April 27, 2022
Read time : 15 min

Many of us have that “First Day of Kindergarten” snap from our parents tucked away somewhere in a scrapbook. For children in the United States, this is a universally monumental day. However, the quality of our education is not universal. 

Depending on where you lived and how much your state and local jurisdictions prioritized education in terms of their fiscal policy, your experience could have been vastly different from a friend a few towns away. The difference might have been like night and day if you were a suburban kid in a great school district compared to an city or rural student in a low-income area. 

Until legislators implement effective and equitable education funding policies, our education system will continue to drop in global rankings, and our students and economy will face negative consequences. 

What Is Fiscal Policy, and Why Should I Care?

Fiscal policy can seem like a vague concept that is better handled by politicians. Still, you can view the core elements of fiscal policy, even within governments, in the same terms as your household budget: spending and income. 

At all levels of government – local, state, and national – fiscal policy relies on these building blocks for their budgets. Taxes fund governments, which the residents and companies in a specific jurisdiction pay. When governments spend money, they do so in the interest of the people who live in the country they govern.

We can generally categorize fiscal policy as either expansionary or contractionary, meaning that government bodies can choose to either expand or contract the available supply of money in the economy. 

In expansionary policy frameworks, the theory is that if the government increases its spending, it will inject the economy with more money and stimulate consumer spending. Conceptually, tax cuts can encourage expansionary economics because they may encourage consumers to put the money they have back in their pocket into the economy. However, there are a lot of variables to the tax cuts as economic stimulus policies. 

Fiscal policies directly affect the economy on both a macro and micro level. Not only are our public and private economies affected, but our wallets can feel the difference in many of these situations. 

Despite it often feeling like a distant issue, there are actions you can take to make a difference in fiscal policy: 

  • Get educated about the different nuances of fiscal policy and decide which topics you care about most (like education!). 
  • Then, when you are comfortable, start communicating with the offices of your elected officials. 

As the policymakers, they have control over much of the budget allocation decisions. Feedback from you, as someone who will help decide whether or not they will get re-elected in the next cycle, is a factor they weigh before every vote and decision. 

How Fiscal Policy Relates to Our Education System

According to a 2020 Gallup poll, voters rank education as a top policy priority, with 73% of the public opposing education cuts to balance the budget. There are good reasons for this view.

Aggregate measurements show that higher per-pupil spending is correlated with better student outcomes. Of course, other factors can influence the outcomes for both K-12 and higher education, but money does matter to varying degrees for public schools. 

More money per student can influence important resources like early childhood programs and intervention measures, special education programs, smaller class sizes, and additional support personnel for struggling students. 

Receiving a quality education is critical in setting students up for successful lives once they are out of the school system. Proper funding and educational fiscal policy are just some of the ways to ensure students’ success. 

State Level Educational Funding

According to research done by Education Week, 48% of a school’s budget comes from state resources. Local property taxes account for an acreage of 44%. An average of only 8% of the public education budget comes from federal money. Of course, this varies state by state. Some states have education systems that are more heavily funded by individual cities and counties, while some may see heftier amounts of state funding. 

By utilizing state funding, communities can better equalize between wealthy and poor school districts. Most states have different districts with different needs – think urban vs. rural districts. Having a larger body evaluate the needs more holistically than can be done locally can help even out any funding challenges smaller or poorer districts may see. 

States can fund public education through various taxes. Some states even use specialty funds like their state lotteries as a way to increase that funding. 

Local Level Educational Funding

At the local level, as mentioned above, different locales can see a vast discrepancy in how much money they are bringing in from taxes like property tax and income tax. Local sources can come from county, town, or individual community school districts. 

While the majority of local funding does come from property taxes, other sources can include revenue from student activities and food services (delicious cafeteria pizza!). 

Local elected officials, such as mayors, council members, and the local board of education members, have the power to draft, set, and adjust education budgets. 

At this level, it becomes easier for you, as a concerned citizen, to participate in this budgetary process. You can see each line item in these budgets, and local politicians are often easier to get in touch with to directly log your opinions and concerns.

How Does Fiscal Policy Affect Education as Early as Preschool up to University?

Because state funding is the largest source of public revenue for higher education, and both local and state funding provide almost 90% of K-12 funding, education finance at the state and local levels is critical to our education system.  

Community colleges, in particular. can be deeply affected by fiscal policy at the state level. Twenty-nine percent of income for community colleges is from state funding, compared to 17% coming from tuition and fees. In comparison, 4-year colleges and universities relied on state funding as their most significant source of revenue until tuition and fees surpassed state revenues in 2013. 

Public K-12 does not have the revenue source that both community colleges and 4-year universities have from tuition and fees. 

So, does fiscal policy affect all levels of education? Absolutely. Without prioritizing education for both K-12 and higher ed, the revenue streams for these programs would evaporate. 

Democrat vs. Republican views on Fiscal Education Policy

Unsurprisingly, there is a difference between Democrat-controlled states and Republican-controlled states' spending on education. When controlling for economic and demographic factors, Democrat-controlled states spend higher amounts per pupil on higher education but less than Republican-controlled states on K-12 education. 

Individual districts have historically raised revenues in Democrat-controlled states to counteract the lower per-pupil spending. On average, Republican-controlled legislatures spend 6.5 % more than Democrat-controlled legislatures per pupil.

In these states, revenue like local property taxes can help stabilize education spending.

When looking at higher education spending, Democrat-controlled legislatures spend 2.3% higher per pupil than Republican-controlled legislatures. 

One important note is that higher education spending is a smaller portion of state budgets than K - 12 education. 

Other factors might explain this difference as well. Democrats often discuss higher education as a method to increase economic mobility for youth. 

Additionally, many Democrat-controlled legislatures seem to be trading off higher K-12 spending with various welfare spending needs. The difference in welfare spending between Democrat-controlled and Republican-controlled legislatures more than offsets the lower Democrat-controlled legislature spending on K-12. 

Compared to the Gallup poll we saw above on prioritizing K-12 spending, Gallup did not have similar findings on opinions regarding higher education. Between 2015 and 2018, confidence in higher ed went from 57% to 48%, with the greatest decrease coming from self-identified Republicans, which could begin to explain the fiscal priority differences between the parties (Republicans went from 56% confidence in similar findings on opinions regarding higher education to 39%). 

Between the two parties, the difference may come down to which spending priorities the different parties believe can address poverty and upward mobility better. The higher K-12 spending in Republican-controlled legislatures shows they may see the benefit in targeted education programs. In contrast, the Democratic-controlled legislatures see a higher return on health and welfare investments. 

How Fiscal Policy Affects the Education System, and How the Education System Affects Fiscal Policy in the Long Term

According to data from the World Bank’s World Development Indicators (WDI) database, for every dollar a government spends on education, the Gross Domestic Product (GDP) grows by $20. How is that for a return on investment? 

Education is viewed by many as the great equalizer in society. Starting in Kindergarten (or publicly-funded Pre-K programs), using education spending to increase the quality of education can get youth off to a good start and provide equal access to programs that lead to even more educational opportunities (higher education and vocational training) and economic mobility. 

In today’s political climate, there are very visible issues affecting both K-12 and higher education students. They include significant differences in per-pupil spending, class sizes, programs for low-income students, etc. At the higher education level, the student loan crisis is at the top of list for both parents and students. The cost of higher education, even at public universities, is causing potential students to have to delay their education or take out expensive, long-term loans to pay for it. 

Studies show the benefits all levels of government spending have on students and our economies. 

By increasing K-12 and higher education spending and focusing on education as a pillar of any fiscal policy, we will collectively see lower illiteracy rates and higher educational performance.

What Can You Do?

Fiscal policy, as it relates to education, can have a tremendous impact on communities. The more spending per pupil, the higher the likelihood of a successful educational outcome for each student. 

There are many ways you can get involved. The first one you are already doing – becoming informed! Now it’s time to find avenues for the type of advocacy you would feel comfortable doing. These can include: 

  • Contacting your elected officials at the federal, state, and local levels. 
  • Research your local board of education and attend public meetings.
  • Let your voice be heard through petitions and other public methods.

You can do many of these with Up to Us. Check out our Voter’s Guide to Local Fiscal Issues and our Get Heard Guide to learn more about how fiscal policy affects your community and how to reach out to policy makers to advocate for the issues you care about.