The student performance is going down. That's bad, period.
The graph is a bit misleading because it doesn't acount for:
It's possible that the dollars per student, in some "constant" dollar, hasn't gone up as dramatically as the graph indicates, and it is also possible that the increase in dollars per student is even -MORE- dramatic.
I strongly doubt the the vertical peak of bureaucratic fecklesness depicted by this graph can be attributed to inflation and an increase in student enrollment.
http://nces.ed.gov//pubs2002/digest2001/tables/dt040.asp
If I'm reading this correctly, it seems that enrollment has increased by less than 20% from 1985 to 1999.