An excellent article in the recent issue of Rethinking Schools introduces a very different way of understanding school debt. In “School Debt: The Great Unequalizer,” Eleni Schirmer explains that an even bigger problem than individual student debt may be the indebtedness of school districts, especially minority school districts because of unfair school funding policies. Schirmer blames inequitable distribution of state aid, regressive taxation, and corporate tax breaks for budget shortfalls that leave municipalities and school districts buried in debt.
In 2018, prior to the COVID pandemic, local governments in the New York City metropolitan area, not including the city itself, had $43.6 billion in outstanding debt including $17 billion owed by school districts.
In the article, Schirmer focused on the Philadelphia school system that has $4.5 billion of unmet infrastructure needs resulting from decades of neglect and a sharp decline in per-pupil revenue. Schools have unsafe levels of asbestos and lead paint flakes peeling off walls and ceilings. In February 2023, Pennsylvania’s school funding system was declared unconstitutional by state courts because its distribution mechanism discriminates against students who live in low-wealth districts. No new funding plan has yet emerged.
Discriminatory funding is not limited to Pennsylvania. Last year, the North Carolina Supreme Court, ordered the transfer of $1.75 billion from the state’s treasury to implement a fairer school funding plan. In 2015, Washington’s high court fined the state’s legislature for delays in developing a fair school funding plan. progress on a plan. In Kansas, plaintiffs repeatedly sued the state trying to force a more equitable school funding plan. In New York State, advocates for more equitable funding secured a legal victory in 2006 in the court decision on the Campaign for Fiscal Equity case originally filed in 1993. New York adopted a new funding formula targeting money to needier districts, but the state government delayed delivery of funds to New York City until 2022.
According to Schirmer, “without adequate funds, school districts increasingly must borrow millions of dollars, provoking a massive increase in debt-laden schools. Poor communities of color are driven into the arms of Wall Street creditors thanks to racialized school funding formulas. In the short term, debt may help schools fill budget shortfalls caused by insufficient funding. But in the long term, debt exacerbates existing inequalities and extracts resources. Poorer schools pay more in interest and fees and are often forced to make draconian budget cuts in order to do so . In the absence of adequate progressive and democratic school funding, debt is offered as a lifeline. It can quickly become a noose.”
School districts and municipalities are forced to sell bonds to investors to cover budget shortfalls. Poorer cities and districts are charged higher interest rates and fees because with lower property values they are considered credit risks, so the poorer the community, the more it pays to borrow money. A poorer community like Paterson, New Jersey, where the student body is 95% Latinx and Black, pays over 60 % more in borrowing fees than a neighboring, predominantly white school district. In Claiborne County, Mississippi, where 55% of children live in families below the poverty line, the school district pays 94% more in borrowing fees than a neighboring more affluent community.
In 2019, public school district debt in the United States was almost $500 billion. This was an over 100% increase over 2002. As a result, school districts spend increasing amounts of their budget on debt service and interest payments. In 2013, Chicago was forced to close 50 public while paying over $300 million in interest on its debt. In 2016, the school district borrowed $725 million just to service past debts and during the COVID pandemic, federal dollars supposed to be used to support students were used to cover debt payments. In 2021, the Philly schools spent over 9% of its annual budget to pay off $311 million in debt. $162 million was for interest payments alone.
Schirmer advocates for the federal government providing K–12 public schools the same financial support it made available to banks and corporations during COVID including zero-interest loans. A Federal loan program would allow schools to invest in reparative projects, fixing damaged infrastructure, reducing class sizes, and investing in climate friendly buildings. Schirmer’s proposal makes sense, in terms of educational equity, and as an investment in the future of the country.