The Unseen Culprits in America’s Financial Crisis

To the long list of villains in America’s unfolding economic crisis … the politicians who encouraged risky lending, the bankers who bundled questionable mortgages into marketable securities, and the ratings agencies that gave inflated grades to sub-par debt … add the thousands of supposedly responsible citizens who served as volunteers on their community school and finance boards.

These are the same neighbors and friends who for decades signed onto school budgets well in excess of inflation, onto public employee pension and benefit schemes without ever calculating the reserves need to cover the baby boomer retirement bubble, and onto teacher and school administrator contracts that demanded no measurable increases in student achievement.

In my home state of Connecticut, for example, the cost of public education has more than doubled in real dollars to nearly $9 billion over the last quarter century — a sum equal to half the entire state budget — while the student population has increased only ten percent and scores on the National Assessment of Education Progress (NAEP) tests of reading, math, and science remained stagnant.
The financial consequences of this negligence will soon become apparent as the governors come begging to Washington for bailouts from a more sympathetic Democrat administration. Their burden of state deficits, now estimated by the National Conference of State Legislatures to total $137 billion over the next 18-to-24 months, could not exist without inflated local education budgets, if for no other reason than what citizens will tolerate in state income and sales taxes is limited by what they are already paying in local property taxes and school district assessments limits. (In states where the cost of public education is born primarily by the legislature, spending decisions by profligate local officials still net red ink.)

Less obvious are the indirect costs to every state of inefficient public schooling. Dr. Vicki Murray of the Pacific Research Institute in San Francisco has calculated that California alone loses as much as $13.9 billion annually on such items as remedial instruction at state colleges for ill-prepared freshmen, reduced tax receipts from low-earning workers, and health, crime, and welfare expenses attributable to a lack of education.

The fact is that decades of lax financial and managerial oversight at the local level have contributed mightily to ballooning state budget deficits, a liability which the governors now want to eliminate by shifting the burden onto the federal treasury.

Of course, town and city officials will argue that public education is regulated by a labyrinth of state mandates and regulations dictating everything from the arbitration of public employee contracts, to labor rates paid for the construction of schools, to the teaching of learning disabled students.

True enough. But these are the same officials who have no trouble challenging state statutes when it comes to the creative financing of public works, getting tax waivers for historic districts, or increasing aid to municipalities. It is only when it comes to education reform and related issues of public employment that they throw up their arms in helpless despair.

To really understand the failure of local governance in America, we need to have a clearer understanding of the relationship between volunteer boards and the educators they are supposed to be regulating, a relationship that is perhaps best described as “solid citizen racketeering.”

As University of Missouri political science professor J. Martin Rochester has noted, what passes today for a quality education in many American towns has little to do with academic rigor. “Quality” has become a deceptive code-word for an ever-expanding menu of services, hobbies, and recreational activities for the narrow benefit of school children and their families. These include low cost forms of day care, both before and after school, expensive and eclectic sports programs, holiday “socials,” low-cost summer camps run out of public school buildings, and a variety of school-day distractions for students, such as pottery and ballet lessons, cafeteria pasta bars, media centers with state-of-the-art video equipment, and comfortably furnished rooms overflowing with shiny computer work stations.

In return for accommodating this self-serving charade, unionized teachers and administrators receive regular salary and benefit increases far in excess of comparable productivity in the private sector. (The code phrase for this payoff is “being supportive of the schools.”)

Taxpayers without children in public school have an obvious interest in the efficient use of education dollars, but, ironically, the parents who organize to control town politics do not. In states where schools are funded by property taxes, for example, a family paying $8,000 in real estate levies and sending three children to public schools with an average per pupil cost of $9,000 nets a sufficient yearly gain in services ($19,000) that it can tolerate a lot of budgetary gamesmanship. And when senior citizens or parents sacrificing to send their own children to private school complain about excessive spending, their grumblings are easily dismissed as “anti-education.”

Some will counter that such excesses are far more prevalent in upper middle class suburbs than prairie towns or older cities, and this too is correct. But as muckraker Upton Sinclair observed nearly a century ago, it is the upper middle class that shapes public policy in America. And while teacher unions are rightly credited with stifling needed reforms in poor and minority school districts, their real power comes from a longstanding accommodation with trend-setting affluent parents.

Unfortunately, the result of exploding school costs is inflation in all areas of local government. It is difficult for any mayor to control the salaries and benefits for his assessors, health officers, building inspectors and other employees when the school administrators across the street have a much better deal. And conversely, any attempt to tighten non-school spending is viewed as a threatening precedent by both educators and their parent allies. For reasons we have already seen, this upward bias in the cost of municipal employment inevitably translates into higher state deficits.

The only good news about the recent collapse of residential real estate, squeezing taxpayers between falling home values and increasing property taxes, is added pressure to cap, or at least limit, school budget increases over the near term. But if states are bailed out without a fundamental change in the relationship between politically active parents and school administrators, the economically dysfunctional quid pro quos will resume.

To get real value from our tax dollars, parents have to be moved from a political model of providing for their children’s education to a consumer model. In other words, instead of being allowed to extract money from their neighbors to horse trade with educators, parents should be granted a fixed budget — be it a voucher, a scholarship, or a tax credit — to spend at whatever school they believe is best for their son or daughter.

This is the practice now followed in Australia, Denmark, the Netherlands, New Zealand, and Sweden, all of which score higher than the U.S. in student achievement and lower in terms of per pupil costs.

Lewis M. Andrews, Ph.D., is Executive Director of the Yankee Institute for Public Policy at Trinity College.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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