California Schools Are Particularly Vulnerable

Our last post presented the case that the federal government needs to provide significant new funding to support public schools, including funds to extend the current school year into the summer, support special education, thwart hunger and equip schools for distance learning.

California's education system is particularly vulnerable, as this post will explain. The challenges are serious. They are also preventable, with new and significant federal support.

Big Needs

Even before the pandemic, California's students already faced huge disadvantages. Over half of students live in households poor enough to qualify for free meals at school. Half of students are learning English. Many lack a reliable place to sleep — California's rate of child homelessness, over 4%, comes within a whisker of being America's worst. In some parts of the state one student in five lacks stable housing. With unemployment now exploding, those conditions will get worse.

Low Commitment to Education

Relative to other states, California skimps on public education. Even in California's version of business as usual, the state commits significantly less of its wealth to public education than other states do — and it has done so for decades. As a result, year after year California kids get less of everything that matters, from access to preschool to access to the internet to access to teachers.

To be clear, California's nominal funding for education (in terms of dollars per student) is pretty average — but this is a mirage. California is a costly place: Rents are high. Wages are high. Dollars just don't go as far. Real funding for public education in California has lagged other states since the 1970s. This sustained weak investment has been reflected in weak education outcomes across the board, but especially among the state's most vulnerable.

Constitutional Barriers to Funding Schools

Why does California spend so meagerly on public education? Part of the reason is constitutional: unlike other states, California mostly funds education using income taxes because voters in 1978 passed Proposition 13. This initiative, passed in a moment of high inflation, dramatically limited the capacity to levy property taxes, which had long been a key revenue instrument for public schools. It also suppressed assessed values for both residential and commercial property. (Note: a ballot initiative has been approved for the November 2020 ballot that will ask California voters whether to gradually stop shielding large commercial properties from being assessed at market value.)

After Prop 13 severed the connection between local property taxes and local school funding, funding for schools drifted downward. Voters of yesteryear passed Proposition 98 and other formulas in the state constitution in an effort to prop up the share of state tax receipts that goes to schools. It worked, arguably, but the Prop 98 "guarantee" can serve as both a floor and a ceiling for K-14 education spending. The net effect is that each year's funding for education is largely determined by law and fate. When tax receipts drop, within a year or so the education budget does, too, like draining a hose.

Bear Markets Eat School Funding

Which brings us to today. Bad news in the stock market is bad news for schools. When the market is up and individuals or businesses sell stocks at a profit, at tax time the state collects a portion of the capital gain. Rainbows fill the sky, school districts hire teachers, and the green grass grows all around.

Here come the pink slips.

Conversely, when individuals and businesses lose money in the market, they book a taxable capital loss. Losses offset past gains at tax time. The stock market this year is incredibly volatile, and historically that has been very bad for schools. Accumulated losses can offset gains for years, which means less tax collected for years, which means less funding in the state's general fund for years, which means less money in the Prop 98 account for years, which means less money for schools for years. The skies cloud over, districts hand out pink slips, and only grickle grass grows.

Bear Markets Eat Pensions, too

As if that's not bad enough, stock market losses amplify the harm to schools in another way: through pensions. As explained in Ed100 Lesson 3.11, pensions are a significant element of the compensation system for California's public school teachers. CalSTRS (the state's pension system for teachers) is one of the largest pension funds in the world, and since the dot-com bubble of 2000 unfortunately also one of the most troubled.

Even after the longest bull market in Wall Street history, CalSTRS entered 2020 with $107 billion in unfunded liabilities. To keep the teacher pension system afloat, school districts and the state have already been diverting increasing amounts of money from classrooms. Market downturns can shred pension funds, and the market losses of 2020 may make an already bad problem much worse.

What About the Rainy Day Fund?

Without significant new federal funds, teacher layoffs will be massive.

On the plus side, the state now has rainy-day reserves. Unfortunately, the reserves for the education portion of the budget are nowhere close to sufficient. As explained in our prior post, the CARES act promises little but budget dust for education — significantly less than 1% of the CARES total. Absent major federal action, there will be layoffs in California public schools, and they could be massive.

The bottom line: Without major federal action specifically targeted to K-12 education, California's education system is going to hurt for years.

Who Gets Hurt?

When schools lose funding, kids get hurt.

As school district budgets shrink over the coming year, districts will be looking for ways to shed headcount. It has been awhile since we were in this phase of the boom-bust cycle, so here's a short summary of what lies ahead: Bound by their contracts with teacher unions, school districts are usually obligated to keep teachers with the most seniority, so they tend to lay off or furlough the newest teachers. Depending on the terms of individual employment contracts, districts may be able to make exceptions, for example to retain teachers certified in hard-to-replace specialties such as special education.

Charter schools are the odd one out in the politics of this moment.

School boards can't do much to change the amount of money districts are apportioned from taxes, so they will try to cut costs and do the best they can, using budget reserves to soften the blow. Especially in communities with declining enrollment, it may make sense, economically speaking, to close some schools. These decisions, never easy, might be freshly difficult because school board members in large districts are now directly associated with specific schools.

Charter schools are the odd one out in the politics of this moment. Charter school advocates have lost a significant amount of political power in California. Some opponents of charter schools may use this moment to advocate for closing charters when they come up for renewal. Standardized testing has been canceled this year, so there will be limited basis for valid comparisons.

What To Do Next

On present course and speed, Covid-19 will be a disaster for public schools, and a disaster for children. Only the federal government has the capacity to prevent this. It's a matter of money. Legislators need to hear from constituents about the need for the federal government to sustain public education in this critical time. Phone calls and messages matter. With funding, some of the harm to children can be prevented. Children are worth investing in, especially when times are hard. Our prior post listed six ways the federal government could prevent Covid-19 from being an educational disaster, especially by acting now to extend the current school year into the summer.