Funding schools Wall Street-style also subjects schools to market volatility. For example, as the 2008 recession crumpled state and city revenues, many school districts, under the guidance of self-appointed financial experts, invested in chic yet ultimately risky financial assets like “variable bonds” and “interest swaps.” It was an understandable move; schools were desperate to secure funds their state governments could not or would not provide. But when many of these deals turned toxic, cash-strapped districts were on the hook for skyrocketing payments.
In 2010, Philadelphia public schools paid $63 million in fees simply to extricate itself from some of its toxic swaps — more than it spent on books or supplies that year. Chicago public schools lost over $600 million in toxic debt swaps. In both Chicago and Philadelphia, budget shortfalls prompted school administrators to close dozens of neighborhood schools in Black and brown communities, leaving these communities without some of their vital public institutions.
Debt financing isn’t simply expensive and unequal — it’s also anti-democratic. Creditors and credit rating agencies loom over public institutions like shadow governance systems. Bond covenants, the legal terms of lending, often give creditors the first right to resources, making obligations to lenders the budgeting priority of many underfunded schools — not the needs of students or educators. In 2016, after school closings and budget cuts failed to solve the budget crisis for Chicago Public Schools, the school district borrowed an additional $725 million — not to reopen schools or hire more educators but to service its debt.
In the wake of this financial calamity, some communities are beginning to organize to challenge the logic of debt financing K-12 education. “There’s a lot of self-blame around debt. People think, we got ourselves into this, so there’s nothing we can do to get out,” Pep Marie, lead organizer of Philadelphia’s educational justice coalition Our City, Our Schools, told me.
Local activists like Pep Marie have been working alongside the Action Center of Race and the Economy (ACRE), the advocacy group Lilac Philly, and the Debt Collective, a group that organizes debtors’ unions. Decoding the technocratic lingo of finance into words with political grip is one goal; another is to build power to challenge rule by debt.
“Part of the organizing work is to delegitimize the ethical framework that says this is OK,” Jason Wozniak, an education professor at West Chester University and a Debt Collective organizer, told me. “We can win as much local control as we want, we can elect the best people to the local school board, but at the end of the day, if we’re still beholden to credit rating agencies, even the best elected officials can only do so much. That’s why we need debtors’ unions.”
Several of the groups rallying together in this space are calling for public investment to fund schools. One demand, among many, is for the Federal Reserve, the nation’s central bank, to provide zero-interest loans to municipalities — much like it did for corporations in the immediate response to Covid-19. Such a federal lending system would obviate the need for school districts to hustle for funds from harsh creditors and would free up local budgets to either make new investments or provide tax relief to middle- and working-class residents. This form of federal financing conducted by the Fed could also allow schools to sustainably invest in repair projects — fixing damaged infrastructure, reducing class sizes and refurbishing facilities into eco-friendly, well ventilated schools.