A Mixed Bag: Ed Funding and the 2015-2016 Budget Outlook
→ Anne Wujcik, Education Research Analyst, MDR; Managing Editor, EdNET News Alert
The budget outlook for the 2015-2016 school year is a mix of good and bad news, which is an improvement over the past few years when there was very little good news to share. The federal budget for education, especially the K-12 segment, is slated for a big hit if Congress has its way. Most state education budgets, on the other hand, have seen at least some growth, reflecting the generally improved economic condition of the states. Remember that the U.S. Department of Education supplies only 10% of overall K-12 funding. State and local revenues supply the other 90%, in roughly equal proportions.
The Bad News
Let’s look first at federal budget details for FY2016 (Oct 1, 2015 to June 30, 2016). Early in 2015, both the House of Representatives and the Senate pledged to respect the FY2016 funding cap established by the Budget Control Act of 2011. Doing so means that overall discretionary spending for FY2016 can rise by less than 1%. That sets up a scenario in which increases in one program can only come at the expense of cuts to another.
Both the House and Senate Appropriations Committees have passed FY2016 Labor, Health and Human Services and Education appropriations bills, which fund the U.S. Department of Education. The House spending plan funds the department at $64.4 billion, $2.8 billion below the current funding level and $6.4 billion below the President’s FY2016 budget request. Democratic efforts to restore funding to specific programs were all defeated. The Senate bill funds the Department of Education at $65.5 billion, a $1.7 billion decrease from FY2015.
The path forward for the education appropriations is not clear. The President has threatened to veto any appropriations legislation that adheres to the sequestration cap, setting the stage for a major confrontation later this year. If a federal budget is not in place by the September 30 deadline, Congress will pass one or more Continuing Resolutions while they work out a final deal. Continuing Resolutions hold new spending level with that of the previous fiscal year. The schools are very familiar with this mechanism, but if this is the scenario, they will be very cautious about any discretionary spending until a budget is in place. And while the threat of a $2 billion to $3 billion dollar cut is a real cause for concern, in the end the bread-and-butter federal programs that the schools rely on—Title I, IDEA, English Language Learners, Career and Technical Education—are held level in the House and Senate appropriations bills, so the schools will be able to absorb the cuts to smaller or less central programs.
The Good News
There’s much better news at the state level. By FY2015, according to the National Association of State Budget Officers (NASBO), most states had surpassed pre-recession revenue and spending levels—a key milestone in recovery. K-12 education is a major beneficiary of this recovery. Forty-two states recommended general fund spending increases for K-12 education in FY2016, for a net increase of $10.2 billion. Thirty-three states recommended FY2016 increases for higher education for a net increase of $2.6 billion. The five-year outlook is for a compound annual growth rate of between 2% to 2.5% for both revenues and expenditures.
States spend a significant amount of their overall budgets to support education. According to NASBO, states devote 20% of their overall spending to K-12 education and 10% to higher education. When looking only at general fund spending, K-12 education is the largest state spending category, accounting for 35% of general fund spending. Higher education accounts for 9.4%.
It’s important to know that states vary in terms of their fiscal health and overall spending patterns. According to the National Education Association (NEA), average per-pupil expenditures in public schools for the 2013-2014 school year ranged from a high of $21,263 in Vermont to a low of $7,143 in Arizona. Eighteen states spent more per pupil than the national per-pupil average of $11,355. Fifteen states spent less than $9,000 per pupil. Any educational materials supplier that derives a significant proportion of sales from a specific state needs to pay careful attention to that state’s economic outlook and its education policy and funding debates, in order to avoid any potential unpleasant surprises.
What do budgets and spending look like from the schools’ perspective? MDR conducts school expenditure research on an annual basis, collecting information about public school districts’ spending for all instructional materials (AIM). AIM is defined as all supplies and materials used for instructional purposes, including textbooks, instructional supplies, books, magazines, and newspaper subscriptions purchased for the school library, educational media, and software, but excluding hardware technology.
As reported by MDR, total AIM expenditures for K-12 public schools were $11.8 billion in 2013-2014, a 9% increase and the first increase in AIM spending since 2007-2008. Though still not back to pre-recession levels, this dramatic increase pumped over $964 million into the school materials market compared to the prior year’s baseline AIM spending. Increased instructional materials spending not only reflects districts’ overall improved budget outlooks but also the willingness of districts to spend money for discretionary items, such as art and science supplies and digital resources. Level federal funding and the slow but steady increases in state funding have allowed schools to begin to look beyond just holding the line.
Districts Poised for Increased Purchasing
The instructional spending outlook should remain strong according to MDR’s State of the K-12 Market 2014 report, which is based on proprietary research with education decision-makers. After years of cutting back on purchases of instructional resources, districts reported plans to purchase instructional resources in the core subject areas of math, English language arts, science, and social studies. Roughly one-fourth to one-half of districts planned to buy instructional materials in at least one of four core subject areas in 2014-2015. This is driven, in part, by improved instructional budgets. One in four districts expected their 2014-2015 instructional budgets to increase, up from 16% the year earlier. In addition, 26% of districts expected their 2014-2015 technology budgets for software to increase.
The implementation of the Common Core State Standards and experimentation with new instructional models like blended learning, flipped classrooms, and personalized learning have helped to drive instructional materials purchasing. Teachers need materials aligned to the standards and that support these new instructional approaches. More than 70% of districts planned to purchase new materials for Common Core implementation, and support of personalized learning was rated as the most important consideration when districts decided what digital instructional materials to purchase. To speed their progress on delivering personalized learning, districts said they need more modularized content (55%), recommendation engines that map instructional materials to students’ interests and strengths (54%), and better identification of/ability to locate content (50%). As schools learn more about which learning models work best for individual teachers, students, and subject areas, more widespread adoptions can be expected, with a resulting increased demand for high-quality and engaging instructional resources.
The bottom line is that education funding is the strongest it’s been since the onset of the recession based on growing state and local revenue increases. As long as the economy continues to improve, American schools can expect to see slow but steady budget growth, and providers can expect to see the results of pent-up demand for instructional materials, classroom supplies, and more.
Anne Wujcik has more than 30 years of education and publishing experience. She is an Education Research Analyst in MDR’s Market Research department and Managing Editor of the EdNET News Alert. Anne is also part of the EdNET Insight team, MDR’s research and information service that delivers decision support services to industry leaders.