed by 21 percent since 2007. Last year another 5.8 percent chose a different local public school, 4.1 percent chose a charter school, the plurality of which are run by local public schools. Only 3.3 percent chose a private school voucher. If you admire the usefulness markets have in signaling value, it is pretty obvious where the value in K-12 education lies.
Today, the biggest risk to continuing Indiana’s successful school choice experiment isn’t a teacher’s union or courts. The biggest risk to school choice is that it will be blamed for the heavy budget reductions for everyone else's education and the lackluster economic outcomes that resulted. If you support continued school choice, you must also support the 86.4 percent of families who choose local public schools.
The recovery from the COVID recession will favor people and places with strong educational attainment. The next decade will amplify the trends of higher demand for educated workers. Without vigorous intervention, this will prove tough for Indiana’s economy. We should do everything we can to prevent another failed recovery like the last one. Dedicating more resources to education is the most urgent remedy we can undertake.
Finally, education alone won’t solve the problem, and a teacher’s pay increase won’t, by itself, solve our educational challenges. We need more Hoosiers to leave high school and then graduate from college. We need to attract more educated people from other states and nations, and we need to make more of our communities inviting to new residents. Doing all of this takes time, and it involves much more than additional tax dollars.
Still, our local schools serve two key functions. They both produce the foundation of educated people and serve as the most important magnet for those families who value education. Indiana’s unwillingness to sustain school funding and expand educational attainment sends a strong signal to businesses and families around the nation. The question isn’t really whether or not we can afford to spend more money on education in Indiana. The real question is how can we afford not to?
About the Author
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