What Happens if a State Raises Education Spending?

For many years, we have questioned whether increased expenditures on schools mattered. Money does matter. New research confirms it. This new research comes as states like Michigan pass legislation to increase funding to schools, and Arizona considers Governor Ducey’s proposal to use proceeds from the State Land Trust to increase funding of Arizona’s schools.

It is reasonable that there have been doubts about the impact of money on education quality. Resources can be spent on infrastructure, administration, and other non-instructional expenses. Many doubt that these non-instructional expenditures improve learning outcomes and the quality of education. New research addresses those doubts and makes the case for the impact of money on a state’s educational quality and state GDP. The research comes from the National Bureau of Economic Research (NBER). It includes two recent studies, Human Capital Quality and Aggregate Income Differences (Human Capital), released this week and The Effects of School Spending on Educational and Economic Outcomes (Spending and Outcomes), released a few months ago.

The most recent study on Human Capital attributes up to one-third of variation in state GDP to the quality of a state’s human capital. It demonstrates this result over a four-decade period. The study makes the case for state investment in attracting a highly skilled workforce and growing that workforce with investments in the quality of the state’s educational system. The authors conclude, “The importance of human capital, and particularly cognitive skills, provides support for policies of various states that are aimed at improving the quality of schools.” The research supports the recent actions of Michigan and the plans of Arizona.

The Spending and Outcomes study from NBER links increased funding of education to important, desirable outcomes, including higher graduation rates, lower subsequent adulthood poverty and increased wages. It shows the greatest effect of a state’s investment for low-income children who are often educated in the poorest of a state’s school districts. The study examined how a district spends additional resources. School districts could spend more on support services, physical capital, and instruction. In considering instruction, the study looked at student-to-teacher ratios, student-to-guidance counselor ratios, teacher salaries and length of the school year.

The study found that about 80% of the marginal increase in funding was spent on instruction with more of the increased funding going to instruction than any other area of the budget. It concluded that the positive results for a state’s increased spending are primarily driven by reductions in class size, increases in instructional time (e.g., longer year or elimination of 4-day school weeks), and increases in teacher salaries that result in attracting and retaining more highly qualified teachers.

For states that raise funding of schools, then, there are very positive outcomes. In addition to the demonstrated impacts on high school graduation rate and increased state GDP, there are other benefits that can be derived from the outcomes. Companies depend upon the quality of the human capital in the labor force, and a better-educated citizenry raises the state’s economic development potential. With lower poverty, there is likely to be depressed demand on services like Medicaid for the poor. Prison populations may well drop, thereby decreasing the need for more funding. With higher wages of citizens and higher state GDP, there is likely to be more tax revenue without pressure to raise tax rates or search for new forms of taxation.

These two studies from NBER make the case for increased state expenditures on education.   The research demonstrates that the expenditure on education is an investment with substantial positive outcomes. That is what happens when a state raises funding for its educational system.


America’s Future Labor Force as a Majority-Minority Nation

America’s economic prosperity is at stake. For those of us committed to economic development, this is serious. Our future is in jeopardy. We have it within our power, however, to mitigate the risk. Between 2040 and 2060 projections from the US Census Bureau data are that the US becomes a majority-minority country. The state of Arizona does so by 2025; California, New Mexico and Texas are already majority-minority. It is now clearer than ever that our future prosperity will depend upon the minority population’s preparation for the workforce. This more diverse workforce is the future of American business labor.

The issue of workforce preparation and education was thoroughly addressed a few years ago by a Commission appointed by then Secretary of Education, Margaret Spellings. In meeting her with other university presidents, I was impressed with her understanding of the linkages among higher education, K-12 and America’s labor force. The Commission’s final report found that

America’s national capacity for excellence, innovation and leadership in higher education will be central to our ability to sustain economic growth and social cohesiveness. Our colleges and universities will be a key source of the human and intellectual capital needed to increase workforce productivity and growth.

In that report and in previous, preliminary draft reports, the Commission linked our future economic prosperity to the capacity of K-12 education to prepare students who were ready for college at graduation. Readiness for college in math, language and science is essentially the same for readiness for work. A major effort to raise high school standards ensued with the focus on college and work readiness.

As we approach a majority-minority US population by mid-century, the failure of our educational system becomes ever more alarming. A college education is increasingly essential for job preparation, and completion of high school is a prerequisite. Yet, too many minority students in our K-12 schools are still not succeeding. Across the US only 58% of Hispanics and 57% of Blacks graduated from high school while 85% of whites graduated on time in 2013. An alarmingly low number of Native Americans – only 49% – graduated on time.

There are policy initiatives that we can adopt in order to change the dismal future that appears to lie ahead. I will mention only a few:

  • Adoption of higher state and local standards that are linked directly to college and work readiness. The Common Core, despite the controversy, is focused on raising standards and increasing college and work readiness;
  • Access to private and charter schools for minority and low-income students. States like Arizona have led the way with charter schools and the introduction of rigorous reauthorization processes by the Arizona State Board for Charter Schools;
  • Higher teacher pay for schools that are remote and rural, e.g., schools on Indian reservations and low performing schools in city centers; and
  • Adoption of Move on When Ready, a program that the Center for the Future of Arizona has embraced from the National Center for Education and the Economy.

Educational policy choices are tough to implement. There is good reason. We experienced K-12 education, and we have strong feelings about it. But a failure to adopt innovations, a failure to introduce policy changes, and a failure to invest public money in selective policy changes is a mistake. We need to alter what appears to be a future of limited economic prosperity. It will become too late by mid-century. We still have a chance.

Faculty Productivity and Costs of a Higher Education

In my most recent blog on what higher education can learn from K-12, I pointed to the potential of the flipped classroom coupled with technology for increasing learning. Essentially, the flipped classroom allows the teacher to concentrate on more active engagement with learners, adapting to the needs of the learner, with students’ applying what is being learned during classroom time rather than listening to a lecture. What makes the flipped classroom a reality today for K-12 – and for colleges and universities – is the role that technology plays.

What I did not address in that last blog was the role that technology and the flipped classroom can play in raising faculty productivity and in lowering costs to students and families. The cost of a college or university degree remains a barrier to our achieving President Obama’s 2020 goal of having the U.S. become the country with the highest percentage of its students’ graduating from college. Besides its negative impact on demand for college degrees, rising costs of a college education are responsible for growing consumer debt. A recent report from the Federal Reserve Bank of New York outlined an increase of $64 billion in student loan balances over the last year, while household debt from all other sources (e.g., mortgages, auto loans, credit card balances) fell a combined total of $383 billion.

Making the U.S. competitive globally was the intent of the President’s 2020 college education goal. But its achievement seems unlikely without addressing the rising costs to a student and family for a college degree. A very large proportion of a college’s expenditures remains its instructional budget. For example, Colorado State University reported this year that 31% of expenditures were for instruction and academic support with the next largest category being research at 22%. Both expenditure areas are heavily driven by faculty expenses. Raising productivity of faculty, then, becomes one means to lower the price of a college degree.

Admittedly, substituting technology for some faculty expenditures will not be cheap or easy. Technology expenses include hardware and software as well as related support staff, training, etc. Despite the costs of a transition to greater use of technology in the college learning environment, the alternative is continued increases in tuition. The public seems unlikely to tolerate continued tuition increases for a college degree, and the federal government is already increasingly intolerant of growing student loan debt.

There is every reason to look more closely at this concept of the flipped classroom in higher education. Perhaps it can be the means to raising faculty productivity, integrating technology into the learning process, and holding down tuition costs.