Schools Hesitant to Spend State Aid Money

In Wednesday’s New York Times, there was an interesting coda to one of our recent Watcher articles: despite receiving large amounts of money from the recently passed state aid bill, school districts are not acting quickly to rehire fired teachers. The worry is next fiscal year might see even larger budget gaps, necessitating another, larger, round of firings. So the school districts would rather save the money, to try to stave off what could be an even worse FY 2011, and in the process, are potentially hamstringing any positive effects of the state aid bill.

Interestingly, this is the same problem facing the nation at a larger level. The future is as uncertain as ever, with many worried about their job security. The American people, as a whole, are guarding against that uncertainty by spending less and saving more. If you’re worried you’re not going to have a job in six months, you’re definitely not going to be going out and buying that new car, or going out to the movies as often. This trend is borne out by looking at the nation’s personal savings rate, measured as a share of disposable income, which is currently at its highest level since the early 1990s. In essence, then, the school districts aren’t doing anything different than the rest of the nation. Everyone’s saving to prepare to a bleak tomorrow.

This lower level of spending, or lower aggregate demand, is what is keep the nation’s economy depressed. That’s why we need significant federal investment in the economy, through stimulus bills like the Recovery Act, to make up for the lower consumer spending. And that’s why we need a second stimulus. Clearly, half-hearted spending bills like the state aid bill are not enough to kick start this economy.


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