"Tax reform" to buy off the teachers’ union

In the 2004 session of the Virginia General Assembly, Virginia Governor Mark R. Warner proposed a $1 billion tax increase in the name of "tax reform." His budget included increasing public-school funding by $750 million.

After a protracted and heated session, the Republican-controlled General Assembly passed a $1.4 billion tax increase, whose centerpiece was a 1/2-cent increase in the sales tax.

How was the $1.4 billion allocated? Compared to the Governor’s $750 million school-budget increase, which was generous, the final budget increased school funding by $1.5 billion.

An increase of $1/2 billion would have more than covered the increase in enrollment and inflation.

So of the $1.4 billion increase, one billion went to public schools. The remaining $400 million was split between Medicaid and public safety (courts, prisons, and jails).

Not a penny of the tax increase went to transportation.

The public schools’ best-kept secret

The success of the school lobby’s billion-dollar budget increase was based on one thing: Making sure that legislators did not know the trends in school spending.

As shown in the accompanying graphs, Virginia spending for public schools has been increasing ten times faster than enrollment over the past two decades (since 1979). This includes spending from local, state, and federal funds.

All told, Virginia school districts spend about $10 billion a year, of which $800 million comes from the federal government, $4.2 billion comes from the state, and $5 billion comes from local (county and city) government.

School staff has been increasing more than seven times faster than enrollment.

These facts were well-kept secrets in Richmond. The General Assembly’s Joint Legislative Audit and Review Commission (JLARC) had reported in its Review of State Spending: December 2003 Update that between 1981 and 2002 enrollment in Virginia’s public schools had increased 12 percent while the Department of Education inflation-adjusted budget had increased 105 percent.

However this was buried in a table, not mentioned in the report’s narrative, and omitted from the report summary.

Misinformation campaign

What the school lobby did was cite a 2003 U.S. Census report stating that Virginia was 42nd of the 50 states in state funding of public schools compared to personal income.

What the lobby kept under wraps was that in terms of local-government public-school spending per student, Virginia was close to the top in the nation and ranked 13^th of the 50 states and the District of Columbia.

In terms of total state and local (and federal) funding of public schools, Virginia ranked a respectable 24^th. The top-ranked jurisdiction was Washington, D.C., which spent $15,000 per student, compared to Virginia’s $8000 per student. (Source: Public Education Finances-2001, U.S. Census Bureau, March 2003)

Quality schools?

The logical question is what does increasing school staff seven times faster than enrollment do for the quality of education?

The answer is, "Not much."

The Federal Department of Education’s National Assessment of Education Progress (NAEP) regularly tests 4^th and 8^th graders in all states in reading and mathematics.

The NAEP categorizes students by the basic, proficient, and advanced levels and states that students should score at the proficient level.

The basic level denotes partial mastery of subject material. Proficient denotes full mastery.

In the most recent NAEP tests (2003), 65 percent of Virginia public-school 4^th and 8^th graders scored below proficient in reading and arithmetic tests. This means that 65 percent of Virginia students have not mastered subject material for their grade level. Nationwide, seventy percent of public school students score below proficient.

The annual school budget "crisis"

In what has become a yearly ritual, each January the Superintendent of the Fairfax County Public Schools proposes for the next school year a budget that always requests more money than the Board of Supervisors has indicated is available.

This occurs even if there is no growth in enrollment. It even occurred this year after the Virginia General Assembly passed a $1.4 billion tax increase of which $1 billion went to public schools to allegedly reduce the pressure for local tax increases.

The Superintendent’s proposed budget increase is generally much larger than is needed to keep up with enrollment and inflation. For example, for next year’s proposed budget the Superintendent asked for a seven-percent increase ($128 million, which equates to a 7-cent increase in the real estate tax rate), even though there was no increase in enrollment and inflation is expected to be three percent.

If anyone suggests a smaller increase than what the Superintendent proposed, they are accused of "cutting" the budget and often threatened with increased class size. Combine this rhetoric with the political clout of the teachers union and you get a powerful engine for raising taxes.

Out-of-control spending

The results are that Fairfax County public school spending has been increasing nearly nine times faster than enrollment. School staff has been increasing more than four times faster than enrollment.

In his proposed budget for next year (FY2006), the Superintendent recommended hiring 172 new staff members for 186 new students.

After adjusting for inflation the real increase between this year’s and next year’s proposed budget is $74 million, or $400,000 for each new student.

Poor teaching leads to more money

When challenged about its fast-growing budget, the school administration often cites the increasing number of low-income students.

However, in 1984 the School Board first made improving minority achievement a priority. As the accompanying graph of Fairfax County SAT percentiles shows, even after decades of soaring funding, there is still a significant minority student achievement gap.

Also, there has been no significant increase in the SAT scores white students. With the public schools’ continued disdain for phonics-based reading instruction and their preoccupation with hand calculators, more money does not increase achievement. Moreover, if schools teach poorly, there are more children with special needs and that in turn justifies higher budgets for mandated programs for special-needs children.

schoolmatters.com

Recently the Bill and Melinda Gates Foundation allied with Standard & Poors to fund a website, schoolmatters.com, that objectively compares school districts within each state. Of Virginia’s 132 school districts, schoolmatters.com identified sixteen that "out-performed" the rest, based on both test scores and demographics.

Fairfax County was not one of them. Higher taxes have not improved our public schools. Schools need to reverse, among other things, their century-old hostility to phonics-based reading instruction.

Transportation tax hike next session

Tax hikes for transportation are likely to become the dominant issue in the 2006 Virginia General Assembly.

The higher-taxes-solve-everything coalition that passed the $1.4 billion tax hike in 2004 General Assembly is marshalling itself to raise taxes right after this November’s gubernatorial and House of Delegates elections.

They’ve created "Virginians for Better Transportation" to push for higher gas taxes, sales taxes, and motor vehicle sales taxes and registration fees.

The Virginia Senate Finance Committee has organized a task force to "develop transportation legislative and budget proposals for the 2006 session." Their point of departure is that "current transportation revenues supplemented by occasional General Fund surpluses are not sufficient to meet Virginia’s needs."

Every Virginia taxpayer should understand this statement.

Virginia budget basics

Virginia’s annual budget is split into two almost-equal funds: the General Fund and the Non-General Fund. General Fund revenues come primarily from state income taxes, sales taxes, recordation fees for home sales, estate taxes, and profits from the lottery and ABC stores.

General Fund monies are spent primarily on public education, courts and prisons, and welfare. The General Fund also pays for parks and running the government.

Almost no transportation money comes from the General Fund.

The major revenue sources for the General Fund are income taxes followed by sales taxes. None of our state income taxes is spent on transportation.

Ninety-nine percent of transportation funding comes from the Non-General Fund. Revenues for transportation come primarily from gasoline taxes. Other major sources are motor vehicle sales taxes and licenses.

Federal transportation subsidies are also funded primarily by gasoline taxes.

Also, ten percent (1/2 cent) of the state sales tax goes to transportation. More than once though, the sales taxes supposedly dedicated to transportation has been transferred to the General Fund.

Non-General Fund revenues also include tuition paid to public colleges, fees paid to state-run medical facilities, and grants from the federal government.

Structural imbalance

It turns out that schools and welfare enjoy a major funding advantage over transportation.

Income and sales taxes grow much faster than gasoline taxes. Income taxes and sales taxes increase with inflation and economic growth because they are a percent of income or purchase price.

Gasoline taxes however are fixed at 35.9 cents on the gallon. Even if the price of a gallon of gasoline increases, the gasoline tax revenues do not. Also, more fuel-efficient cars mean less gasoline consumption.

The result is that the income and sales taxes that fund public education and welfare have been increasing much more than gasoline taxes.

Because income and 90 percent of sales taxes go to the General Fund, schools and welfare enjoy a fast-growing revenue source that is off-limits to transportation.

The result, as shown in the accompanying graphs is that transportation spending has generally trailed the growth in population while public school spending has increased much faster than enrollment.

The spike in FY2006 transportation spending is from a $848 million increase in transportation funding enacted this year. Most of it (85 percent) is a one-time payment and much of that will pay for roads already built.

Senate Finance Committee is wrong

The Senate Finance Committee’s statement about supplementing transportation with "occasional General Fund surpluses" means that the Committee intends to perpetuate the structural imbalance that gives schools and welfare the fast-growing revenue source (General Fund income and sales taxes) while confining transportation to the slow-growing Non-General Fund gasoline tax revenues.

This is bad policy — but good for the teachers union. It means schools and welfare will continue to be overfunded while transportation is underfunded.

The transportation solution

Rather than raise gasoline or other taxes, transportation should be allowed to compete against schools and welfare for fast-growing General-Fund revenues.

Today Virginia spends $3.5 billion on transportation and $10 billion on public schools.

If school spending had increased as slowly as transportation spending has, we would be spending $5 billion on schools. Given the poor performance of today’s schools the extra $5 billion would have been better spent on transportation and lower taxes.

Mystery answered

Wonder why taxes are up?

Do you wonder why average real estate taxes in Fairfax County have increased 70 percent in five years?

Do you wonder why the Virginia General Assembly raised taxes last year and why they are planning on raising taxes again next year?

It is because Fairfax County and Virginia spending are reaching record highs.

For both jurisdictions, spending per resident, after adjusting for inflation, has almost doubled over the past three decades.

If higher taxes were the solution, than all our problems would have been solved.

However, the problems — crowded roads, low-performing schools, poverty, gangs — are still with us.

So where did the higher taxes go?

Billions in tax hikes

This year Fairfax County is spending nearly $3 billion, and the state of Virginia is spending $31 billion.

Suppose that over the past three decades government spending had not increased beyond the rate of inflation and population growth. Fairfax County would still be spending $1500 per citizen instead of $2800, and Fairfax County’s budget would be $1 billion instead of $3 billion (or $2 billion less).

Virginia would still be spending $2300 per resident instead of $4200, and the state budget would be $17 billion instead of $31 billion (or $14 billion less).

Question: How does Fairfax County spend the extra $2 billion it gets each year by having raised taxes? And how does Virginia spend its extra $14 billion?

In Fairfax County’s case nearly 60 percent of its tax increases go to public schools, whose staff has been increasing four times faster than enrollment.

Another ten percent go to health and welfare and almost 20 percent went to public safety (fire and rescue, police, and courts and jail).

Public school achievement is stagnant. The average SAT score is only at the 65^th percentile. Welfare encourages single-parent families by providing housing, food, medical care, and childcare to unmarried mothers. Schools have failed in their mission to give low-income children an education. Boys raised in poverty without fathers and unable read fill our steadily growing jails.

This is your tax dollars at work.

The third rail

Nevertheless, politicians dare not criticize public schools or welfare for they are "third-rail" programs. Social spenders, knowing that they will not be challenged, have for decades demanded and won higher taxes and avoided accountability.

Similarly, at the state level, of the $14 billion extra that Virginia gets, only six percent is spent on transportation. Seventy-five percent is spent on the third rail: public education, welfare, and prisons, which are just an extension of the welfare system.

Anti-tax politicians promote caps on taxes and assessments, thereby dodging the real issue, which is the waste and harm in third-rail social programs.

Reversing of tax increases requires leaders who will confront the excesses of social spending.