18 June 2008

Public Schools: Generous with Other People's Money

The Objectivist
Dunkirk-Fredonia Observer
June 10, 2008

New York has the highest state and local taxes in the United States and spends more per student than any other state. In this context, the New York State Commission on Property Tax Relief Commission has suggested a way to contain skyrocketing education costs. Even this mild remedy has ruffled the feathers of the education crowd. In this column, we look at local taxes and the recent proposal.

Taxes are grinding New York taxpayers into the dirt. Note that the following figures come from the Commission’s findings. New York State has the highest tax burden in the country. The tax burden is 33% above the national average. Statewide spending is not the problem. Albany is a model of discipline compared to local governments and school boards. State taxes are only 1% above the national average.

Local governments and school boards are the villains here. New York’s incredibly high taxes are driven by the highest local taxes in the country, 79% above the national average. Excluding New York City, New Yorkers pay $26 more per $1,000 income than residents in other states. This is 57% higher than the national average.

The engine driving these local taxes is property taxes, which are a disgrace. Property taxes are 75% of local taxes. As a percentage of home value in 2006, 9 out of the 10 highest property-taxed counties in the United States were in New York. Chautauqua country is on the list of shame with the 6th highest in the country, taxing its residents at 2.52% of the home value each year. Property taxes have grown more than 150% above inflation since 1982. They’ve grown by an eye-popping average of 7% since 2001.

The property taxes are pushed ever higher by education costs, which, outside of New York City, are 62% of the property taxes. New York schools spend money like drunken sailors. In 2008-2009, New Yorkers spend $18,768 per pupil. Again, this is more than any other state (although the District of Columbia spends more) and reflects a 7.9% annual rate of increase from 2000 to 2006. The overspending is in part due to the fact that school boards spend other people’s money. 47% of school revenue comes from state and federal rather than local sources. It is also likely due in part to the fact that only 14.2% (2006 figure) of enrolled voters vote on the school budget. With such low enrollment, parties with a financial stake in the monster spending levels, for example teachers and people with kids in the system, can consistently win votes so long as they get out their members.

The recent spending increases result in large part from payroll padding. From 2001 to 2007, there was a 4.8% increase in staff (7,400 more staffers) and 3.6% increase in teachers (5,000 more teachers) despite declining student enrollment (down 0.9% or 15,900 students). In 2005-2006, the average teacher cost the taxpayer roughly $82,000 per year ($59,000 in salary and $23,000 in benefits). Because this amount is reasonable, the problem appears to be the number of employees not the pay level.

This level of property taxes lowers property values, which makes people poorer. It also drives businesses away. This increases unemployment and drives young adults from the area. For example, civic leader Kevin Gaughan asserts that Erie County lost 30% of its young adults (18-24) since 1990. Property taxes thus cause upstate New Yorkers to lose jobs, retire later, and watch their children move away. Now explain to me why school boards and associated special interests aren’t villains.

Enter the Commission on Property Tax Relief. It wants to cap property tax increases. The cap is a limit to the annual increases in school property tax levies and the Commission would set it at 4% or 120% of the Consumer Price Index, whichever is lower. According to the proposal, if the school district held its increase to at or below the cap, it need not put its budget to a vote. If it wanted to increase spending by more than the cap but less than 5%, 55% of the voters would have to approve it. If the increase were more than 5%, 60% would have to do so. Any part of the levy that is not used can be banked for future years, although it may not exceed 1.5% of the previous year’s levy. The idea for a cap is nothing new. In 2006, 43 states had some type of cap on real property taxes.

The Commission also put forth a circuit-breaker proposal. It proposed that an income-tax credit that will kick in for low- and moderate-income residents when property-tax bills exceed a certain percentage of their income.

The proposal is mixed. The cap is probably necessary to prevent school spending from breaking taxpayers and ravaging the New York economy. Still, it is dangerous. We can expect that school spending will reliably come in at 4% because there is little incentive to spend less. Because 4% is likely be higher than inflation, the taxpayer burden will continue to grow relative to people’s incomes and property values. The supermajority cap-buster is troubling in that the education special interests can probably mobilize to push the rates up, at least in those areas without vigilant taxpayers.

The loss of local control accompanying statewide caps is not unfair given that state and federal taxpayers pick up about half the bill. By analogy, if an employer pays for half of his worker’s education, it seems fair and appropriate to insist that she take courses in real subjects and perform at a reasonable level.

The circuit-breaker idea is a mistake. The reason that school systems can spend like drunken sailors is that they spend other people’s money. If local taxpayers had to foot the whole bill for education, school spending would have a direct and immediate effect on local taxes. This would likely end the ratcheting up of school hiring and spending. The circuit-breaker makes local taxpayers foot less of the bill and thereby makes things worse.

It is a shame that the Commission chose such a clunky method to slow skyrocketing education costs. However, it’s better than the likely alternative, which is more drunken-sailor spending. In any case, the discussion of this proposal should begin with the acknowledgment that the school systems and associated special interests are villains who offend us with their outrageous and undisciplined spending.


The Objectivist said...

Note that the state is arguably a good deal of the problem if the overspending is in large part due to state mandates.

The Objectivist said...

Also, it's worth considering why the taxpayers tolerate this spending behavior. They rise up when it comes to gay marriage and amnesty bills for illegal aliens, but are surprisingly quiet when their property taxes go through the roof. I don't know why this occurs.

The Objectivist said...

If you note Fredonia and Dunkirk and noticeably poorer (using 2000 census figures) than the rest of the U.S. This likely has a connection to the high level of taxes, particularly property taxes, and to the flight of young people.

Note that I don't know of any evidence that shows that the high level of spending brings about better school performance. However, I'm open to learn about arguments to the contrary.