There’s a hidden impact to school spending cuts that has chilling consequences for the entire state.

Every public education dollar -- whether it’s spent on teacher salaries or classroom supplies -- eventually flows into the state’s economy. And when those dollars are cut, every community from Baker City to Gold Beach feels the pain.

To get a better idea of how K-12 spending actually affects Oregon’s economy, the Oregon School Boards Association, the Oregon Education Association, and the Confederation of Oregon School Administrators turned to ECONorthwest, a regional firm specializing in economic analysis.

• K-12 Spending and the Oregon Economy

ECONorthwest’s report, based on data from the 2000-01 school year, shows that spending on public education has a significant impact on the state’s economic health. The report provides valuable data to policymakers struggling with how to provide stable, adequate school funding. Consider these facts:

• Oregon’s schools have a combined workforce of more than 56,000 employees, making K-12 education a very large employer indeed: larger than any local government or private employer, larger than the State of Oregon or Oregon’s combined federal agencies.
• Schools generate a payroll of $3.3 billion per year. K-12 schools spend $922 million a year on supplies and materials and $281 million on capital outlays.
• About 107,000 jobs and $3.93 billion in personal income are directly or indirectly related to school spending. Put another way, every 10 jobs in K-12 education support nine other jobs, many in the service, finance, real estate and construction sectors.
• Approximately $174 million in personal income taxes, $101 million in corporate property taxes, and $52 million in other business taxes are a direct or indirect result of public school spending in Oregon.

“Spending cuts don’t stop at the classroom door,” says John Tapogna, research economist/project manager at ECONorthwest and one of the report’s authors. “When school staff get laid off, they no longer have the income to spend in their local Fred Meyer store or Chevron gas station. Cutting school spending in a community has a depressing effect on the overall economy of the area.”

Every community affected

Every city, town and rural area in the state is in the business of educating students. But the impact of education spending on local economies varies from region to region. For example, urban areas offer a larger assortment of goods and services than rural communities. So school employees in Portland and Eugene are more likely to spend their salaries close to home than their colleagues in rural Oregon.

Economic activity in rural areas is also less diversified than in the larger, more heavily populated areas. A small community may see a larger percentage of its overall economic activity associated with K-12 schools. For example, in Eastern Oregon, the percentage of incomes directly or indirectly linked to school spending is more than double the percentage in Portland.

How the money is spent

Oregon schools spent a total of $5.1 billion* in 2000-01. Of this total, 47 percent was spent on direct instructional activities including classroom teaching; extracurricular activities; and special programs for talented and gifted, disabled and at-risk students.

Another 33 percent went to provide support services such as student safety and counseling, health and psychological services and instructional staff development. Together, instruction and support services account for approximately 80 percent of school spending. This pattern holds true in each of the five regions.

School spending affects the Oregon economy in three ways:

• Direct economic impacts occur when a school directly purchases goods or services in its local community.
• Indirect impacts occur when firms that provide goods or services to schools purchase materials and supplies themselves.
• Induced economic impacts are the benefits school employment and income bring to the overall economy. For example, teachers who spend their salaries on groceries or a movie support the employment of those who work in the grocery store or movie theater. Those people spend their income locally, and the cycle continues.

ECONorthwest’s report provides a wealth of detail on the impact of school spending on Oregon’s economy both on a statewide basis and region by region.

Taxes or cuts?

It’s clear that K-12 spending has a significant impact on Oregon’s economy. School spending cuts hurt every community -- smaller and rural areas in particular. They also have long-term impacts on the quality of education we provide to students.

But are tax increases any better? Anti-tax activists point out that by raising taxes, we reduce the amount of money Oregonians have to spend in their local communities. Which does the least damage: taxes or spending cuts?

According to Tapogna, the answer depends on how cuts or taxes are implemented. Some economists believe the best solution is to raise taxes for the wealthiest citizens. Others are concerned that spending cuts will result in a less-educated workforce in years to come.

“Cutting spending could hurt the economy as much or more than raising taxes,” Tapogna says. “We don’t really want to do either one, but the question is, which is going to do the least harm over the long term?”

* This $5.1 billion in spending is an accounting total that includes spending from ALL sources, including internal service funds (transfers), capital projects and debt service funds. This amount is not appropriate for estimating costs per student.