Janet Yellen on the Broken Way America Pays for Public Schools

Photograph by Michael Dwyer/AP Photo

Federal Reserve Chair Janet Yellen stepped out of her banks-and-money specialty today to point to an issue that doesn’t usually get on the radar of central bankers: school finance. In a speech lamenting inequality in America, she said “public education spending is often lower for students in lower-income households than for students in higher-income households.”

And that, she said, is because poor school districts have to rely heavily on their own resources to pay for their children’s schooling. “A major reason the United States is different is that we are one of the few advanced nations that funds primary and secondary public education mainly through subnational taxation.”

Although Yellen didn’t call for more federal funding of education, the implication seemed to be there. It was an unusually pointed policy speech for someone from the Federal Reserve, whose officials usually limit themselves to bromides about the importance of human capital for economic growth when discussing education.

The speech, delivered at the Conference on Economic Opportunity & Inequality sponsored by the Federal Reserve Bank of Boston, named education as one of the four “building blocks of opportunity” that could help reduce inequality, with the other three being parents’ financial resources, starting a business, and inheritance.

“She’s right on” in pointing out school-finance inequity as a problem, says Sean Corcoran, a professor at New York University’s Steinhardt School of Culture, Education, & Human Development, who has studied the issue. Her point remains accurate, he says, even though there are a few states, such as New Jersey, where state funding formulas ensure higher per-pupil funding to districts with small property-tax bases and severe social problems.

Bruce Baker, a professor at the Rutgers Graduate School of Education who has collaborated with Corcoran on research, says that inequalities in spending have increased since 2007, when the deep recession of 2007-09 hit. “There’s been a substantial decline in state aid to schools for funding equity,” with “backsliding” even in states like New Jersey and Massachusetts that have done the most to help poor districts, Baker says. “That makes it particularly relevant to raise these issues here and now.”

The federal government provides about 10 percent of school funding in the U.S., which is less than in other advanced countries. “That’s one of the bigger issues,” says Corcoran. Even if inequities within a given state are reduced through new funding formulas, students in rich states will still have better funding than students in poor states, he says. On their own, he says, “States themselves can only do so much.”

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