Gates: Opportunities for schools amid budget cuts

PHILADELPHIA (Reuters) - Billionaire Bill Gates, whose philanthropic foundation makes education one of its U.S. priorities, said on Tuesday that even as states grapple with painful budget cuts amid the recession there are opportunities to initiate school reforms.

Most U.S. states may be economically faltering during the countries' longest recession in five decades, but they still must invest in improving schools, Gates said.

"We get asked a lot -- 'Hey if we're cutting our state budget what's a smart way to do it?' And that's a very tough question to answer," said Gates, who has used some of the wealth he amassed as the co-founder of Microsoft Corp to establish the Bill and Melinda Gates Foundation, along with his wife, Melinda.

"I talked today about how money they have can be spent well, but I didn't give them a magic way that a 10 percent budget cut isn't going to be very, very painful," he told Reuters after speaking at the National Conference of State Legislatures' annual summit.

States are learning the depths of that pain. On Monday, the legislatures group said that states' cumulative budget gaps during the current recession were on track to exceed $348 billion and some states face budget problems for four to five more years.

But Gates said that even amid tight budgets positive changes can be made.

"This is a painful time. But difficult times can spark great reforms -- and changes we can make now can help us come out of the downturn stronger than when we entered," he told the conference.

He promoted collecting data about learning, relying more on community colleges, looking to charter schools for ideas, and seeking help in the private sector.

In addition, he said states can tap funding made available in the federal economic stimulus plan passed in February -- more than 14 percent of the entire package was dedicated to education. States may also be able to find ways to rearrange priorities.

The Gates Foundation, with an endowment of $27.5 billion according to its website, has been fighting to improve U.S. education for nearly a decade. Its major initiative, to put students in smaller public schools, had mixed results and has largely gone quiet, but the foundation remains undeterred in pressing for reforms.

The foundation has also begun pushing to create standards for teachers and link their pay to performance, a change that may gain some ground under the stimulus, Gates said. A recent audit by the Government Accountability Office found that most of the school stimulus funding is going to help plug budget holes.

But, Gates said, about $5 billion is available for competitive grants where states can try out new ideas in a program called "Race to the Top."

"As a percentage it's small but it's still large enough that some very significant experiments can be done, so we get everyone to see that there are measurement systems that are not capricious and that really raise the quality of teaching," he said.

The foundation is helping states apply for the grants and also providing funds of its own for trying methods of "merit pay."

"We want to have a variety of systems over the next two to four years and really look at the data on what they achieve," Gates said.

That way, teachers will not worry about their pay being based on "capricious" methods or about being penalized too strongly.

Some, such as teachers unions, worry that under that system teachers' livelihoods will suffer because their students do not score high enough on standardized examinations. Others say that using factors such as tenure to determine pay and benefits is fairer than evaluations.

Like President Barack Obama, Gates sees community colleges -- two-year institutions often offering vocational and professional degrees -- as keys to Americans earning more.

He also wants "fewer, clearer, higher standards that are common from state to state."

In 2001, Congress passed the No Child Left Behind Act in order to create and enforce nationwide education standards. But educators and parents are split over its effectiveness. Educators have complained its requirements are too cumbersome and it punishes schools where students score low on tests instead of helping them.

Gates called the law "a strange kind of success story." "It's done a great job in showing how bad many schools are," he said, but added it did not succeed as a "remediation mechanism."

Some remediations can happen with the $100 billion earmarked for education in the economic stimulus, but they could also be halted when the curtain drops on the recovery program in two years.

"Whether states' economies will be in better shape in terms of income or expenditures down or whether they'll be having to raise taxes or whether there'll be immense pressure on the federal government to continue and do more -- we don't know the answer," he said.

(Editing by Leslie Adler)