October 3, 2001

The Road Ahead for Federal Education Policy

Holland & Knight Newsletter
Robert H. Bradner

The federal political landscape has undergone an incredible series of turbulent changes over the past year, and the events of September 11th have again dramatically reshaped that terrain. With the nation's political leadership and public psyche fixed on grave questions of war and peace, it is difficult to divine the direction that education policy will take. Nonetheless, a review of the past year's events, and a consideration of the present political posture, does provide a basis for some predictions about the road ahead.

At the beginning of 2001, President Bush took office and set about to implement his legislative agenda, which featured proposals for a broad-based income-tax reduction and a revamping and bolstering of the Elementary and Secondary Education Act (ESEA). The President underscored the high priority of these proposals by unveiling them shortly after taking office.

Under federal budget rules, it was possible for the President to propose the tax cut and the education spending increase because the projections prepared by the budget scorekeepers in Washington, D.C., (the President's Office of Management and Budget (OMB) and the Congressional Budget Office (CBO)) painted a rosy forecast. Despite signs of a slowing economy, both the OMB and the CBO predicted a remarkably healthy budget picture with revenues significantly in excess of spending not only for the coming year, but for the balance of the decade.

The historical record of both OMB and CBO in correctly forecasting future economic and budgetary conditions has not been good, and while students of the federal budget process have learned to view the budget projections with a healthy degree of skepticism, these numbers are nonetheless used by the President and Congress for drawing their spending and revenue blueprints. The President was thus able to make good on his promise for a large tax cut through his budget proposal. Even after this action, the President contended, funds would remain to enhance resources for elementary and secondary education.

Simultaneously, however, the President's budget also called for a significant retrenchment in domestic spending programs. Overall, domestic spending was proposed to be limited to a four-percent increase, a far cry from the double-digit increases for health, education, labor, environment and other programs that had become the norm in the late years of the Clinton Administration. With some programs slated for increases well above the four-percent average, it would fall upon other programs to absorb cuts or face elimination. The details of the President's budget revealed precisely this problem for the higher education community. Only a handful of programs were recommended for funding increases, with most student assistance and institutional development activities frozen at prior-year levels or reduced. On the other hand, academic medical centers stood to benefit from a continued effort to enhance significantly biomedical research.

Congress largely went along with the President's plan, trimming his tax cut somewhat and dedicating the additional resources to even greater spending on elementary and secondary education. The higher education community also scored significant victories in the final tax legislation. The bill contained a number of provisions aimed at promoting access to a college education, including a quadrupling to $2,000 of the maximum annual contribution to an Education IRA, allowing private institutions to create prepaid tuition programs that would qualify for IRS Section 529 treatment, and a long-term extension of favorable tax-exclusion rules for employer-provided educational assistance to both graduate and undergraduate students.

Meanwhile, Congress set to work on the President's education proposal, and the House and Senate each passed their versions of this legislation earlier in the year. Three points are particularly noteworthy. First, both houses essentially rejected the President's proposals for broad new private school choice proposals, effectively dooming the chances for enactment of legislation that would significantly involve the federal government in the direct funding of private school tuition. Instead, the different proposals would allow limited experimentation with school choice, predominately with public schools. Second, both bills adopt versions of the President's ideas to involve the federal government more heavily in the testing of public school students and in holding public schools accountable for results. Interestingly, school testing was championed by President Clinton - albeit in a different form - and embraced by candidate Bush during the election campaign. The retention of the testing provisions represented a defeat for those conservative members of Congress who object strenuously to the federal government involving itself in the setting of educational standards. Finally, both the House and the Senate strove to outdo the President and one another in demonstrating their commitment to enhanced elementary and secondary education resources. While the President's original budget proposals called for over $2 billion in funding increases to the $18.6 billion currently spent on elementary and secondary education programs in fiscal year 2002, the House bill increased this number to about $5 billion while the Senate adopted a bill proposing to spend an additional $14.4 billion, plus another nearly $9 billion for special education.

The political terrain shifted dramatically when Senator Jim Jeffords left the Republican fold and the Democrats took control of the Senate for the first time since 1986. The change elevated Senator Edward Kennedy to the chairman of the committee with jurisdiction over the education bill. Any possibility for a quick resolution of the two competing versions of the legislation and presenting the President with a final bill (and a major political victory) prior to Congressional summer recess in August was dashed.

August is an important benchmark for federal budget writers as it is the time when the CBO and the OMB issue their "mid-session" revised budget estimates. Reflecting the economic slowdown that had occurred during the prior six months and the impact of the tax cut legislation, both CBO and OMB issued drastically reduced estimates of the budget surplus. While their numbers differed in certain technical respects, both painted a picture of sharply constrained resources and presented Congress with difficult and contentious policy choices. If the President and the two parties in Congress were to abide their solemn pledge to leave the Social Security surplus untouched, they would have to engage in an extremely difficult process of scraping together the funds for other priorities. While the President claimed that his defense increase could be funded, Democrats began to argue that it could only be so at the grave expense to farmers, seniors and the nation's school children. Against the backdrop of a plummeting stock market and drop in consumer confidence, all signs pointed to an extremely ugly and protracted political fistfight in Washington.

Literally overnight, the landscape shifted again in the most dramatic fashion imaginable. Fires still burned in the Pentagon and the remnants of the World Trade Center when the congressional leadership universally acknowledged that there would be no debate over the Social Security lockbox: the legislative branch would provide whatever resources were necessary for emergency response, reconstruction, security and intelligence enhancements, and to place the nation's military resources on a war footing. Congress quickly adopted an initial emergency appropriation of $40 billion for this purpose, with most acknowledging that this was likely a mere first installment on the resources that will be required for the grim challenges that lie ahead.

The road has twisted and turned many times over the past year. Where will it go from here? A few directions seem likely:

  • In the near term, Congress will work to finalize the fiscal year 2002 budget in a manner that strives to minimize acrimony on myriad domestic issues and that projects a unity of purpose. Consideration of many contentious issues will be put off until next year, and, with expenditure of Social Security trust fund resources no longer deemed inviolate, the federal budget will be resolved for the year without requiring a series of difficult tradeoffs, including a showdown over defense versus education spending. Additional resources will find their way into the domestic budget, and this will include significantly enhanced funding for elementary and secondary education and a more modest increase for higher education programs.



  • A strong effort will be made to swiftly resolve the policy and funding differences on the Elementary and Secondary Education Act that divide the President and Republicans and Democrats in Congress. As mentioned above, elementary and secondary education programs will receive a significant increase, but the amount of new resources provided will be much closer to the level proposed by the House than the exceptional increase proposed by the Senate.



  • The longer term prospects for elementary and secondary education programs are more rosy than for programs to higher education institutions. The tightness that has returned to the federal budget likely will dominate over the next few years. As Congress heads toward reauthorization of the Higher Education Act, this will not be a favorable environment for significant increases. Academic research institutions may suffer a "double whammy," as this tightening of the purse strings will coincide with the end of a five-year effort to double funding for biomedical research.



  • Much of the key decision making on education issues will continue to be made by the Appropriations Committee. Despite a more constrained budgetary outlook, the appropriators show no sign of abandoning the practice of providing funding for specifically identified projects and initiatives. Moreover, the President is now very unlikely to expend political capital to take them to task on this practice. Consequently, individual educational institutions should be able to obtain appropriations earmarked for particular priority projects and initiatives.

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