Toxic Finance

Toxic Finance

The spread of COVID-19 in classrooms has revealed an infrastructure problem made worse by the way the United States finances improvements to school buildings.

Public school students protest outside of the Chicago Public Schools headquarters after walking out of their classrooms on January 14, 2022 in Chicago, Illinois (Scott Olson/Getty Images)

In Oakland, California, students threatened to walk out of class unless school leaders provided masks, weekly PCR tests, and more space to eat outdoors. In Saint Paul, Minnesota, students organized for virtual learning options. In Chicago, Illinois; Denver, Colorado; Round Rock, Texas; and Silver Spring, Maryland, students walked out to demand that school leaders take pandemic safety more seriously.

This wave of student strikes highlighted the stark reality that the Omicron variant of COVID-19 broke through the supposed firewall of vaccinations even while leaders as high up as President Biden and Secretary of Education Miguel Cardona, along with a bevy of experts and pundits, insisted that schools were safe for in-person instruction. According to the students walking out—and the teachers agitating nationwide—they weren’t.

It didn’t have to be this way. The spread of COVID-19 in classrooms is an infrastructure problem. If the air in a classroom is stagnant and not refreshed frequently, the risk of infection and spread can increase. That makes ventilation systems and windows all the more essential in fighting an airborne virus whose long-term consequences are still unclear. 

But the American Society of Civil Engineers’ (ASCE) Committee on America’s Infrastructure gave U.S. school buildings a D+, finding that almost half of school buildings in the country need work on their heating, ventilation, and air conditioning (HVAC) systems. A 2020 study by the Government Accountability Office reported that 54 percent of schools need to update or replace multiple building systems and a full third of HVAC systems require updating or repairing. These school infrastructure inequalities are racialized and class-inflected: a 2014 report found that 33 percent of schools serving low-income students had ventilation infrastructure issues versus 27 percent of wealthier schools.

Take my family’s zoned elementary school, Benjamin B. Comegys School in West Philadelphia, where our toddler will soon be headed. In 2015, an independent facilities analysis found that the school’s ventilation system needed replacing. The cost? $2 million. The windows also needed $1 million of work. That was nearly seven years ago. Today, according to the most recent public updates from the district, neither the HVAC systems nor the windows have been fixed. As Jerry Roseman, an environmental scientist for the Philadelphia Federation of Teachers, said: “If you’re poor, Black, or Brown in our cities . . . you get the shit end of this.”

How did we get here? A district’s ability to address these complex and expensive problems has everything to do with the resources at its disposal.

Ventilation system maintenance and replacement are capital expenditures, distinct from a school district’s regular operating costs, which cover salaries and books. The name is fitting; in the United States, these capital projects are subject to the vicissitudes of capitalism. Just as individuals go to private banks to take out private loans to buy houses, public school districts have to go to private lenders to take out private loans—called school bonds—for their major projects. These bonds are good business: school bonds, like all municipal bonds, are tax free at the federal level and often the state level, effectively making public schools in-country tax havens for investors.

Sometimes a state or other authority takes out the loan for districts; sometimes districts take them out themselves. It varies from state to state. But whoever does the legwork, the loans are generally subject to unreasonably harsh credit ratings, expensive legal and consultant fees, and higher interest rates than loans made to private companies. Policy analyst Marc Joffe, drawing from analyses conducted by the Securities Exchange Commission, found that rating companies like Moody’s give corporate bonds higher ratings than municipal bonds despite more frequent defaults because they view private firms as doing more “significant business.” These onerous ratings cost districts about $2 billion annually in interest. On top of that, on average, school districts pay about 1.02 percent of the cost of issuance in fees. 

This system of credit allocation explains why the best cared-for school buildings are in districts with high credit ratings, high property values, and largely white populations. In 2020, Pennsylvania students highlighted this disparity when they marched the four miles from Overbrook High School in West Philadelphia to Lower Merion High School, just over the district border. Lower Merion spends about $12,000 more per student than Philadelphia does. Lower Merion’s student population is 81 percent white, while Philadelphia’s district is 35 percent white. Philadelphia’s credit rating, according to Moody’s, is Ba3 (just above what bond markets call junk). Lower Merion’s is Aaa (investment grade). Before the pandemic, Lower Merion’s schools’ ventilation exceeded standards, and they were further updated with advanced technology such as MERV 13 filtration and bipolar ionization. Philadelphia’s schools got window fans.

This inefficient, inadequate, and unequal school building finance system is a result of the tendency in the United States to trust private finance with social services in the relative absence of the federal government. There is no federal law or policy that calls for the regular study and funding of school infrastructure. There has been a law on the shelf for years, the Rebuild America’s Schools Act, which proposes to spend $100 billion on physical and digital school infrastructure. When it was brought forward in 2019, it didn’t pass, and an updated law that came out in 2021, the Reopen and Rebuild America’s Schools Act, currently sits in limbo.

The judiciary has encouraged this federal inaction since the 1970s, when the Supreme Court decided in San Antonio Independent School District v. Rodriguez that because the word “education” doesn’t appear in the Constitution, the federal government has no obligation to provide for it. That decision, along with Milliken v. Bradley (which effectively legalized de facto segregation in school districts), ended the long fight to win substantial federal financial support for education through the courts. This position was upheld as recently as 2020, when the Sixth Circuit Court of Appeals dismissed a lawsuit filed by Detroit students that claimed that the Constitution provides a right to literacy.

The Biden administration’s recent spending package, the American Rescue Plan (ARP), is not enough to overcome the problems with the way the United States funds its schools. ARP’s numbers look impressive: by January 1, 2022, the program distributed $122 billion to schools. Yet because the money was not intended for facilities exclusively, it was also spent on other priorities, such as transportation, mental health services, and internet connectivity. Georgetown University’s FutureEd found that most districts have spent this money on hiring and teacher training. While at least half of districts receiving ARP funds will spend some of the money on HVAC, school leaders are so concerned about completing these ventilation projects by 2025—when the ARP funds run out—that in January the School Superintendent’s Association formally asked the Department of Education for an extension on the funding. The complexity of the projects, combined with the short-term funding infusion and supply-chain issues with materials, has made it difficult to get the jobs done.

For instance, in Philadelphia, ARP money only translated into a $325 million influx of funds for facilities and capital programs. The district earmarked some of that cash for renovation projects. As of 2017, the district needed over ten times that amount—nearly $5 billion—for deferred maintenance; $587 million was needed for HVAC and windows. The one-time infusion of funds helps, but only for the short period of time during which they are available. Testifying in a Commonwealth Court case on Pennsylvania’s school funding inequality, Philadelphia’s district finance officer said the five year influx of funds cannot erase the district’s huge structural deficit. Recurring funding is necessary.

It will take a concerted effort at every level of government, using both fiscal and monetary policy, to publicly finance our public school buildings in order to make them safe. There have been some positive steps in this direction. I am part of a group of researchers and policy analysts working on a Green New Deal for Public Schools. The legislation, put forward by Representative Jamaal Bowman last year, was a crucial step toward envisioning and implementing a policy that would address school building infrastructure needs. It hit a dead end, but the law still has promise: federally funding green school infrastructure updates with a focus on ventilation systems and windows has the potential to decrease carbon emissions, create union jobs, and improve air quality, reducing the risk of the transmission of disease.

But that legislation, as a fiscal policy, is just a first step. An independent National Investment Authority—like the one proposed by Saule Omarova—could take on the bondholder class and the private credit system directly. Rather than going to the private municipal bond market on Wall Street, school districts could go to a public authority—controlled by elected and appointed officials and thus democratically accountable—for loans. Yakov Feygin and Pooja Reddy have proposed a slightly different program that would create a public option for municipal bond deals. The bondholder class also could have been confronted using the Federal Reserve’s Municipal Liquidity Facility (MLF). Despite being administered by conservatives with a religious fanaticism about markets, finance experts and organizers on the left recognized the facility’s potential as a way to finance public infrastructure by “canceling Wall Street. Had it been in better hands, the MLF could have offered no-cost, long-term loans to school districts for projects like ventilation and window renovation.

Public schools need public financing, not toxic financing. With better structures for provisioning their buildings, school districts in the United States could update ventilation systems so that students and teachers are safer inside school buildings. In the process, we could restore trust in the public education system—and weaken Wall Street’s influence on the quality of the air we breathe.

David I. Backer (@schooldaves) is an associate professor of educational foundations and policy studies at West Chester University. He writes a weekly newsletter on education, finance, and socialism called Schooling in Socialist America.