Bill Gates Takes on States’ Budgets

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February, 2011; Source: | In a recent TED lecture titled “How State Budgets Are Breaking U.S. Schools,” Bill Gates argues for increased focus on state budgets as the main leverage point for increasing public investments in education. He believes that the current recession is not the real constraint for state budgets. Rather, he contends, there’s a systemic problem in letting future liabilities go unfunded and unmanaged in state budget planning. Citing California as an example, he notes that currently, 26 percent of California’s state budget is committed to paying retiree health care benefits alone – by 2040, such costs will tie up 42 percent of California’s state budget.

He argues that by not paying enough attention to future state budget trends, we’re pitting older generations against the young, because increasing state budget obligations for state employee retirement benefits and health care squeezes out revenue for education investments.

Why is this disconnect happening? According to Gates, the culprit is our collective failure to scrutinize state budgets. He says that “Enron would blush (at some of the things these guys do)” with respect to deferring payments, liquidating assets, borrowing to cover future liabilities, and other practices that mask accumulating deficits.

While Gates rightly emphasizes the importance of addressing intergenerational equity as a critical policy concern, he frames the issue as a zero sum game that pitts two discrete state spending categories dear to middle America against each other. He doesn’t consider other spending categories with short and long range financing implications (such as corrections), or the effect of federal spending patterns, or policies such as devolution on effective long term state budgeting options. Furthermore, he doesn’t even touch on revenue generating options.

Gates concludes that the problem is deliberate and deceptive accounting at the state level, period. In his view, the remedies are clear: reform pension/retiree benefits systems, and free up funding for more efficient public education, pay for pension liabilities as they are incurred, increase technology utilization, improve performance measurement, and offer incentive pay for teacher effectiveness. That’s the solution.

Albert Einstein famously said that “Everything should be made as simple as possible, but not simpler.” Bill Gates could use his massive influence to bring a broad perspective that doesn’t oversimplify or overly constrain the policy responses to gaping state budget deficits. Are state budgets for retirees primarily responsible for breaking U.S. education? Is it really that simple?–Kathi Jaworski

  • Peri Gilbert

    I agree with Bill Gates that budgets need to be scrutinized. The education budget in Louisiana is being mutilated once again. Instead of finding more revenue, state officials cut funds. In a state where we have enough education problems the last thing we need to do is cut funds. It will not be admin who suffer from the cuts, it will be teachers, and above all else, it will be the students who suffer from these cuts.There has to be a better way.