Education reform and stimulus spending

So far, the President hasn’t had much success at convincing Congress that additional stimulus spending is needed. Congress failed to extend various programs over the last two months, including $35.5 billion for unemployment benefits and $16 billion for Medicaid. This created immediate problems for more than 30 states who had adopted budgets based on the assumption that Congress would pass a Medicaid extension. States now start the fiscal year facing unpleasant budget cuts, including in education, in order to address the shortfall (see governor reactions here and here).

Part of the challenge is that Congress is running out of easy offsets and increasingly is resorting to more creative approaches and gimmicks. For example, to avert a 20% cut in Medicare physicians fees, Congress enacted a six month “DocFix” with a ten year cost of $6 billion – paid for, in part, by allowing businesses to postpone contributions to their underfunded pension plans. In other words, Congress is paying for new spending by making it easier for corporations to underfund employee pensions.

That is the context in which the EduJobs bill was introduced. From day one this was framed as an economic and budget issue because the $23 billion to help save some 100,000-300,000 teacher jobs was part of a $53 billion stimulus package that contained only a few offsets. So it immediately raised the question of whether it made sense from an economic perspective, in addition to the merits of the education reforms.

It didn’t help that the Administration gave Congress mixed messages. Secretary Duncan sent a letter to Democratic leaders on May 13 endorsing the EduJobs bill but the White House failed to include it in their list of official budget priorities. The White House tried to recover by sending a letter from the President endorsing the package. However, the letter seemed only to further upset Congressional leadership who were trying to discern the Administration’s spending priorities and how they wanted to pay for them. House Appropriations Committee Chairman Dave Obey quipped “The letter is nice, [but] we still don’t have an official budget request.”

Since the Administration offered no offsets, Representatives Obey and Hoyer then signaled that if the Administration wouldn’t offer suggested offsets, they would explore using unspent stimulus money to help pay for the costs of the stimulus measures.

And that’s exactly what Rep. Obey did. His amendment skimmed $800 million off the President’s signature education reform initiatives, including Race to the Top, to pay for the teacher fund. The move was widely criticized. Rep. Kline released a statement saying, “Democrats have shown their true priorities, jumping at the chance to discard education reform to salvage an unpopular bailout for the education establishment.” The Education Equality Project and Democrats for Education Reform also criticized the cuts.

The White House responded by issuing a SAP that contained a “senior advisors” veto threat, but it is difficult to believe that the President would actually veto a bill that provides funding to troops in Afghanistan and Iraq. It seems that the budget rescissions may be mostly symbolic (it covers less than 1% of the total costs) and intended to send a message to the Administration that either it offer offsets, or Congress will pick ones the Administration may not like. This has major implications for the general appropriations process where we could see another showdown between Obey and the Administration.

The irony of this whole situation is that the reason we are even debating the need for additional state stimulus dollars is because the ARRA funding wasn’t all that stimulating in an economic sense. For example, Race to the Top and Investing in Innovation were funded out of the stimulus but didn’t award a single point to a state’s economic need or estimated jobs created/saved. Instead, the funds were used to advance the Administration’s education priorities. This is great for education reform, but not so great for stimulating the economy. Now we’re given an iffy-economic reform proposal to save teacher jobs that isn’t so great at stimulating education reform either.

If the stimulus camp wins and we are going to have an EduJobs package, then it absolutely must be used to advance state budget and education reforms rather than just funding the status quo. David Brooks makes a completely reasonable suggestion that the stimulus funds be allocated through a “Race to the Top-like” competition that provides federal money to states that pass responsible, long-term budget plans that will fix some of their structural issues by reducing spending and pension commitments. States would compete for a share of the stimulus funds based not just on their need, but also based on the education and economic reforms they put in place. The International Monetary Fund (IMF) makes certain financial aid conditional upon political reform and the Millennium Challenge Account provides foreign aid only to countries that commit to making progress on good governance, economic freedom, and investments in citizens. And, as Edward Glaeser over at Economix, it is completely reasonable to tie federal stimulus dollars to budget reforms that would make future federal interventions less necessary.

Race to the Top proved that states will respond to financial incentives and enact major policy changes that are more supportive of education reform. The same model could lead to needed state budget changes. The Department of Education could use the existing Race to the Top competition to do this. States that aren’t funded in the second round could resubmit plans for a portion of the $10 billion. This would fund more education reform then we would get out of the teacher fund, it would still save teacher jobs, and it would lead to major budget reform. This sort of plan could help win over some of the Austerians who have been concerned about structural problems with state budgets as well as the education reformers who want to see changes made at the state level.

In many ways, the EduJobs debate is a good indication of what the education community can expect in the next several years. Increases in education funding will be more difficult as the Administration and Congress face growing pressure to adopt “austerity” measures to reduce the deficit. It won’t be enough to simply argue for why something is good education reform. Reformers will need to argue for why it makes good budget sense as well.