Print this Article

Economic Forecasts Indicate More Turbulence, New Challenges on the Horizon

By Brett McFadden, ACSA and Tahir Ahad, TSS - March 27, 2009

Two recently released economic forecasts indicate that California and the nation will remain in significant recession for the foreseeable future.  The data points to a widespread contraction of state and national economic output.  This will pose significant challenges for school district and county offices of education well into 2010-11.

Economic Forecasts

Economists with the UC Santa Barbara Economic Forecast Project and the Anderson Forecast at UCLA both recently issued revised projections that predict continuing deterioration in economic output and the labor market throughout 2009.

Both reports stated that the severity and longevity of this recession is second only to the Great Depression.  Both noted that the housing and credit market downturns have created compounding effects on virtually all economic sectors.

The UCSB forecast was the more pessimistic of the two, stating that severe recessionary characteristics are likely to last well into 2010-11.  The effects on California’s economy and state revenues are significantly worse than the rest of the nation.  Economists at UCSB stated that they see no signs of immediate recovery on the horizon.  Even after the recession has ended, they noted that long term GDP growth will be less than one percent per year, perhaps into the middle of the next decade.

State Unemployment Figures

On top of these reports came another piece of bad news concerning California’s unemployment figures.  The California Employment Development Department reported last week that the state average unemployment rate had shot up to 10.5% in February – up from 6.2% the same time last year.  In just one year California has experienced a 4% decline in the number jobs.  Some analysts have argued that the state’s unemployment rate could reach a whopping 14.5% by this fall.

Some areas of the state are experiencing “Grapes of Wrath” unemployment levels.  Imperial County is reporting 22% unemployment, while Stanislaus and Tulare counties are hovering at the 17% range.  Virtually all job sectors are posting declines, increasing at a pace not seen since the recession of the early 1990s.

This dismal news follows last week’s Legislative Analyst’s Office report warning of a new $8 billion state General Fund deficit in FY 2009-10.  The LAO noted that the state’s job market losses were a key factor contributing to record declines in state revenues.  Obviously if the job market continues to worsen, the implications of those lost jobs on state revenues will be even worse than what the LAO predicted two weeks ago.

Implications to School Districts and County Offices

Education leaders should make no mistake.  This recession is a fundamental realignment of our nation’s and state’s economic output.  And we are not even half way thru the woods yet.  Early estimates are that well over 550 California school districts and county offices have reported “qualified or negative” fiscal conditions on their AB 1200 Second Interim reports.  We are already aware of at least one district that is in need of state assistance, with another three on the brink of running out of cash as early as this June.  We fear that this is just the tip of the iceberg.

Recent mid-year budget year cuts are hitting small school districts (Average Daily Attendance below 2,500) particularly hard.  Many of these districts have been suffering chronic declining enrollment.  As such, they have little ability left to cope with huge mid-year and budget year reductions.  It is entirely possible that we will begin to see record numbers of school districts unify, or merge to form common administrative partnerships.  In some instances, the districts may disappear completely.  By the time the dust settles, the school district landscape around the state will look much different than it does today.

Education leaders are cautioned to plan accordingly.  It is imperative that school boards and management teams set clear and concise priorities and goals.  Board members will need to keep their focus on the big picture, and set clear policy priorities that will protect the fiscal viability and core instructional programs of their districts.  School administrators will need to provide accurate and clear analysis that incorporates a number of contingency plans to address the volatility of this situation.

That said, the solution to this crisis is not across-the-board budget reductions and an indiscriminate expenditure freeze.  The fiscal quagmire notwithstanding, the requirements of No Child Left Behind and other initiatives have not gone away. Similarly, the obligation to provide free and appropriate education to special needs students remains in place, as are the educational needs of disadvantaged student populations and subgroups.

Scarce resources will need to be spent smartly and with an eye toward future needs and the generation of on-going benefits. LEAs will need to build their staff’s capacity, in order to help staff cope with their increased responsibilities and allow them to respond to students’ needs and systems of accountability.

Those of us who have spent a few years in public education serving students know that, like many fiscal storms in the past, this one will eventually pass.  The challenge now is to make the best of a bad situation, and provide the leadership to keep your school district’s core mission and program intact.

The responsibility of keeping your Local Educational Agency afloat financially, while protecting vital services to students, will rest on the shoulders of district office and school site leaders.  Ultimately, school administrators will need to be the “facilitators of hope” in order to successfully lead their school districts and county offices through this most difficult time.

Editor's Note: Brett McFadden is Management Services Executive with Association of California School Administrators (ACSA) and Tahir Ahad is President of educational consulting firm Total School Solutions (TSS).