Monday, June 13, 2011

the local school funding silliness maze .... time to become knowledgeable

Households owe an all time high of more than $13 trillion. That's the bad news. The good news is that they are gradually reducing their debt load (Number of the Week: Average Household Still Needs to Trim $26,172 in Debt

Overall the national debt is $14 trillion, continues to climb daily, and even optimists expect daily increases in the debt for years to come. No good news there.

The household debt will definitely come down over time as people necessarily "deleverage" during the next several years, a process, albeit painful, which already is well underway. However, that deleveraging process will have a restraining effect on economic growth rates for many more years and thereby limit employment gains.

When looked at in relation to the national debt, there is no realistic hope that the ongoing individual debt reduction effort will offset the annually expanding national debt levels.

Making a bad situation worse, our government continues to "incentivize" people to borrow. The tax laws encourage our fellow citizens to take on heavy levels of debt, specifically with respect to home purchases and student loans. As a result, they're the two biggest individual debt items while credit cards are a close third.

To cite just a couple of these government "incentives" to induce citizens to become indebted, let's mention just a few of the home related goodies. These include tax deductible mortgage interest, property tax deductibility and government guarantees of thirty year fixed interest rate loans, thus spurring buying by granting much more favorable credit terms and interest rates than a private lender could grant. And taxpayer subsidized student loans for college and trade schools are now available to just about anybody who can sign the papers.

Now let's get local. We'll use the county school district where I live as an example. The annual operating budget is ~$200,000 million, excluding the capital spending for land and school construction, transportation, maintenance and the like. Of the operating budget only 40%, or $80 million, is funded by local property taxes. The remaining 60%, or $120 million, is funded by the state ($100 million) and the federal government ($20 million). The capital budget is to be funded by a local sales tax in the county.

Our approach to funding the K-12 county schools is convoluted, to say the least, and needs a complete revision. If we choose to keep following the same funding and financing formula with respect to operating our county public schools and their construction and financing, we would need to triple the level of property taxes to pay for the schools ourselves and not borrow from the Chinese, which we in effect do now, albeit in a most indirect way.

We build some really expensive schools. For instance, the land and construction costs for one recently built county new high school amounted to $40 million. Another school's land and construction recently cost $20 million. And another cost $15 million. And so on.

The "logic" seems to be that if we build it, they will come. And when they come, they will buy homes and buy lots of things at our retailers as well, thus increasing such things as property valuations, property taxes and sales taxes, too. The freshly found money would then be used to pay off the loans and, for many of the participants, to turn a nice profit as well.

All in all, adopting a speculative at best real estate centered approach to sustained county economic growth seems more than a little risky to me and probably to others as well (The Sickness Beneath the Slump). To repeat, the apparent local government "business model" has the school district borrow the money to buy the land and build the new schools. In turn the real estate industry builds the shopping centers, golf courses, recreational facilities, residential areas and supporting infrastructure to accommodate all the people who we hope will move into the school district and attend the new schools.

Unfortunately, the build it and they will come real estate related prosperity model seems to have broken down in our area, as it has elsewhere. Yet our "local" appetite seems endless for this type of endeavor. So if that's "our plan", then let's agree to pay our way as we go and see what happens.

Accordingly, here's a silly proposed "attention getting" solution.

We simply add to the individual taxpayer's annual property tax burden directly in a pay as we go fashion instead of our traditional kick the can down the road way.

One way to do this would be by tripling our local property tax bills. Or doubling the sales taxes, or some such combination thereof. Or if we locals don't want to do that, we could decide instead to immediately curtail our local government's unnecessary spending in a big way. I'd vote for that.

Maybe this sort of drastic "tax it now if we're going to spend it" suggestion would get our fellow citizens directly involved. And in turn, it would then get the involvement of our elected public servants at the local, state and federal levels, too. At least we can try.

Let's sum it up now. In round numbers, total local K-12 education funding in the county (for operations only) is supported by ~40% with our c/o/t local property taxes. Another 48% comes from the state and the other 12% from the national government. Like most other states, we also have substantial unfunded pension and health obligations for retiring school employees, too. Of course, since 30% of the state budget is financed by the federal government and since 12% of our local school funding comes directly from the federal government as well, and since the federal government doesn't have any money of its own to grant our states and local school districts, we in essence have been building schools and operating them with loans from the Chinese. I say we stop it.

In the end, it's simple. It's our c/o/t money, so we need to take charge. And why not start now? As President Reagan said, "If not us, who? If not now, when?"

You probably won't like my tripling of the property taxes or doubling of the sales taxes proposal. Neither do I. But it's past time for us to get "in the arena" and take meaningful action. So let's agree to do something, if only at first to take the time to become knowledgeable about what's going on in our own back yard. Wherever we live.

Thanks. Bob.

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