Taxes and School Funding: What’s Really Going On

Note:  This comment was first published in Business First of Louisville on August 30, 2013.

When the Jefferson County Board of Education voted on August 12 to increase local property taxes by 1.4% to fund operation of our public schools, we asked JCPS to work with less than its requested 3.1% increase. Mine was one of four votes against the Superintendent’s initial request, but I then proposed and became the swing vote in favor of the lesser increase. I know that raising taxes is rarely popular, so I think it’s important to explain my rationale.

First, I sought election to the school board in 2012 because I believe excellent public education is the key to Louisville’s civic and economic future. I did not join the board to oversee stagnation or decline of JCPS, but because I know JCPS can and must improve.

Second, I share with all my colleagues on the board the belief that Superintendent Hargens has set a strategy that can dramatically improve JCPS’ performance, and is the right person to lead this change. We all expect great results from this strategy, and believe JCPS can become the best urban public school district in the nation.

But I’m also a realist when it comes to finance, where I’ve spent much of my career. I know that local spending on schools cannot, over time, grow faster than the value the schools create for their community. If former students earn low incomes, have high rates of poverty and incarceration, and suffer from chronic, avoidable illness, Louisville will eventually be too poor to pay for good schools. On the other hand, if we graduate students who qualify for or create high-paying jobs, we will prosper and can invest more in schools and other parts of the community we love. But at any stage, school spending cannot outstrip the capacity of its funding base.

“Hard realities” of education finance

In preparing to vote on the local tax rate, these beliefs ran into some hard realities of education finance – and I’ve learned a lot. Realities include millions in recent state and federal cuts to JCPS funding, and the structure of Kentucky education finance, which depends in large part on redistributing taxes from wealthy counties like Jefferson and Fayette to our smaller neighbors. (State and federal funding has provided about one-third of recent JCPS budgets, versus up to 80% for smaller counties.) While shifts in outside funding are beyond Louisville’s control, they influence the funding we must raise locally.

Another challenge is that school finances are driven by commitments made in the past – some of which have created an unsustainable expense structure. Two examples of such commitments are:

  •  Public employee retirement benefits are mandated by the state – but our legislature has failed to collect enough taxes to fund these benefits, resulting in $200 million – $1.5 billion in JCPS unfunded liabilities. These shocking numbers appear nowhere in JCPS’ financial reports (although changed audit rules mean they soon will) and Louisville taxpayers will likely be “on the hook” for this in a matter of a few years.
  • From FY 2007 – FY 2012 the school board voted pay increases averaging nearly 4% annually (including both across-the-board and step increases), well above the rate of inflation. The salary structure, embedded in collective bargaining agreements, is high compared to both Kentucky and other large urban districts. Salaries represent 70% of JCPS’ budget.

These realities faced the new board which formed in January 2013, when three newly elected members joined four already serving members to govern the District: state and federal cuts, an existing cost structure, high and poorly understood future liabilities, and public demand for improvement in student achievement.

Progress so far

JCPS has taken important steps to influence both costs and revenue within these realities.

  1. An affordable, effective labor contract

Teachers are the most important driver of both quality and cost – and this is as it should be.  Nothing matters more to a child’s educational achievement than a skilled, caring teacher, and teachers are the biggest single cost in JCPS’ budget. To succeed, JCPS must offer compensation that attracts and retains good teachers, as well as work environments that support them professionally.

This summer, for the first time in eight years, JCPS and the JCTA negotiated and signed a new contract. Although both sides bargained hard (stimulated by pressure from the state’s Commissioner of Education), they shared the goal of modernizing how teachers work within JCPS and everyone walked away with an agreement they can be proud of. The new contract removed archaic work rules, created flexibility for longer school days for kids who need more learning time, and generally took away from JCPS leadership the excuse of “bad labor contract” as a justification for poor school performance.

This new contract increased pay by less than 1.5%, below the 1.7% cost of living adjustment for Social Security in 2013 and far below the 4% average JCPS had dispensed in recent years.

2. New roads to efficiency

Discipline around salaries is essential to keep JCPS responsive to taxpayers, but we must also reduce spending outside of the classroom. Through hiring freezes and the elimination of positions, Superintendent Hargens has reduced central office overhead by some $4 million in each of her two years. And several months ago the board invited the state auditor to review JCPS from top to bottom to help us find areas where we can spend more wisely, and more efficiently align organization with strategy. Having participated as big healthcare organizations redirect hundreds of millions of dollars from administrative overhead to clinical care under pressure from “Obamacare,” I’m confident JCPS can find savings in restructuring.

3. Increased enrollment and market share

JCPS receives state funds based on enrollment. The formula is complex, but funding increases as more students attend. Since 2008, enrollment has grown from under 98,000 to 101,300, with additional growth to 103,000 expected over the next few years – helping offset some of the cuts to other state funding streams and reducing pressure on local property taxes. This growth no doubt reflects the fact that all schools have struggled to control costs: From 2007-2012, Louisville private and parochial school tuition grew faster (4.3% annually) than either JCPS total expenditures (3.8%) or increases in local property tax rate (1.9%), challenging families across the economic strata.

In sum, JCPS has taken steps to control what it can and move its cost structure toward better alignment with taxpayers. We need to push the Jefferson County delegation in Frankfort to prevent legislators from draining Louisville’s coffers through state cuts that force us to fund rural areas.  And we continue to face a big challenge in the retirement benefits that state legislators have promised but failed to fund. If our legislators keep dodging responsibility and push their liability onto JCPS, Louisville may be in for a rude awakening. I do not yet fully understand this issue or how it might be solved, but see it coming and want to sound the alarm.

How this affects our taxes

So: Why did I vote to increase taxes at all? The answer is that the board had already committed to the 1.5% compensation increase, and it would have been irresponsible (i.e. like legislators in Frankfort or Washington) to make a promise but refuse to pay for it. The new union agreement is a good bargain for students and teachers alike.

Why not increase taxes at the 3.1% rate recommended by the Superintendent? Salaries have risen faster in recent years than the growth rate of Louisville’s economy, than private sector wage increases (if indeed there have been any in some years), or other benchmarks. This cannot continue. Therefore, I thought it important that other cost increases come out of reserve funds rather than be made part of the “permanent” budget through tax funding.

Will we raise taxes in the future? Probably. Quality costs money, and I see no way to cut our way to a great public school system. But the elephant in the room is the issue of unfunded retirement liabilities, whose resolution will likely come, at least in part, from taxes. So, the board will continue to ask JCPS to pursue more operational efficiencies, and must push for creative, longer-term restructuring to remove costs unrelated to student achievement.

At the end of this long and perhaps boring review of school finances, I ask voters to remember one thing: The United States led the world in creating universal, publicly paid education at a time when our nation was far poorer than today. We can afford modern greatness. JCPS can and must deliver it.

More on Common Core Standards debate

More on Common Core Standards debate: In June the NYT published an incoherent critique of the standards by two New York City professors, here: “Who’s Minding the Schools?“ . Mary Gwen and I sent the following letter to the NYT Editor on June 11, 2013, which the Times chose not to publish. Viva social media! Here’s our text:

Re: “Who’s Minding the Schools,” June 9, 2013

Professors Hacker and Dreifus offer a meandering and inaccurate whine about Common Core standards.

As members of the boards of education in Kentucky and Louisville, respectively, we have been closely involved in our state’s decision to be the first to adopt, implement and test to these standards. From this perspective the assertion that Common Core was adopted with “hardly any public discussion” is simply ludicrous. 45 states, through their constitutional processes, worked for years to create, review and adopt the standards. That word might not have filtered through to Political Science departments in New York City does not invalidate this effective work; the United States has a federal system, and this is what state-level action looks like.

If there is a substantive point in the professors’ critique, it is that the standards are too high and will lead to disappointment. Kentucky’s test results, in which the percentage scoring at a proficient level did indeed drop substantially compared to the prior, lower standard, are pointed to in support of this fear. However, parents and voters in our state have so far embraced the tougher measure. We see this as confirmation that parents want their students to learn at a high level, not to receive high scores that mean nothing.

Mary Gwen Wheeler
David A. Jones, Jr.
Louisville, KY