Well, the Texas public school system has always had a bad rap, although I never had a problem with it growing up in good ol' Beaumont, Texas.
Admittedly, I was in what they called the "gifted and talented" track of classes which got a more challenging curriculum, but still, I didn't know anyone who wasn't able to read! My family moved to Beaumont in 1983 and I was starting fourth grade that year. Attended classes there all the way until high school graduation.
Note: I realize that Don isn't just complaining about the Texas school system, but I'm using that as an oft-maligned example.
Perhaps Don was using hyperbole to make a point - or perhaps there really was some study at the time that said there were high school students out there who couldn't read. Was there standardized testing back then? Hopefully that has rectified at least the problem of students graduating without minimal knowledge.