Learning Curves Topic
  • Digital Content & Curriculum
Learning Curves
SUBSCRIBE TO LEARNING CURVES
April 10, 2020

Recessionary Impact on Education: 2008 Versus 2020

MHT Partners  | Education Investment Bank

In the past two months, the U.S. saw a sharp 35% decline in the equity markets driven by the COVID-19 pandemic as well as global oil market turmoil. By comparison, the 2008 Great Recession saw a nearly 50% drop in the markets due to the collapse of the housing market. Despite having very different catalysts, both recessions resulted in sweeping impacts to most sectors of the broader economy. Let’s look at how 2008 impacted the education sector and whether we should anticipate similar effects in 2020.

Following the Great Recession in 2008, the 2009/2010 school years marked the first time in 50 years when education spending contracted nationwide. K-12 spending declined from $610 billion to $601 billion from 2010 to 2012* and did not exceed 2009 levels again for five years. The greatest impact on schools and students occurred from 2010 to 2012, representing a noticeable delay from the effects felt by the general economy. How so? A couple of variables were at play.

  • First, federal stimulus funds provided nearly $100 billion to the Department of Education with the purpose of delivering emergency funds to states. Nearly two-thirds of that money was awarded by late 2009, which then buffered education budgets through 2010. However, the expiration and roll-off of these funds in 2011 and 2012 were then felt throughout the U.S. education system.
  • Tax revenues directed toward education by state and local governments also influenced the delayed effect on education. State tax structures vary widely, driven primarily by sales and income taxes, while local budgets are supported primarily by property taxes. Assessed property values often lag market values, which helps to support property tax revenues in a recession, at least initially. However, in a multi-year recession, property values and corresponding tax revenues will eventually decline. This funding dynamic upheld education funding at the local level during the worst years of the Great Recession. Consequently, the education market was subsequently impacted in an “echo fashion” and to a lesser degree than the broader market from 2010 to 2012. School budgets tightened due to the ongoing decline of local tax receipts and without additional federal aid.

So, will the COVID-19-induced recession in 2020 have the same effects on education as those seen in 2008 through 2012? First and foremost, it is generally understood that faster falls of the economic markets lead to shorter recoveries. So far, the 2020 bear market is less extreme in percentages, but the month-long window of declines is also much shorter in comparison to the slow and steady 16-month decline from mid-2007 to early 2009. While no one can predict with certainty if the bottom has already been reached, the steep drop in the markets thus far are much more sudden than in the prior Great Recession. While sales and income tax revenues will certainly be impacted by the COVID-19 pandemic, assessed home values and associated property tax revenues are less likely to be affected if the recovery occurs within one year, which suggests education funding will also be less impacted.

Furthermore, the 2020 CARES Act earmarked over $43 billion in stimulus funding for education, with approximately $14 billion dedicated to K-12. This figure represents a fraction of the $100 billion in education funding from the American Recovery and Reinvestment Act of 2009 (“ARRA”). When we refer back to the time span of the Great Recession, a majority of ARRA education funding was intended to shore up state funding for public schools. It was a tremendous cost to restore the total level of public education funding for 2010, 2011 and 2012 to that of 2008 and 2009 levels. Education experts question whether $14 billion in federal stimulus is enough for sustained support of weeks, or potentially months, of school closures. That said, there may be potential for additional funding for education in future phases of the stimulus package if they occur.

As the saying goes, ‘only time will tell.’ If this recession lasts only a matter of months, public education spending may not see any decline at all. The question is less about whether public education funding will survive this economic downturn, but how far the government will have to step up to maintain status quo for students across the U.S.

Source: NCES, Department of Education

Submit a Comment

Your email address will not be published.