DOC. EDI.322/2: - EL2 ———-—i^——i———— NATIONAL CENTER FOR EDUCATION STATISTICS ISSUE BRIEF JUNE 1993 Current Elementary and Secondary Expenditures-TTr1990s and Beyond ^pending on education is an important part of the U.S. economy. In 1991, spending for current expenditures in public elementary and secondary schools alone was approximately 3.6 percent of Gross National Product. With governments at all levels facing budget constraints, it is important to consider some possible trends for education expenditures throughout the 1990s. This is particularly important with large increases in enrollments expected for the next ten years. In this new Issue Brief, projections for current expenditures in public elementary and secondary schools are considered. (Current expenditures are all expenditures excluding capital outlay and interest on school debt.) Much of the information in this Issue Brief is based on the recent National Center for Education Statistics publication, Projections of Education Statistics to 2003. What is the historical association between the economy and the level of expenditures in public elementary and secondary schools? What are the implications for the 1990s and beyond? J-Jistorically, education expenditures in real terms, (that is, with the effects of inflation removed) have followed a path similar to general economic trends. This can be seen by examining the recent trends in education expenditures per pupil and the economy. University of HilftOfs Library During periods when the economy was largely increasing such as in the late 1960s and 1970s and also the middle of the 1980s, current expenditures per pupil in real terms increased steadily. During periods when the economy was in recession such as in the late 1970s and early 1980s and also the early 1990s, current expenditures per pupil in public elementary and secondary schools either increased slowly or declined. This relationship can be seen in figure 1 which shows the trend from 1967-68 to Figure 1.—Current expenditures per pupil of public schools, and disposable personal income per capita: 1977-78 to 1991-92 Current expenditures per pupil* $10,000' 8,000- 6,000- 4.000- 2.000- Disposable persona] income per capita* '$20,000 Disposable personal income per 4x4s) ^ AUti 1 2 1993 U N l v F n SJj>©rTLL I NO fS 10.000 -AUinBrtNA-CHAMPAIGfo Current expenditures per pupil (left axis) ( 1—1—1—|—1—1—1—|—1—1—1—|—1—r"i.....|—1—1—1—|—r 1968 1972 1976 1980 1984 1988 Year ending *Note: All values are in constant 1990-91 dollars 15,000 5,000 Table L—Percent changes in constant dollars from 1991-92 to 2002-2003: middle, low, and high alternatives Alternatives Middle Low High Current expenditures 42 27 54 Current Expenditures per pupil 24 10 34 Disposable income per capita 17 16 19 Revenue receipts from state sources per capita 30 7 45 1991-92 for current expenditures per pupil and one major indicator of the state of the economy, disposable income per capita. Because there is uncertainty about the path of future economic growth, three different sets of projections for current expenditures per pupil were prepared, each based on an alternative set of assumptions for the economy (table 1). Three sets of projections for total current expenditures, which were calculated by multiplying the projections for current expenditures by those for enrollment, also appear in table 1. The different assumptions for the economy and other factors produce quite different growth paths for both total current expenditures and current expenditures per pupil (table 1 and figure 2). How important are funds from state and federal governments? 'Y'he amount that local governments spend on education is also historically associated with the amount of aid for education that they receive from state governments. In 1990-91,47.3 percent of all revenues for local governments came from state governments (table 2). The importance of state aid does vary considerably by state. As also can be seen in table 2, the percent varies by state, with a few states providing more than 70 percent of elementary and secondary school education revenues and other state governments providing less that 30 percent. The amount of money that states send to local government is itself influenced by the economy: during economic downturns, state expenditures for U.S. Department of Education Office of Educational Research and Improvement UNIVERSITY OF ILLINOIS-URBAN* 3 0112 002265988other programs such as unemployment, welfare, and Medicare/Medicaid increase leaving less money for education. Hence, those states that receive more of their revenues from state sources are more heavily impacted by economic downturns. Table 2.—Revenues for public elementary and secondary schools from state and federal sources as percentages of all education revenues: selected states, 1990-91 State State revenue as Federal revenue as a percent of a percent of all revenues all revenues United States 47.3 6.2 Hawaii 89.9 7.8 Nebraska 31.0 5.9 New Hampshire 7.8 2.8 New Mexico 72.7 12.2 Oregon 25.4 6.1 Washington 72.1 5.7 Note: These states are those in which state revenues are the highest and lowest percents of all revenues. affect the accuracy of these projections. First, each of the three sets of projections for current expenditures per pupil was produced using some quite specific assumptions concerning the economy, state aid for education, enrollments, and the population. The closer a set of assumptions is to being realized, the more likely the projections for current expenditures per pupil produced by that set of assumptions will approximate the actual values. For example, education expenditure projections produced before the recent recession tended to be high as the assumptions did not reflect the recession. Second, the historical relationship that has existed between current expenditures per pupil and the economy, state revenues, or enrollments could change. If this were to happen, then it would affect the accuracy of the projections. For more information, see the following reports: U.S. Department of Education, National Center for Education Statistics. Common Core of Data surveys . U.S. Department of Education, National Center for Education Statistics. Projections of Education Statistics to 2003 (NCES 92-218), by D.E. Gerald and W.J. Hussar, Washington D.C.: 1992. U.S. Department of Education, National Center for Education Statistics. Pocket Projections: 1980-81 to 2002-2003 (NCES 93-194), by WJ. Hussar, Washington D.C.: 1993. The federal government also contributes money to local governments for education. However, the amount is significantly less than state aid. This can be seen in table 2. With the federal share being so small, it is far less important to consider the future trend of federal education expenditures when considering the future of current expenditures. How might the large increases in enrollments expected for the next ten years affect current expenditures? is described in Issue Brief: School Enrollment Expected to Surpass Historic All-time High, which is being released concurrently with this publication, enrollment is projected to rise rapidly throughout the rest of the decade and into the next. This increase may have a major effect on current expenditures. On the one hand, with more students, there will be a downward effect on current expenditures per pupil. On the other, total current expenditures would be expected to increase at least 15 percent in constant dollars over the next 10 years if enrollments increase as expected. Hence, while we cannot be certain of the exact level of total current expenditures over the next ten years because of uncertainty concerning economic conditions, there will most likely be a significant upward trend due to the increase in enrollments expected for the next ten years. What are some factors that might affect the accuracy of projections for current expenditures per pupil? doping accurate projections in most instances is a difficult undertaking, and is especially so for an economic statistic such as current expenditures. There are a number of factors that could Figure 2.—Current expenditures of public schools (in constant 1990-91 dollars), with alternative projections: 1977-78 to 2002-2003 (Billions) $400- 3