Budgeting for the Future: The Long-Term Impacts of Short-Term Thinking in Alabama K-12 Education Funding

A significant body of work on the economics of education establishes links between specific interventions, such as class size reduction or increased teacher pay, and educational attainment (often measured by graduation rates). Many of these interventions rely on increased funding, so the current study builds upon previous work by analyzing the connection between school funding and graduation rates using a case study of Alabama schools from 2011 to 2013. The study places that connection, as well as those established by other authors between educational attainment and future costs and benefits to society, within a framework of public policy decision-making. Beginning with school district-level funding and graduation data, we employ an OLS mixed effects model to estimate the elasticity associated with per-pupil K-12 spending and graduation rates. That estimated elasticity is used to predict changes in the number of high school graduates resulting from hypothetical K-12 funding changes, and further estimate the net present value of state fiscal impacts over the life of the students. For the Alabama finance and graduation data examined, we find that short term investments in increased K-12 funding at the state and local level return roughly twice the original cost to the state in terms of the net present value of increased tax receipts and reduced social service costs over the life of the students.