State Education Spending: Current Pressures and Future Trends

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Abstract

Education expenditures are one of the largest spending areas for state and local governments, and per–pupil expenditures have been growing over time. We examine trends in state aid for education and overall education spending and decompose the existing drivers behind growing state costs. We then explore how predicted future demographic trends will affect education spending levels, as the percent of the population that is of school age falls. We conclude that there will continue to be a large state role in education funding, but demographic changes may lead to reduced political support for schools in the future.

Introduction

Since the 1983 report A Nation at Risk, states have increased their focus on almost all aspects of education. For example, states on their own or in response to federal mandates developed new curriculum standards and accountability systems. Many states have increased state aid to reduce the disparity across school districts in per–pupil spending. And fi nally, many states mandated class–size limits. Not surprisingly, this focus has put upward pressure on education spending. While elementary and secondary education expenditures on a per–pupil basis have been growing over time, education expenditures have been relatively stable as a percentage of state budgets (about 22 percent) over the last 20 years. This relative stability is due in part to the fact that expenditures for other state responsibilities have been growing both in overall levels and as a share of state budgets. The most notable of the growing non–education expenditures are state Medicaid expenditures, which have grown from $56.6 billion in 1985 to $267 billion in 2005 and have surpassed education as the largest state spending item. These trends will likely continue as the baby–boom population ages and is expected to live longer, putting upward pressure on Medicaid spending and crowding out other priorities, including education.

Changes in demographic trends across population–age cohorts could have important implications for the need for education spending and the political support for education. As a share of the population, the elderly are expected to grow relative to the share of school–aged children and working adults. Public support for education spending is lower among the elderly, who receive less direct benefi ts from education than other age groups. States’ ability to allocate funds to education may be constrained by pressure from other programs with greater political support. While the percentage of the population that is of school age is forecasted to fall nationwide and in all states, the number of children is expected to grow in some states. These states, given trends in declining class sizes, can be expected to face pressure to maintain or increase spending. While in states with declining school–age populations the need for overall education spending may fall, nationwide the growing student population, coupled with an increased share of disadvantaged and disabled students, indicates a growing need for education spending. However, if demographic changes weaken the political support for education, it may become increasingly diffi cult to pay for this additional spending.

Will education spending continue to grow on a per–pupil basis or will it be crowded out by other state programs? In this paper we examine current trends in education spending and whether these trends are expected to continue, examining the cost components that have led to increased per–pupil spending levels. We present national trends in the growth and composition of total public K–12 education resources and compare this growth to changes in student and total populations. We demonstrate how states have increased their share of education spending and how this growth in education spending compares to other state budget items. We examine the causes behind the shift to more state fi nancing of education and how states allocated the rising expenditures across different spending categories. We then look forward, fi rst describing the predicted changes in the age and racial profi le of the U.S. and then examining how we expect existing spending trends and future demographics to interact and affect education spending. We think existing spending trends will continue, putting pressure on states to increase per–pupil spending, but political considerations prompted by demographic changes, especially reduced support for schools as the population ages, might mitigate this effect.

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The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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