By William Smith and David Lange‡
Although per pupil spending in the US has steadily increased since 1970, the current economic crisis will prevent this trend from continuing in the coming years. State budgets have contracted, resulting in significant cuts to school district budgets. In this policy review, we investigate how the financial challenges and structural evolutions in public education have made it necessary for policymakers to adjust their approach to educational funding. In applying the lessons learned by the non-profit sector during the current recession to the state of public education in America, we provide three policy recommendations. These financial and public relations propositions include: (a) moving away from complete dependence on state funding by diversifying sources of revenue, (b) looking for opportunities to advance partnerships with private and non-profit organizations, and (c) cultivating stronger relationships with communities.
Schools cannot operate and improve without proper resources. For the past 40 years, per-pupil spending in K-12 schools has been increasing.
However, current spending levels are unsustainable given the persistent economic recession and its impact on state budgets. With low reserves, increasing operating costs, and shrinking budgets, school districts will need to make far-reaching changes in their budgetary practices. Districts will need to cut ineffective programs, supporting those that work instead. Districts must also leverage technology or restructure staffing and compensation to boost productivity and efficiency.
To move in this direction, school districts should look to the best practices of the non-profit sector, which has also been directly affected by the current economic crisis. We identify strategies that have been successful in the non-profit sector and explore ways that school districts can implement them. The first section discusses the changing economic state of K-12 education in America and the increased competition for both students and resources. The second section explains why lessons learned from non-profits can be appropriately applied to public education and draws on recent research in philanthropy to provide three recommendations for administrators and policymakers.
The Current State of K-12 Schools
While school budgets and finance vary dramatically among different states and districts, states generally use a combination of taxes (income, corporate, and sales) and other fees to provide approximately 49 percent of the budget for K-12 schools. Local school districts provide approximately 43 percent of the K-12 budget, primarily through property taxes. The federal government provides roughly eight percent of state education budgets. Both state and federal governments usually distribute funds using a combination of per-pupil and per-program bases.
However, financing education on a state-wide level is complicated. Each state has a different formula for raising and distributing funds to the K-12 system. Most states use formulas that split the responsibility for funding education between the state and local districts. The precise formulas vary drastically, however, and the amount of money available to fund school districts fluctuates from state to state and even from district to district.
For example, the National Center for Education Statistics found that per-pupil expenditure was $10,754 in 2007. However, this average represents disparate amounts ranging from $6,648 in Idaho to $16,163 in New Jersey.
Furthermore, experts disagree vehemently on how much money is necessary to provide each student with a satisfactory education. One critical aspect of school finance, then, is the concept of financial equity: are all schools receiving the funding to provide sufficient education to the students in their care?
The challenges that local districts face to raise revenues for their schools complicate this equity issue further. Because most local revenue comes from local property taxes, communities with lower property values are at a disadvantage. The current national economic crisis has significantly lowered housing and property values, directly affecting school district budgets. If school districts are able to rely on more stable revenue sources, they will be in a better position to provide financial equity and stability.
Until recently, per-student spending has increased every year on a national level. However, in 2008, 36 states had cut or proposed cuts to K-12 and higher education spending. The Center for Budget and Policy Priorities estimates that since that year, states have faced cumulative average annual budget shortfalls of over $350 billion. Most states spend more on education than on any other component of their budgets except for health care, making it a likely target for cuts when state governments experience a financial crunch. In light of these reductions in revenue streams, school districts nationwide are scrambling to adjust their budgets.
Additionally, traditional public schools have increased competition for the limited funds available. As the general public becomes disillusioned with their local public schools, they turn to different public education options, including alternative and charter schools. Most charter schools and alternative schools receive their funding from the local school district as well, putting these schools into direct competition with each other for per-pupil funding.
The current focus in school choice has been on charter schools. Charter schools are “nonsectarian public schools of choice that operate with freedom from many of the regulations that apply to traditional public schools.” The intent of most charter school legislation is to: (i) provide choice for parents and students, (ii) create a system of accountability for educational results, and (iii) encourage community and parent involvement. The first charter school law was passed in Minnesota in 1991. Since that time, charter school laws have been established in 40 states, Puerto Rico, and the District of Columbia.
Federal financial support of the charter school movement was first promised in 1994 under President Bill Clinton. More recently, President George W. Bush sought $200 million to aid charter schools in 2002. Upon taking office in 2008, President Barack Obama promised to double funding for the charter school movement. As of September 29, 2010, the US Department of Education announced that it had granted $256 million to charter organizations, and the 2011 budget intends to increase the Charter Schools Grants Program to $310 million. While there has been some debate regarding the extent of charter schools’ financial impact on traditional schools, recent analysis shows that their short-term financial impact can be significant.
All of these issues indicate that to raise the necessary funds to educate their students properly, school districts cannot rely solely on existing funding mechanisms; rather, they must find new ways to fund their schools effectively.
Connecting Education and the Non-Profit Sector
Both the charter school and the school choice movements break the traditional link between school attendance and geographic location. Because public school funding in the US is often determined on a per-pupil basis, the recruitment and retention of students is vital for the sustainability of educational institutions. Schools can no longer expect the surrounding community to supply them with enough students; instead, schools must be proactive and reach out to society by improving their public relations and increasing community buy-in.
Schools and school districts need to be more aggressive in fundraising and would benefit from diversifying their funding sources, especially given the current financial state of many public education institutions. As cash inflows have stagnated or regressed, the public education sector can look to the best practices of the non-profit sector for ideas on capturing capital during challenging economic times.
Like it has in public schools, the economic crisis has also negatively affected the non-profit sector. A 2009 report in The Non-Profit Times stated that individual giving, which represents three-fourths of all giving to non-profits, experienced a two percent, or $6.4 billion, reduction in 2008. Foundation grants, another source of funding for non-profits, were also affected; in 2009, 75 percent of foundations expected to see their endowments decrease by 25 percent or more. Efficiency is clearly critical for non-profits.
According to Charity Navigator, which evaluates the financial situation of large non-profits, the most successful non-profits generally keep overhead at less than 15 percent and focus on program outreach and effectiveness.
Without a predetermined financial support system, non-profits operate without sufficient cash reserves. The competitive atmosphere prevalent in the non- profit sector causes a perpetual search for innovative fundraising methods. Public education can learn financial and public relations lessons by developing a deeper understanding of the non-profit sector’s recent fundraising advances.
The Need for Increased Fundraising
Successful non-profits incorporate a diverse set of tools in their fundraising plans. The largest portion of financial support comes from individual donations, which non-profits usually solicit through direct mail, telemarketing, or face-to-face inquiries. Although fewer in quantity, gifts from major donors (e.g., corporate partnerships, planned giving, foundation grants, and government grants) provide significant revenue. Additionally, non- profits use special events throughout the year to bring in support and cultivate donors through education and celebration.
Well-designed fundraising budgets allow for a strategic increase of fundraising efforts during economic downturns. With businesses and individuals giving less, successful non-profits rethink how to solicit gifts and increase the reach to possible donors. In a recent survey, the Colorado Non- Profit Association found that 32.5 percent of Colorado non-profits increased their face-to-face solicitations in 2009, 42.5 percent increased requests for foundation grants, 31.8 percent increased government grant requests, and 27.5 percent increased soliciting board members. When allocating resources to fundraising activities it is important to try to diversify revenue streams. Overreliance on one large source, such as a grant, is risky as the capacity of the organization is severely reduced in the event that the resource disappears. Organizations should also vary their investments, such as savings and mutual fund accounts. Figure 1 illustrates the composition of non-profit revenue in a 2007 Johns Hopkins study. Their study, which covered Australia, Belgium, Canada, the Czech Republic, Japan, and New Zealand, illustrated how non- profits spread out risks, with roughly a third of their revenue coming from each of three sources: government payments, fees and charges, and private philanthropy.
Figure 1: Non-Profit Revenue Streams
Source: Author’s tabulation of Johns Hopkins data
Successful non-profits maintain their diversified funding flows by fostering transparent, positive relationships with their donors. Communication with potential donors is more than just a plea for financial support; it emphasizes the impact the organization is making in the community. According to fund-raising consultant Rick Dunham, “donors don’t mind frequency [of solicitations]; they mind irrelevancy.” Lastly, in today’s increasingly fast- paced culture, donors need options on how they can contribute. Successful non-profits allow their supporters to give online, in person, via direct mail, or through volunteering their time or talents.
Recommendation 1: Schools should move away from complete dependence on state funding by diversifying their sources of revenue
Public education as a major component of government spending is at risk in the current economic climate. In Managing Schools in a Period of Global Economic Meltdown, Martins Fabunmi and Emmanuel Aileonokhuoya Isah suggest that schools evaluate and expand revenue sources from Parent Teacher Associations (PTAs), community contributions, internally generated funds, or by providing services for a fee. 
California public schools have a history of receiving voluntary private contributions. In California between 1992 and 2001, the number of PTAs giving to their local school more than doubled from 654 to 1,463. The total PTA contributions during this time rose from just over $45 million to over $83 million. Aggregate voluntary contributions to public education in California– including those from PTAs, education foundations, booster clubs, and other school-sponsored organizations – totaled over $238 million in 2001.
Although asking for community financial donations in the current economic environment may not be fruitful, in-kind giving can also be a potential source of funds. Every year schools spend a significant amount of money on paper, markers, decorations for events, before- and after-school supervision, and financial management experts, amongst other things. By making their needs transparent to the community, schools can receive some of these items as gifts.
Moreover, schools may not be fully capitalizing on their existing practices. Instead of providing a band concert for just the parents, they can use community connections to make it a larger event. Parents can still receive complimentary tickets, while the larger community receives local entertainment at a reasonable price. School classes or clubs that generate products can be offered at a reasonable price to the general public. Schools can organize an art show/sale where parents and art-lovers can buy artwork, providing students with a sense of accomplishment and the school with additional revenue. Although revenue streams generated by single events may not be large, the associated costs of such events are miniscule and the accumulation of funding from events aggregate over time. Skills can also be marketable, as illustrated by the Junior Engineering and Technician Club at a secondary school in Nigeria. This club provides a needed service for the community at a modest price by preparing solar energy for homes.
Providing a service for a fee can also help diversify revenue streams. Fee-for-service programs may be initiated and implemented by the school, utilizing the skills of staff and students to offer events for the community. One example of fee-for-service is after-school education. Many community members are eager to learn new skills and schools can try to meet that demand. For example, schools could create an adult English class or a computer software class, teaching applications such as Microsoft Excel or Quickbooks. These types of initiatives would provide a service for the community, extra income for a staff member, and a new steady source of revenue for the institution.
Many states exhibit successful examples of school districts providing fee-for-service adult and community education. In Montana, for example, the Billings Public School District’s Adult Education and Career Advancement program has self-paced classes that last eight weeks in subjects such as business, math, science, and social studies. The district also offers certification and certification prep courses, ranging from accounting to paralegal, with class fees starting at $115. In Virginia, the Fairfax County School’s Adult and Community Education program provides similar offerings. These programs include a wide selection of classes, including English for speakers of other language (ESOL). Program courses last 11 weeks and basic tuition starts at $299 per class.
The Role of Partnerships
Partnering with both private and non-profit organizations is a way to gain stability and resources while dispersing financial risks among multiple actors. In their report entitled How to Weather the Recession as a Nonprofit, the consultants at LarsonAllen, LLP make it clear that “going it alone won’t work.” Many non-profits are heeding this advice. In response to the economic downturn, two-thirds of foundations are increasing their partnerships, and in Colorado 46.8 percent of non-profits collaborate around program delivery.
The successful non-profit evaluates its strengths and weaknesses, shifts its resources to where they are most efficiently implemented, and reaches out to those organizations that best complement it. This assessment gives the non- profit the opportunity to focus on what it does well, thus providing the greatest benefit at a reasonable cost. According to the Association for Fundraising Professionals, the three keys to flourishing partnerships or mergers “are (i) collaboration, (ii) communication and planning, and (iii) an over-riding imperative to keep a focus on the mission.” The partnership approach is becoming a central theme in the creation of strong non-profits.
Recommendation 2: Schools should look for opportunities to advance partnerships with private and non-profit organizations
Partnerships can be a source of consistent revenue and community goodwill without the need to privatize an institution or district. In her policy brief Public private partnerships in education: Some policy questions, Geeta Gandhi Kingdon uses Program for International Student Assessment (PISA) data to support her claim that privately controlled public institutions are the most effective. She claims that such institutions harness the “expertise, energy, and financial management skills of the private sector to give better value for taxpayers’ money.” Instead of pushing policymakers to abandon public control of their own schools, these findings should encourage public servants to learn and acquire the skills necessary to be competitive. The overall goal is not to create a private institution but to “foster an organizational structure that, to the greatest extent possible, aligns personal incentives and the public missions.”
The joint use of public schools is perhaps the most enticing and underused source of revenue. In contrast to providing a service for a fee, which generally involves school staff and students initiating and implementing programs with the surrounding community, joint use allows the community to use the school and share the school’s available physical resources. In the United States, there are more public school buildings than any other public facility, consisting of 6.6 billion square feet of space and more than one million acres of land. Educational leaders need to recognize the resource they have available to them and use this resource accordingly. The school could provide gymnasium space for the city sports league or cafeteria space for a non-profit event. The building as a whole could be used for meetings and conferences. School buildings, often the central facility in a community, are frequently closed at the end of the school day, for the weekend, and during the summer. Allowing the community to use school facilities can increase revenue while fostering strong relationships with citizens.
Recently, public schools have begun housing an ever-growing number of churches, providing congregations with an inexpensive space to worship while giving financial support for the schools involved. Mosaic Manhattan, a New York-based church, has made its home at Public School 89. Pastor Gregg Farah turned to his children’s school after realizing that alternative locations for his church, such as hotel lobbies, were too costly at $1,500 per service. By contrast, the partnership with New York Public Schools included rental of the gym and auditorium for $300 per service. Mosaic Manhattan currently holds two services per week, providing the district with profits of over $30,000 per year. According to the University of California-Berkeley’s Center for Cities and Schools, “public school facilities can become more vibrant public spaces where public education is the primary – but not only – user.”
Emphasizing and Improving Public Relations
Client Retention and Recruitment
Non-profit organizations would dissolve without the support of their donors. Although always important, cultivating and maintaining donor relations becomes more pressing during times of economic downturn. Responsive organizations treat their donors like people, not institutions. This provides space for open dialogue between the non-profit and donor as well as an opportunity for the non-profit to appeal to the donor’s sense of humanity.
One option is to use a personal story to appeal to funders. For example, an orphanage in Uganda was created when a woman infected with AIDS and her two children approached the organization’s soon-to-be founder. The woman was depressed and seeking poison to kill herself and her family. Instead, the founder denied the request, adopted the two children, and established the orphanage. Both children are now healthy adults. The organization shares this information with their funders; the direct impact illustrated in this example is what smaller donors are looking for when deciding to give.
CARE International, a leading humanitarian organization that fights to reduce global poverty, uses images and stories of people that have been impacted by their programs to encourage individuals to donate. Abay, an Ethiopian woman, is featured in CARE’s “I Am Powerful” campaign. As a young girl, Abay refused to take part in her tribe’s tradition of female genital cutting. Now an adult, Abay has returned to her tribe to shed light on the damaging effects of the practice with the hope of eradicating the centuries-old tradition of female genital cutting.
Effective organizations are open with their donors. They are transparent about the needs of the organization and provide examples of essential funds that must be maintained. [45, 46] Large donors are interested in the sustainability of the non-profit, in addition to the organization’s current impact on the community, and they want to see an organized plan for the future. Savvy non- profits also recognize that it may be necessary to request that some donors loosen the restrictions on their giving, providing additional funding the non- profit can direct to areas of high need.
Finally, regardless of the size of the contribution, successful organizations thank their donors frequently, making them feel appreciated.
Lions Club International Foundation provides an example of a well-developed donor recognition program. Their program includes an initial thank-you letter as well as appreciation pins and patches and recognition on the club’s honor roll. Long-term and higher level donors also receive awards, such as the LCIF Helping Hands Award and the Friends of Humanity Award.
Non-profits and their surrounding community have a symbiotic relationship that is vital to the former’s success. In addition to what individual donors can do to support the non-profit, successful non-profits recognize how the organization can add value to people’s lives by contributing to a person’s “holistic identity:” through action that is “visible, tangible, and promising in communities where the recession is undermining families, incomes, neighborhoods, and jobs.”
Two concrete ways to incorporate the community into the non-profit’s mission are through education and volunteerism. A non-profit needs to educate the community and donors about the issues the organization is trying to address. The organization should stress its positive impact on the community and place itself in the community’s hierarchy of needs. For example, on a national scale, Feeding America found its market niche by focusing on the unmet needs of those that go hungry. Between 2005 and 2009, the number of clients served by soup kitchens increased by 65.4 percent and those served by shelters increased by 54.5 percent. To meet the needs of these individuals more efficiently, Feeding America created an organizational framework that centralized food production, distribution, and service.
Providing opportunities for community members to volunteer increases community buy-in and allows individuals to make an impact through the organization. For the non-profit, it also reduces overhead. During the recession, 43.7 percent of Colorado non-profits have increased their use of volunteers, and 33.9 percent said they were considering the action. At the national level, the percentage of Americans over the age of 16 that volunteered for non-profits increased from 27.4 percent in 2002 to 28.8 percent in 2003.[ 57]
Recommendation 3: Schools should cultivate stronger relationships with their respective communities
With the increased competition between public schools and the connection between school enrollment and government funding, educational institutions must approach students and families as clients, selling them the school’s mission and effectiveness. By cultivating stronger relationships with the community through education and volunteerism, schools provide families with the opportunity to learn about the successes of the institution and to develop a vested interest in the school’s achievements. As previously stated, fundraising activities – such as community concerts, after-school classes, and partnerships – allow for the diffusion of the school’s mission while giving something back to the community. Additionally, recruiting volunteers to provide supervision or tutoring or to be guest speakers can enhance relationships with adults in the community while reducing associated costs for the school. In a review of the American Association of Administrators annual conference, Dennis Pierce acknowledged that one of the main ways to encourage community commitment is by active participation of local citizens in the success of the school. 
Parents and community members can contribute to the school in a variety of ways with mutually beneficial results. Marin County Schools in California was able to encourage a healthy lifestyle while addressing their depleted transportation budget through the implementation of the Safe Routes to School Program. Volunteers walk common student routes and act as crossing guards. In the first two years of the program, the percent of students that walked or biked to school nearly doubled.59 Parent volunteers have also been effective in various schools as tutors, mentors, computer technicians, and hall monitors. Others have worked with English Language Learners or aided with clerical work. Furthermore, parent volunteers are not simply a financial asset. In their work on parent involvement, Sandra Machen, Janell Wilson, and Charles Notar found that stronger parent-school relationships had a positive impact on student achievement. By providing significant ways for the community to be involved in the school, the school increases transparency and improves the buy-in of their stake-holders.
Given decreasing government funding and increasing competition for students and resources due to structural evolutions, educational institutions should turn to the lessons of the non-profit sector to ensure their financial viability. Schools can use these lessons to increase the amount of funding they receive and to use their resources more efficiently. Schools can improve their efficiency by evaluating their current resources and acting in a manner that benefits both themselves and their surrounding communities. Additionally, schools must diversify overall revenue sources and re-evaluate their policies regarding the use of their facilities by the general public. A potential source of increased funding can be generated by involving the community and fostering positive relationships with it. As these relationships solidify, citizens will be more likely to enroll their students in those institutions. Due to the per-pupil funding used in American public education, a large student population leads to increased government financial support.
Potential challenges for the implementation of these recommendations vary by state. School districts may experience legal restrictions if states mandate what schools should invest in and how schools can use their facilities. Moreover, encouraging private or church involvement with public services can be a potential source of conflict, in particular regarding the contentious issue of church-state relations. However, states are increasingly allowing schools to rent out their facilities to religious organizations, indicating that this can be a viable alternative.
Most importantly, given budget restrictions, funding change is an overarching concern. It may be difficult to convince over-worked educators to endorse programs that alter the status quo and elevate expectations. School personnel should shift their focus on working smarter, not harder, and using their human capital efficiently to benefit the school. Training should be provided to encourage, educate, and prepare employees for these changes. Teachers specifically, and the school in general, should re-evaluate how they use the material and human (including volunteer) resources they have available. Working smarter to address the changing nature of public education requires prescriptive thinking. This transition will be easier in smaller school districts and charter schools that have more decision-making autonomy.
Even at these institutions, however, implementing all of the suggestions given in this article may not be feasible. Instead, the broader lesson is that schools must be creative in analyzing their current position and in applying suitable measures, given their unique situation and available human capital.
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‡ William Smith has worked in and researched the field of education for eight years. His primary interests lie in education and economic development. Previous publications include: Testing the Harrod-Domar Model: A comparative study of economic growth in Haiti and the Dominican Republic and The impact of a changing economy on education in Argentina: 1990-2006. Smith earned his Master of Arts in Teaching from Western Oregon University and is currently a Master in International Development candidate at the University of Denver.
David Lange has been working in the field of education as a teacher and administrator for 15 years. He earned his Master of Education in Educational Leadership from Regis University in 2009 and his Master of Arts in English from Concordia University in 2002. He is currently a doctoral candidate at Grand Canyon University, focusing on Organizational Leadership with an emphasis on higher education.