The Never-Ending School Finance Wars

Posted on by Michael Q. McShane

Just like school years come and go and spring fades into summer, controversy over how we fund our schools has been a part of our political landscape for what seems like eternity.  Most recently, the Kansas Supreme Court has threatened to keep the state’s schools closed if the legislature does not change the way it funds schools to provide more money for low-income districts.

Kansas is not alone. At the end of its session this year, the Texas Supreme Court came down with a decision on the constitutionality of its school finance system. Not long ago, the Missouri Supreme Court was asked the same question, and given the changes to the school funding formula this legislative session, it is entirely possible that the state might be taken to court again.

Years of lawsuits and millions of dollars in legal fees have been devoted to 15 words in Article Six of the Kansas constitution “The legislature shall make suitable provision for finance of the educational interests of the state.” In Texas, it’s a few more, but conveys the same message. In Missouri, our Constitution at least gives some benchmark, saying that we can spend no less than 25% of state revenue on our public schools, but even that has been challenged over the years.

These cases have well-compensated lawyers, expert witnesses, and consultants trying to force courts to read minute detail into constitutional language. Complicated studies are conducted to place an exact dollar amount on what constitutes “suitable provision,” so that a penny less is seen as violating the constitution.

This is not how we should determine what to spend on our schools, for two reasons.

First, no one really knows exactly how much we should be spending on education. Costing out the precise dollar value of a quality education is beyond the knowledge base of social science today. We simply do not know that spending X amount of money will yield Y level of achievement. What’s more, we have a belief that low-income students, students with special needs, and students who have to learn the English language cost more to educate—but how much more? We simply don’t know.

Second, for all of its faults, the legislature is better qualified to make funding decisions than the courts are. Courts are not in a good position to weigh the complicated tradeoffs that legislatures must make when they appropriate state tax dollars. We don’t live in a world of unlimited resources. As a result, legislators have to weigh the needs of schools against other needs, like roads, healthcare, and everything else that the state supports. Courts are rarely, if ever, asked to determine how their decisions might affect these other priorities. And depending on whether judges are appointed or elected, they may be harder to hold accountable than legislators, who must run for re-election.

Not everyone is going to agree with the decisions that the legislature makes, and their complaints will be justified in some cases. But that is why we have elections. Calling on the courts should be an absolute last resort, reserved for the most egregious cases. In most instances, the only thing that will be accomplished by including the courts will be to make lawyers and consultants richer, not improve educational outcomes for children.

Lessons to Be Learned as Former Saint Joseph Superintendent Heads to Jail

Posted on by Michael Q. McShane

Dan Colgan, longtime superintendent of the St. Joseph public schools, has been sentenced to one year and one day in federal prison for his role in improperly awarding himself bonuses and stipends during his time at the helm of the school district. Colgan’s downfall was one result of a broader sweep of the district’s practices that also led to the firing of former superintendent Fred Czerwonka after it was revealed that he had given out 54 $5,000 stipends to administrators without permission from the school board.

All in all, it was a depressing affair. But, as it moves from the present into the past, we do have an opportunity to try and learn from what happened. I can think of two key lessons:

Lesson 1: Audits are essential

Little if any of the malfeasance in this case would have been brought to light had it not been for an audit of the system’s finances by the state auditor. That process uncovered almost $40 million in misspent funds and led investigators to the guilty parties. It’s not difficult to imagine that if comprehensive audits of all of the state’s 520 school districts were conducted, the state could uncover other cases of wink-and-nod arrangements and misspent funds.  What was found in St. Joseph is reason enough to suspect that similar cases might well be out there, and the state should make auditing at least some sample of districts a priority.

Lesson 2: Basing pensions off the last three years of earnings, even if legal, is a bad idea.

Missouri calculates a teacher’s pension based on the average of their final three years of employment. By awarding himself extra compensation during those years, Colgan was not only adding to his present paychecks, but also increasing the amount of money he would receive in retirement. What Colgan did was illegal, but plenty of teachers and superintendents goose their pensions by taking on administrative roles or other positions in their final three years of employment to increase the value of their pensions.  We want the best people for these jobs, not just folks who want more in their retirement checks. By taking a teacher’s entire career into account when calculating their pension, we can avoid such problems.

It’s easy to shrug St. Joseph off as an isolated, ugly case of abuse of power, but we do so at our peril. We will pay for our mistakes in any case; the only question is whether we will learn from them.

Missouri’s Weak Employment Mirrors Weak Economic Growth

Posted on by Rik W. Hafer

Last week I posted a comparison of output in Missouri to that of the United States. The bottom line is that since the late 1990s Missouri has lagged behind the nation when it comes to producing goods and services. With the most recent employment figures out, it appears that Missouri isn’t doing any better there, either.

The Bureau of Labor Statistics’ monthly release of employment data revealed that there has been meager growth in Missouri jobs over the past year. Between May 2015 and May 2016 there was an increase of about 24,000 jobs, or less than a one-percent increase. Is this slow increase a recent phenomenon or something more persistent?

The chart above plots total non-farm employment since 1990 for both Missouri and the United States. To make the two series comparable, each is indexed to their January 1990 values. The two lines show that jobs in Missouri and the nation both react to changes in economic activity. They both expanded during the economic boom of 1992. Conversely, employment fell during the recession that occurred in 1991, and during the so-called Great Recession, which lasted from 2007 through 2009, employment dropped significantly.

What makes the chart interesting is the fact that while Missouri’s job growth kept pace with the nation for most of the 1990s, it has lagged far behind since then. From the beginning of 2000 to the beginning of 2016, employment at the national level increased by about 9 percent. Missouri, in contrast, has seen employment increase by less than 2 percent. And while the nation has rebounded from the Great Recession with employment higher now than what it was in 2007, total employment in Missouri has changed very little.

To answer the question posed above, Missouri’s lack of job growth is a persistent phenomenon, one lasting well over the past decade. 

Is Kansas City Using TIF to Mask Policy Consequences?

Posted on by Patrick Tuohey

The Urban Land Institute invited me to speak on a panel the other day to discuss Kansas City’s use of financial incentives to developers. I was grateful for the invitation, and I think all the attendees enjoyed the discussion.

Most of the arguments for and against incentives were familiar, with one exception. Bob Langenkamp, the President and CEO of the Economic Development Corporation (EDC) of Kansas City, said that taxpayer subsidies such as TIF were often used to compensate for such things as minimum wage requirements and women- and minority-owned business contracting policies. “They impact attractiveness,” said Langenkamp.

Although Kansas City did not raise its minimum wage, the Council wanted to. It’s easy to imagine a business considering a development in Kansas City seeking to have those additional costs defrayed by taxpayers. Less clear is the impact of the City’s requirements for hiring women- and minority-owned contractors. But whatever the issue, those requirements were significant enough for the head of the EDC to mention them.

Langenkamp’s general point seems that the City sometimes sets policy in ways that harm its attractiveness for development. This by itself is not problematic; governments often enact social justice or public safety laws despite their economic impact. But rather than accept the consequences of their decisions, Kansas City is using taxpayer subsidies to shift the costs from developers onto taxpayers and residents.

It's good that someone in Kansas City’s leadership recognizes there's a problem with the city’s policies. But if those problems need to be solved with taxpayer money, wouldn’t a more straightforward way be to simply ask taxpayers directly for the money (and explain why it was needed) rather than take the roundabout TIF approach?

Leadership Lessons from Attila the Hen: Margaret Thatcher on Europe-and the United States

Posted on by Andrew B. Wilson

It was a vintage if ill-advised display of firmness.

A quarter of a century ago, Margaret Thatcher threw the British House of Commons into an uproar when she mocked the concept of a United State of Europe in no more than three words. Punctuating each one, she said:

“No. No. No.”

This wasn’t just verbal overkill.  More precisely, she was saying “No” to a European Parliament comparable to the U.S. House of Representatives, “No” to a European Council of Ministers comparable to the U.S. Senate, and “No” to a European Commission approximating the power of the White House and executive branch.

Nevertheless, senior members of her party railed at her vehement rejection of a new conventional wisdom.  They challenged her leadership—and forced her resignation.

After eleven years (the most of any British prime minister in the 20th century), she was booted out of office on the issue of European integration. She resigned on Nov. 28, 1990.

Since her departure, every British PM (two Conservatives and two Laborites) has waved the pro-Europe flag. Support for the European Union (EU)—supplanting what began as the European Common Market—has been the consensus view of the British political establishment EST (Ever Since Thatcher).

However, with the “Brexit” vote last month, this era may also come to an abrupt close. After 26 years, will the British public  have swung around to her thinking? 

Thatcher foresaw many of the difficulties today’s Europe.

In 1975, as opposition leader, she campaigned to keep Britain in the Common Market. However, after winning a third term as prime minister in 1987, she worried about the metamorphosis of the Common Market from free-trade zone into the “Babel Express”—a new super-state with many different languages and national identities. Ironically enough, the EU was taking shape just as an older super-state (the Soviet Union) was falling apart.

A new super-state centered in Brussels, Thatcher thought, would be as antithetical to democratic freedom and democratic accountability as the older one centered on Moscow.  In her memoirs she wrote: It would have “the same inclination toward bureaucratic rather than market solutions” . . . and it would make distant and unelected elitists the masters rather than the servants of the people.

“Ultimately,” she wrote, “there was no option but to stake out a radically different position from the direction in which most of the Community seemed to be going, to raise the flag of national sovereignty, free trade, and free enterprise—and fight.”

Here are eye-opening excerpts from a major speech she gave less than two years out of office.  At the Hague, she predicted worsening problems of:

Insecurity—because Europe’s protection will strain [relations with the U.S.] on which the security of the Continent ultimately depends.

Unemployment—because the pursuit of policies of regulation will increase costs, and price Europeans out of jobs.

National resentment—because a single currency and centralized economic policy . . . will make [people in various countries] feel angry and powerless.

Ethnic conflict—because the wealthy European countries will not be the only ones faced with waves of immigration from the south and east.

Suffice it to say that all she predicted has come to pass.

Missouri’s Recent Slow Growth Continues Trend

Posted on by Rik W. Hafer

Recently released data on the output of goods and services showed that Missouri’s economy barely grew in 2015. While the U.S. economy expanded at a 2.4 percent rate last year, Missouri lagged behind, increasing at only a 1.3 percent rate.

The fact that Missouri’s economy is expanding at a much slower rate than the national economy is not new. To compare the pace of economic activity in Missouri and the United States over time, the chart above tracks the levels of output (real gross state and domestic product, respectively) over the past 20 years. So that the two series are comparable, each is indexed to its 1997 value.

The chart below shows that by 2015, output of the U.S. economy was about 50 percent higher than it was in 1997. In Missouri, however, output in 2015 was only about 20 percent higher. Not only did Missouri not expand as fast as the U.S. economy prior to the Great Recession of 2007–2009, but it also has not recovered nearly as much. Since 2010, the U.S. economy has grown by about 11 percent. Over this same period Missouri’s economy is just a little over three percent larger.

Missouri’s slow growth has many consequences, such as diminished opportunity for new jobs and a business environment that is not conducive to new start-up firms. The situation also has many causes, some of which stem from policy decisions, such as those related to taxes and education. The fact that Missouri is falling further behind should create some urgency in discovering causes and exploring some possible solutions.

Is the Streetcar a Development Magnet?

Posted on by Joseph Miller

Those who have followed the expansion of streetcars in Kansas City and across the country will know that the primary argument for these “transportation” systems is, ironically, not transportation at all, but the idea that (for some nebulous reason) streetcars attract development. And streetcar proponents are never short of anecdotal evidence for this claim, from the oft-cited case of the Pearl District in Portland to business owners in Kansas City who attest to the importance of the streetcar in their decision making. However, when we examine the aggregate data in Kansas City, the case for streetcar-oriented development seems very weak.

In making the case for expanding the streetcar, Kansas City officials have claimed that the streetcar (despite the fact that it only recently opened) has spurred development within the rail’s transportation development district (TDD). But the data on the market value of property within the TDD tell a different story. In fact, as the chart below shows, property values within the streetcar’s TDD follow largely the same trajectory as property values did in the county as a whole. According to data provided by Jackson County, market values grew in the early 2000s, fell during the recession, and began rising again in 2014. While the market value of property within the TDD has grown faster than values in Jackson County as a whole from 2000 to 2015, that growth occurred before the TDD’s creation, and is mainly due to the construction of the Power and Light District (which opened in 2007).

If we simply look at market values after the streetcar’s TDD was finalized in 2012, Jackson County as a whole performed better than the TDD. This directly contradicts the idea that the Kansas City Streetcar is boosting development downtown:

So why the disconnect between city hall’s streetcar rhetoric and the actual property data? Findings from the latest report from the Federal Transit Administration on streetcar development may shed some light on the situation:

Almost all [civic] representatives interviewed believed that streetcars positively affected the built environment, particularly in attracting new development or enhancing revitalization, although the degree of impact varies. Few systems, however, reported the types of ancillary changes in the built environment, such as reduced parking garage construction, increased pedestrian or bike lane investments, or explicit parking reductions that often are associated with light rail systems. Few, if any, streetcar system operators seek information on their impact on economic activity, although most interviewed consider economic-related questions to be vital and desire further research on this topic. [emphasis added]

Put another way, never let the truth get in the way of a good story.  

A Setback in the Fight against Blaine Amendments

Posted on by Michael Q. McShane

Last week, a federal judge in Denver refused to expand the Douglas County school voucher program to include religious schools. The Colorado Supreme Court had barred religious schools from participating in the program, citing the state’s Blaine Amendment, and a group of families appealed to the federal government on first amendment grounds. They argued that to satisfy the U.S. Constitution, the program has to be neutral toward religion; that is, that families should be allowed to choose religious or non-religious options, so long as neither is given preference over the other.

This case is part of a broader effort around the country to eliminate Blaine Amendments, provisions placed into state constitutions (including Missouri’s) barring public aid to religious schools. Blaine Amendments are named after James G. Blaine, a U.S. Senator from Maine who in 1875 tried to amend the U.S. Constitution to stamp out public dollars flowing to “sectarian” schools.  At the time, there was a virulent strain of anti-Catholicism in America, and because “public” schools were actually nominally Protestant (they required students to read the King James Bible and sing Christian hymns) “sectarian” meant Catholic, and many wanted them stamped out.

Efforts by Catholics to make public schools more inclusive were met with resistance, most notably in events like the Philadelphia Bible Riots, which were sparked over allegations that schools in the City of Brotherly Love would allow Catholics students to read their own version of the Bible. In response, Catholics began to create their own schools, where they could impart their values on their children.  This, not surprisingly, angered the anti-Catholic bigots who did everything they could to shut these schools down.

Blaine was unsuccessful in his attempt to amend the U.S. Constitution, but was successful in getting states all around the country to put language in theirs. We live with the legacy of this bigotry today, as students look to states for support to attend private schools, many of which are religious.

Interestingly, a case out of Missouri has wound its way to the Supreme Court challenging these provisions (I wrote about it here a couple of months ago), but it is not clear how broad or narrow a decision in that case might be. It could strike down (or uphold) Blaine Amendments in total, or it could rule simply on certain practical applications that might not apply to private schools. It is possible that this Douglas County case could similarly make its way to the Supreme Court, so school choice advocates may have more than one bite at the Blaine Amendment apple.

Kansas City’s Crocodile Tears over Blight

Posted on by Patrick Tuohey

After the events of Ferguson, when it was discovered that the city had been using fines and court fees to fund much of city government, legislators acted to restrict the practice. According to a February story in The Kansas City Star,

Sen. Eric Schmitt, a St. Louis County Republican, is sponsoring the legislation capping municipal court fines.

“We’re trying to prevent cities from using this as a revenue-generating opportunity and we’re trying to protect individuals who are primarily poor,” Schmitt told The Star. “People ought to obey the law, but we shouldn’t treat our citizens like ATMs.”

In a more recent story, the Star features various Jackson County and Kansas City leaders bristling at the idea of having court fines and fees reduced. Specifically they point to the impact this might have on addressing blight:

Deb Hermann, chief executive officer of Northland Neighborhoods Inc., said Kansas City is already planning to spend $10 million to tear down 800 dangerous buildings over the next two years, illustrating the level of blight in the city.

She said that for too many irresponsible property owners, $450 is just the cost of doing business.

“The city does not need to lose any tools it has to encourage people to take care of their properties,” she said.

Here is the problem: the City of Kansas City is the largest owner of blighted properties in the city. About 200 of the 800 dangerous vacant buildings that Kansas City is finally tearing down are its own. As several residents pointed out in the KCPT documentary, “Our Divided City,” the City can be quick to levy fines on private owners while letting their own properties languish.

This all reminds me of my father’s favorite example of chutzpah: a defendant convicted of killing his parents asking the court for leniency because he is an orphan.

No one should be surprised that local governments do not want the legislature restricting their ability to levy fines and fees. Claiming that they are motivated by addressing blight is just not supported by the facts. 

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