THE BLOG
10/21/2014 10:52 am ET Updated Dec 21, 2014

Financing Public Education

The financial problems facing the City and the State seem dire, and many of the issues are directly related to public education, but there are simple solutions no one is talking about: redundant administrative overhead costs, increasing our tax base, and re-amortizing our debt.

Illinois has more than 850 school districts. Some are very small with a handful of schools. Every district requires a superintendent, always earning a generous six-figure salary, along with salaries for staff. The Brookings Institute recently released a report that superintendents have at most a 0.3 percent effect on student achievement. That's more than $150 million Illinois spends for a 0.3 percent effect. The same is true in CPS, where there are bureaucrats that do the same work as do bureaucrats from the Illinois State Board of Education.

In nations like Finland, Canada, and Poland, all of which have better student achievement than the United States, schools are held accountable but they are granted autonomy, saving the cost of redundant administration. We should do the same. You'll never hear this solution from your local superintendent because it would put their job at risk and dismantle an old-boys network. Less than a third of Illinois State Superintendents are female, despite education being a field dominated by women.

The second issue is how we fund schools. A handful of districts in our State spend far more than they need to, whereas the majority of districts spend far less than they need to guarantee our children a world-class education. Illinois is routinely ranked one of the worst in school funding. The main cause of this is our reliance on property taxes. In our racially and economically segregated State and City, this leads to massive inequity. We can't raise property taxes enough to bring equity or adequate funding. Even if we started using income taxes and the current sales taxes to fund our schools, no one would support raising our tax rates, which in total are the highest in the nation.

What you never hear from politicians is that we need to expand our tax base. This is different from tax rate. More than two years ago, Joe Cahill of Crain's Business wrote, "As the service sector grew during the past several decades, most states extended sales taxes to a range of consumer services. Illinois, however, still confines its sales tax almost exclusively to tangible goods. The state taxes just 17 services, fewer than only three other states, and well below the national average of 56. Iowa, by contrast, taxes 94 services." He cited research suggesting we are leaving $5 billion on the table at the State level alone.

Using sales taxes for education can help reduce the disproportionality of school funding that exists in Illinois, especially downstate and in Chicago. Families in affluent districts might not care so much about poorer districts, but in the end, they pay even more when children receive a subpar education that leads to unemployment and too often, prison. Some might argue that increasing the number of services that are taxed puts the burden on lower-income families, but this isn't necessarily true. Many services are only used by those with more affluence, such as dog-walkers, dry-cleaning, housekeeping, landscaping, and manicures.

The fact Illinois and Chicago politicians haven't decided to take this route suggests they are either immeasurably incompetent or astoundingly corrupt. The Chicago mob famously purchased Laundromats because of the cash-nature of the business that was untaxed, and therefore nearly impossible to track. It's where the term 'money-laundering' comes from. Perhaps our politicians enjoy the untaxed services a bit too much?

Lastly, the pension crisis. First, it's fair to note the State of New York doesn't have a pension crisis because their elected officials didn't redirect payments from pensions to pet projects. The problem isn't that we have pensions, which are more reliable than 401Ks. The problem is that our elected officials do not make good decisions, and we the voters don't hold them accountable. Now we're stuck with solving the problem.

The only solutions we hear are to raise taxes or cut grandma's pension. A viable solution is to re-amortize our debt. Currently our politicians are acting on the notion that we can pay our pension debt in 30 years. The only reason is because actuaries prefer loans in 30-year increments; it's actually one of their industry-standards. Unfortunately, trying to pay off the pension debt in Illinois and Chicago in 30 years is unrealistic because our politicians are doing anything to avoid making a payment, forcing the amount to grow each year. If we re-amortize our pension debt for 45 years, we will make a slightly higher payment the first few years, but over time the payment amounts remain flat. Due to depreciation from inflation, we will save money with a longer-term loan, while avoiding the immediate financial cliff. The catch to this solution is that we then have to hold elected officials accountable if they don't make the required payments.

Three simple solutions anyone can understand: cut costs by reducing redundant administration, increase our tax base, and re-amortize our debt. You might wonder why our political leaders don't even mention these solutions. Instead you hear campaigns to dismantle a 150 year-old public education system and replace it with a free market charter school system in which private corporations, not the citizens, have control over the schools. Their solution is to give public taxes to private corporations. Perhaps, just perhaps, the pension and school funding crisis are manufactured for political and economic gains?