Resolved: State taxes should be raised to improve school funding

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Chart A: Schools rely on property tax

Chart A: Schools rely on property tax

As yet another campaign to overhaul school funding gets underway in Illinois, Catalyst contributor Ed Finkel interviewed individuals on all sides of the question to clarify the issues. We present their arguments here in debate format and invite readers to provide additional arguments or evidence.

PRO: Under the current system, school funding is extremely inequitable

Accounting for such factors as the cost of living, Education Week, a highly regarded national newspaper, recently gave Illinois a C+ for the overall level of school funding. However, it gave it the only F in the country on school funding equity. With heavy reliance on property taxes, the average spending per pupil ranges from $6,341 in bottom-quartile schools to $12,177 in top quartile schools, according to figures provided by the non-profit Metropolitan Planning Council, a leader in the A+ campaign to reform school finance.

Besides generating uneven amounts of money from one school district to the next, Illinois’ reliance on the property tax puts a greater burden on poor and largely minority districts. “All of the top property tax effort communities are in poor or rural areas,” says Ralph Martire, executive director of the Center for Tax and Budget Accountability, a non-profit, bipartisan research and advocacy organization that is a member of A+ Illinois, the coalition promoting school finance reform.

PRO: Most schools do not have enough money to provide an adequate education

School advocates believe that the “foundation,” or floor, for school funding should be raised about $1,000 per student—from the current $4,800 to $5,835. The foundation level is a baseline amount that includes teacher salaries, classroom materials and physical plant but does not factor in additional costs associated with low-income, special education, gifted or bilingual students. The Legislature provides additional “categorical” grants to help cover those costs.

The $5,835 figure stems from studies conducted in 2001 by the Denver-based school funding research firm of Augenblick & Myers. The firm arrived at that number by identifying and examining districts that were operating in the black and had at least two-thirds of their students performing at grade level or better.

The Metropolitan Planning Council, a nonprofit, nonpartisan group of business and civic leaders, says that 845 of the state’s 888 districts, including Chicago, currently fall short of the $5,835 goal. In addition, three out of four districts are operating in deficit. One reason is the state-imposed property tax cap, which limits increases in school property taxes in 37 counties to the rate of inflation or 5 percent, whichever is less. In recent years, inflation has run around 2 percent.

“We’ve set expectations appropriately high for what we want our students to achieve,” says MarySue Barrett, president of the Metropolitan Planning Council. “We know what it takes to meet those expectations on a fiscally efficient basis, and yet we don’t guarantee that schools have that.

We’re really out of whack between the results we say we want” and the funding level provided.

CON: Choice, accountability and wiser spending—not more money—are the keys

Students will be able to meet expectations without major funding increases if schools are held accountable and parents are given choices, counters Herbert J. Walberg, a visiting fellow at the Hoover Institution, a public policy research center, and university scholar at University of Illinois-Chicago. “Accountability and choice have much better prospects of improving achievement than tinkering with the funding system because they put the focus on achievement rather than spending,” Walberg says. “Spending more money is not the answer.”

PRO: Districts have little control over major cost increases

But proponents of finance reform say that schools are being squeezed by costs they cannot control. Health insurance costs have risen 125 percent since 1991, says Martire of the Center for Tax and Budget Accountability, and schools must carry out a bevy of under-funded state and federal mandates, topped by special education (costing districts a total of $1 billion) and the federal No Child Left Behind Act ($1.4 billion to $1.5 billion).

“Gasoline just went up 20 cents a gallon in the past couple of months,” says Walt Warfield, executive director of the Illinois Association of School Administrators. “That doesn’t mean we can drive our buses fewer miles. Health insurance costs are going up. Liability insurance costs are going up.”

CON: Districts should lobby to repeal unfunded mandates

If such fixed costs are really that burdensome, George Clowes, senior fellow at the libertarian Heartland Institute, would like to know which ones school boards would like to jettison. “I’d like to hear which mandates they’ve gone to the state and said, ‘We don’t want this. We want you to repeal it,’ ” he says. “Part of their responsibility is to say, ‘This is enough.’ “

CON: State government can save education dollars

Gov. Rod Blagojevich says there is waste in the system. In his State of the State address, he complained that only 46 cents of every dollar goes into instruction. He says he can save more than $1 billion in four years by establishing a new Department of Education under which many functions of local school districts would be consolidated. (See charts D and E.)

PRO: The state has a “structural” deficit that cuts in education spending cannot resolve

Martire says that in 10 years, the cost of current state programs alone would outpace revenues by $3.5 billion. This budgetary quicksand is driven by factors like more than $35 billion in under-funded pension liability, healthcare costs that have doubled every six years since 1980 and under-funded state and federal mandates in a number of areas, led by special education, he says.

Even if the state saves the $1 billion the governor proposes, this structural deficit will quickly eat it up, he says.

CON: To increase school funding, the state can cut spending in other areas

Paula Wolff, co-chair of the governor’s Council of Economic Advisors and former president of Governors State University, dismisses the structural deficit argument. If the state were to examine its spending practices, particularly with regard to the Department of Corrections, significant savings could be found, she believes.

Among other things, the state needs to think seriously about the wisdom of continuing to re-incarcerate nonviolent offenders picked up on technical violations of parole, Wolff says.

“We’re just loading up more people in prison at $30,000 or more per year,” she says. “That can buy a lot of education. A structural deficit assumes that all of the services that are now being provided are essential. And I think that’s the wrong assumption.”

PRO: Without an overhaul of the tax system, an increase in state school funding would be a band-aid

“If the only thing we do is raise the foundation level without changing the underlying system, we’ll be back here every year,” Barrett says. “Communities will have the same problem: They have no tax base, they can’t support schools, they can’t attract economic development.”

QUALIFIED PRO: Legislators cannot necessarily be trusted to replace property tax cuts with higher state taxes

Walt Warfield, executive director of the Illinois Association of School Administrators, says his group is “nervous” about a tax swap because it fears that replacement revenue would not materialize or would be diminished over time by future legislators with less buy-in. Protections would need to be written into any legislation to make tax reforms “tight, controlled and predictable,” he says.

Such concerns are valid but could be addressed easily, says Tim Bramlet, president of the Taxpayers Federation of Illinois. “That’s pretty curable by writing into the statute the guarantee that the state will get those dollars one way or another,” he says. On the flip side, Bramlet adds, “How does the state guarantee that [property taxes] stay down and not creep back up?”

CON: The property tax provides stability in turbulent economic times

Clowes, of the Heartland Institute, notes that property taxes bring stability you don’t get from the sales and income taxes. “If you shift the funding to the state level, you’ve got to be prepared that when there is a downturn, you’re going to have to make some cuts,” he says. “The idea of property taxes is that you know what’s coming next year. It might not be as much as you wanted, but it’s certainly predictable.”

CON: The property tax provides local accountability

Such fiscal prudence would be more likely to happen with the property tax, says Walberg of UIC, because local communities can keep better tabs on school boards than the state can. “I don’t think the state spending more money is key because you lose that local accountability,” he says. “People who live in a local community can make sure that the system is not only effective but efficient—in other words, that tax monies are being used wisely.”

QUALIFIED PRO: Income taxes should be raised but mainly to offset property tax reductions

With a flat rate of 3 percent on individuals and 4.8 percent on corporations, Illinois has the lowest income tax rates of all 41 states that have income taxes—it is one of only six that do not have graduated rates for individuals. Illinois could handle an increase of about 1 percentage point, coupled with a decrease in property taxes, says Bramlet of the taxpayers federation. “We’ve got the capacity,” he says of such a swap. “On balance, it would be a good step forward.”

He acknowledges that revenue from the income tax might fluctuate more but notes that the tax structure “would better reflect citizens’ ability to pay.”

PRO: Illinois can afford to raise state taxes not only for property tax relief but also to give more money to poorer districts

School advocates variously are eyeing an increase in the income tax of 1.5 to 2 percentage points so that school funding equity is achieved by raising the bottom up. Martire says Illinois can afford such an increase because it is a low-tax, low-spend state.

According to the Washington, D.C.-based Institute on Tax and Economic Policy, Illinois ranks 47th out of the 50 states in total tax dollars per $1,000 in personal income, a calculation that includes all taxes, fees or other levies (no matter what they are called) that state and local governments charge citizens.

Counting only taxes, Illinois ranks 37th—below the neighboring states of Iowa (33rd), Indiana (18th) and Wisconsin (6th).

Looking at state spending per $1,000 in personal income, Martire’s group found that Illinois again ranks below its neighbors: 41st, compared with 26th for Iowa, 25th for Indiana and 9th for Wisconsin.