Philanthropy doesn’t offset reduced school funding, IU economist finds

Post by IU Newsroom intern Annie Brackemyre

Nonprofit and philanthropic activity is not enough to offset reduced state spending on K-12 schools, a study by an IU faculty member has found. Tax and expenditure limitations, known as TELs, cap state budgets, but the budget gap is not bridged by a counter and equal monetary response from private fundraising.

Ashlyn Nelson

Ashlyn Nelson

New research scheduled for publication by Ashlyn Nelson, associate professor of economics in the School of Public and Environmental Affairs, is the first to examine the effects of TELs, austerity measures that limit state revenue and spending, on philanthropic activity benefiting elementary and secondary schools. While TELs are designed to limit state government budgets and revenue streams, they can also apply to county, school district and municipal budgets.

In the paper, “The Effect of Tax and Expenditure Limitations on Voluntary Contributions to Public Schools,” Nelson looked for evidence that local nonprofits and philanthropic groups like Parent Teacher Associations and booster clubs responded to the austerity measures and used fundraising to counterbalance the reduced budgets.

“TELs are often put in place by people who think government is wasteful,” Nelson said. “Some of these folks believe that the nonprofit sector should be paying for certain things instead of taxpayers.”

Nelson did not find a causal connection between TELs and private fundraising, however. And any increased fundraising efforts disproportionately benefited wealthy districts, while the districts that needed the most help raised the least money. The findings, which Nelson described as disappointing, were highlighted in The Chronicle of Philanthropy.

“A big argument made by the same groups of people who want to put these austerity measure in place is that, if local government does not want to fund certain budget items, then nonprofit or philanthropic activity should fund them,” Nelson said. “But there isn’t any evidence that this actually happens. While philanthropic support is important for many communities and individuals, philanthropy is not an adequate subsidy for government funding of services.”

As TELs are implemented and education budgets are hit, wealthy school districts are more likely to benefit from parents who are able to donate the resources that counterbalance state cuts. The poor districts are hit harder. Subsequently, the inequality gap between the wealthy and poor districts widens.

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