We're Burying Our Kids With Debt (But Not How You Think)

For the Philadelphia teacher Freda Anderson, setting up her classroom involves clearing plaster, dust and paint chips from tables, chairs and desks. Somewhere, a leak has allowed water to seep through the walls. Years of deferred maintenance have caused dust and paint chips to scatter across the room. This debris is not just a brazen reminder of state abandonment of public education — it is an active vector of harm. A report released this spring revealed an asbestos epidemic creeping through Philadelphia schools.

During the 2019 school year, 11 schools closed because of toxic physical conditions; a veteran teacher is suffering from mesothelioma, a lethal disease caused by asbestos. Ms. Anderson used to believe the best way to fix schools would be to hire more teachers, counselors and mental health providers, “but, honestly, now the first thing I would do is start reallocating money to fix the buildings,” she told me. “They’re just really dangerous.”

The question of how to finance Philadelphia schools’ $4.5 billion of unmet infrastructure needs — as well as hiring more teachers, counselors and nurses — has been a vexing issue for the community. Despite high levels of affluence in the city, inequitable distribution of state aid and regressive taxation, including hundreds of millions of dollars in local corporate tax breaks, have exacerbated budget shortfalls.

To keep the lights on, the School District of Philadelphia — like thousands of districts across the country — has increasingly turned to debt financing: They issue bonds to borrow money from financial markets, either with their own bonding authority or through municipal governments. Investment funds purchase these bonds, thus lending the funds to local governments or school districts, who promise to repay the loans, plus interest and issuance fees.

Debt-financing public education has not only failed to provide schools with sufficient funds; it has also imposed long-term costs. What seems like a fix for school districts’ strapped budgets has actually trapped them in cycles of austerity, exacerbating the very inequalities public education is designed to address.

At its most profound level, debt-financing public schools relies on problematic ideas of creditworthiness. For instance, Moody’s Investors Service, a pre-eminent credit-rating agency, bases a school district’s credit score on the district’s existing property value and residential income: The poorer the school district, the more it pays in interest and fees to borrow — from the point of view of creditors, such schools are “riskier.” The results of this process are unsurprisingly classist and racist. Funding schools by way of credit scores amounts to little more than operating a system of prejudices which ordains the haves with the capacity to have more, while chaining the have-nots to financial hardship.

In 2012, state and local governments across the country paid an estimated $3.8 billion just in bond issuance fees — more than twice the amount used to fund pre-K education across New York State in 2014. In 2021, the Philadelphia School District paid $311.5 million to service its debt. More than half — $162 million — went to Wall Street creditors as interest payments.