State Budgets

The Role Of States In Teacher Pay Gaps

We recently published a research brief looking at gaps in pay between teachers and comparable non-teacher professionals. These gaps are sometimes called “teaching penalties.” The brief draws on data from the School Finance Indicators Database (SFID), a collection of school finance and resource allocation measures published by the Shanker Institute and the Rutgers Graduate School of Education. 

The first part of the brief presents our estimates of teaching penalties, by state, for young (age 25) and veteran (age 55) teachers. We find that the gaps between teachers and similar non-teacher professionals range between 5-10 percent in states like Pennsylvania and Montana to 35-40 percent in Arizona, Oklahoma and Colorado (the latter three are all states in which there were recent major teacher strikes). To be clear, these estimates do not include benefits, although our rough calculations (discussed in the brief) suggest that the inclusion of benefits would not come close to closing these gaps in most states.

Our primary focus, however, is on the relationship between these teaching penalties and states’ school finance systems. 

Specifically, we find a significant relationship between the size of the penalties and adjusted state K-12 spending. In other words, states that spend more exhibit smaller gaps. We find a similar relationship between the penalties and states’ fiscal effort, which measures how much of their total “economic capacity” they spend on K-12 education – i.e., states that put forth more “effort” tend to have smaller gaps.

Federal Educational Investments Are Essential

Our guest author today is Stan Litow, a professor of Public Policy at both Duke and Columbia University. He is a former deputy chancellor of schools in New York City, former president of the IBM Foundation, a trustee of the State University of New York, and a member of the Albert Shanker Institute’s board of directors. His book, The Challenge for Business and Society: From Risk to Reward, was published last year.

The Trump Administration’s recent education budget proposal got a lot of attention for trying to eliminate all federal support for the Special Olympics. In response to bipartisan opposition to this foolish proposal, the cut was restored. This is good news, but the bigger story of the Administration’s proposed cuts to educational programs—and their impact on the most critical issues facing the nation—got lost in what appeared to be a positive result. The cut to the Special Olympics was misguided, but hardly unique. The overall cuts represent 12 percent of the education budget, or approximately $7 billion.

Among the most misguided cuts are those that would negatively affect college affordability, including reductions in student aid programs such as College Work Study, as well reduced funding for teacher professional development. As with the Special Olympics, there are advocates on both sides of the aisle who are likely to fight hard to reverse these cuts, but reversing the cuts would only represent a modest victory. They would not solve the underlying problems exemplified by the cuts.

The Future Of Worker Voice And Power

Our guest author today is David Madland, Senior Fellow and the Senior Adviser to the American Worker Project at the Center for American Progress. This post is part of a series of posts by speakers at our 2016 conference, "The Challenge of Precarious Labor," videos of which can be found here.

My goal is to provide a long-term vision of how we can address the fundamental economic and democratic challenges faced by our country, as well as to discuss some realistic steps for state and local governments to take to move us toward this vision.

Today’s economy does not work very well for most people. Wages have been stagnant for decades and inequality is near record highs. Many voters blame politicians for these problems – for doing the bidding of CEOs while leaving workers with too little power to get their fair share.  Voter anger and the politicians fortified by it have put our democracy in real trouble.

There are of numerous reforms necessary to ensure that workers have sufficient power to raise wages, reduce inequality, and make democracy work for all Americans – including those that reduce the influence of money in politics and that promote full employment.  But among the most important reforms are those that give workers a way to band together and have a strong collective voice.  Collective voice enables workers to negotiate with CEOs on a relatively even footing and to hold politicians accountable.  When workers have a strong collective voice, not only can they increase their own wages, but also improve labor standards across the economy and provide a key counterbalance to wealthy special interests, making politicians more responsive to the concerns of ordinary Americans. 

But we need new and better ways for workers to achieve that strong collective voice.  Fewer than 7 percent of workers in the private sector are members of a union – meaning that 93 percent are left out of the current system.

A Myth Grows In The Garden State

New Jersey Governor Chris Christie’s recently announced a new "fairness funding" plan to provide every school district in his state roughly the same amount of per-pupil state funding. This would represent a huge change from the current system, in which more state funds are allocated to the districts that serve a larger proportion of economically disadvantaged students. Thus, the Christie proposal would result in an increase in state funding for middle class and affluent districts, and a substantial decrease in money for poorer districts. According to the Governor, the change would reduce the property tax burden on many districts by replacing some of their revenue with state money.

This is a very bad idea. For one thing, NJ state funding of education is already about 7-8 percent lower than it was in 2008 (Leachman et al. 2015). And this plan would, most likely, cut revenue in the state’s poorest districts by dramatic amounts, absent an implausible increase in property tax rates. It is perfectly reasonable to have a discussion about how education money is spent and allocated, and/or about tax structure. But it is difficult to grasp how serious people could actually conceive of this particular idea. And it’s actually a perfect example of how dangerous it is when huge complicated bodies of empirical evidence are boiled down to talking points (and this happens on all “sides” of the education debate).

Pu simply, Governor Christie believes that “money doesn’t matter” in education. He and his advisors have been told that how much you spend on schools has little real impact on results. This is also a talking point that, in many respects, coincides with an ideological framework of skepticism toward government and government spending, which Christie shares.

Basic Facts About Who Pays State And Local Taxes

Taxes, particularly income taxes, are among the most divisive and controversial issues in any nation, and this makes perfect sense – people care about how much they pay and how it is spent. Yet most of the constant, heated debate about taxation focuses almost entirely on federal taxes, with state and local taxes receiving far less attention.

Periodically, the Institute on Taxation and Economic Policy (ITEP) releases an important and interesting analysis of who pays state and local taxes – that is, the tax burdens among households with different incomes. The latest version of this report was published last year. The findings are worth knowing for anyone interested in public sector services, including education.

ITEP reports that state and local taxes overall are highly regressive, which means that poorer households pay a larger share of their income in state and local taxes than do higher income households. This finding is summarized in the figure below, which is taken directly from the report (note that these are national averages, and that the breakdown varies by state).

Is There A Pension Crisis?

Our guest author today is David Cay Johnston, a distinguished visiting lecturer at the Syracuse University College of Law and a former Pulitzer prize-winning financial reporter at The New York Times. This article is adapted from his remarks to an ASI-sponsored conversation on the topic in March, which also included remarks from Chad Aldeman, Teresa Ghilarducci, and Dan Pedrotty. A video of this event can be found here.

So the question is whether there is a pension crisis. The answer is yes, absolutely. It’s just not the one that politicians always talk about.

Contrary to that you hear about on TV, in market economics, defined benefit pensions are the second most efficient way to provide for income in old age. The most effective way would be a national program that spreads risks to everyone. The least efficient way to do it is through defined contribution plans.

There is abundant evidence for this. Defined contribution plans work very well, but only as supplements for prosperous people such as me and my wife, who is a public charity CEO, they are not at all effective for most people. That’s be because defined contribution plans violate specialization, one of the most basic tenets of market economics as taught to us by Adam Smith, the man who first explained market economics.

Recent Trends In The Sources Of Public Education Revenue

Every year, the U.S. Census Bureau issues a report on the overall state of public education finances in the U.S. There is usually a roughly 2-3 year lag on the data – for example, the latest report applies to the 2011-12 fiscal year – but the report and accompanying data are a good way to keep an eye on the general education finance situation both in individual states as well as nationwide, particularly among those of us who are somewhat casual followers (though it bears keeping in mind that these data do not include many charter schools).

One of the more interesting trends in recent years is the breakdown of total revenue by source. As most people know, U.S. public school systems are funded by a combination of federal, state and local revenue. Today, although states vary considerably in the configuration of these three sources, on the whole, most funding comes from state and local revenue, with a smaller but still significant contribution from federal government sources (total revenue in 2011-12 was about $595 billion).

But there has been some volatility in these relative contributions over the past few years (at least the past few years for which data are available). The graph below presents the percent of total elementary/secondary education revenue from federal, state and local sources between 1989-90 and 2011-12.

Unreliable Sources: Education Revenue During The Recession

For the better part of the past century, U.S. public education revenue has come predominantly from state and local sources, with the federal government contributing only a relatively small share. For most of this time, local revenue (primarily property taxes) comprised the largest proportion, but this began to shift gradually during the 1970s, to the point where state funds constituted a slightly larger share of overall revenue.

As you can see in the simple graph below, which uses data from the U.S. Census Bureau, this situation persisted throughout the 1990s and most of the 2000s. During this period, states provided roughly 50 percent of total revenue, localities about 45 percent, and the federal government approximately 5-8 percent. Needless to say, these overall proportions varied quite a bit by state. Vermont represents one of the most extreme examples, where, as a result of a 1997 State Supreme Court decision, education funding comes almost entirely from the state. Conversely, since Hawaii’s education system consists of a single statewide district, revenue on paper is dominated by state sources (though, in Hawaii's case, you might view the state and local levels as the same).

That said, the period of 2008 to 2010 was a time of pretty sharp volatility in the overall proportions contributed by each level of government.

What Do State And Local Governments Do?

Those who wish to dismantle public services in the U.S. seem to share a general belief – accepted, to some extent, even by people who generally support public sector spending – that government is a massive, incompetent blob. At the federal level, I have always found this somewhat strange, since around two-thirds of federal spending goes towards Social Security, Medicare/Medicaid and national defense, programs that are generally popular and widely regarded as successful.

Survey data indicate that people do trust state and local government more than they do federal government, but the level of confidence is still not particularly high. Americans also appear generally unwilling to pay higher taxes to preserve public services (except for education), and most accept that state and local government is too large and much of it is superfluous. But when people are asked about specific programs, they tend to respond favorably. This suggests, among other things, that people may have general perceptions of "government" without full knowledge of all the roles government plays.

So, I thought it might be useful to take a quick look at how public dollars actually are spent. After all, it’s our money, and it’s always good to keep track of how our elected officials are spending it.

Unions And Pensions: Unfunded Culpability

The Pew Center on the States just released an updated report on unfunded liabilities of state pension (and retiree health) systems. The figures are sobering. In FY 2009, state pension plans were funded at an average of 79 percent, meaning that they were short about one dollar for every five that projections suggest they’ll need to meet their obligations.

While there’s no doubt about the troublesome implications of these findings, there’s a lot of disagreement as to causes. Lately, governors and state legislators (of both parties, but mostly Republicans), as well as dozens of commentators, have tried to lay the blame on the public sector workers, to whom the pensions are owed – seeking to restrict these workers’ collective bargaining rights, with the claim that this will help control the cost of benefits.

The unfairness of blaming public sector workers – and their unions – should be pretty clear. By all accounts (also here), the primary reason that pension plans are in trouble is that the 2008 collapse of financial markets decimated the value of pension fund investments (the early 2000’s recession also seems to have played a role). Add to that an aging population (there is an increasing percentage of retirees as a share of the population, and they are living longer), as well as the failure of many states to make their required contributions during good times, and you have a fairly comprehensive explanation for the pension "crisis."

Nevertheless, some have argued that public employee collective bargaining has exacerbated states’ pension problems – after all, more than their non-union counterparts, union members have tended to trade current salaries in favor of increases in deferred benefits. In that case, we might expect that states with higher densities in public sector union membership will have larger unfunded pension obligations. These differences need not be huge, but it’s reasonable to anticipate that they would be discernible. Let’s take a look.