Ohio’s impending budget crisis has been danced around by the state’s politicians during this election season, but there is no doubt that no matter the outcome on Tuesday education faces some tough cuts. Ohioans are finally coming to realize that unmitigated increases in school spending like we’ve seen in years past are no longer an option going forward.
But in order to understand Ohio’s school-spending situation and the difficult decisions the state now faces, it’s important to recognize the factors that drive school spending. Further, we need to appreciate the increasing disconnect between increased school funding and much more modest state revenue increases over the same period of time. Ohio has reached a point of unsustainable spending for a reason, and it’s important to understand why and to identify specific practices and trends that prevent a serious rethinking of spending.
A short history behind school spending in Ohio and what it’s bought
Since the first DeRolph decision 17 years ago, two questions have dominated the minds of state legislators and governors: How much additional money would be enough to satisfy the Ohio Supreme Court? And, How much would be enough to satisfy the “court of public opinion” (editorial boards and others)? The first question drove the policy debate in Ohio until the court, in DeRolph III in 2001, ordered the state to alter its funding methodology for determining the per-pupil base support and to accelerate the phase in of parity aid, upon which, the court said, the system would be constitutional. That was the end of the court’s consensus. It vacated itself from the issue and eventually left the playing field altogether in 2003.
The second question mattered because editorial writers and school-spending advocates were a vocal obstacle in the early 2000s to the Republican majority being able to simply declare victory and move on to other issues. Despite the opposition, Governor Bob Taft announced after the court’s dismissal in 2003 that the DeRolph case was over. But the Ohio Coalition for Equity and Adequacy of School Funding and a number of Democratic lawmakers were frustrated by the outcome and wanted the state to send more money to public schools. This call for further spending came despite the fact that Ohio saw per-pupil funding in the state rise by over 60 percent from 1997 to 2010, using inflation-adjusted dollars, and that spending didn’t include the almost $6.5 billion spent on new school buildings over that same period of time.
What has all this new spending bought for Ohio? More jobs for adults, for starters. Though public school enrollment in the Buckeye State has slightly decreased over the past two decades (from 1.77 million in 1991 to 1.75 million in 2009), the number of adults employed by the system has shot up. According to the Ohio Department of Education, there were 181,020 public school employees working in Ohio’s public education system in 1991, when the DeRolph case was first filed, compared with 245,354 such public school employees on payrolls last school year. This increase of 35 percent over two decades came as enrollment dropped 1.4 percent.
Unfortunately, increased spending on schools hasn’t bought much in the way of improved academic performance. The percent of Ohio school children deemed proficient in math and reading on the National Assessment of Educational Progress – aka the Nation’s Report Card – has barely budged in the last decade. Likewise, high school graduation rates remain stagnant. The statewide graduation rate has inched up two percentage points, to 83 percent, since 2000. Further, there is evidence that those students who do graduate are not adequately prepared for college. The percent of Ohio graduates requiring remedial math coursework upon entering a state college or university has increased from 23 percent to 32 percent in the past two decades. (Results are better when it comes to remedial English language arts; the percent of students requiring that coursework has hovered around 20 percent for the last 20 years).
DeRolph and the politics of reaction
Since the first DeRolph decision in 1993, successive legislatures have increased school funding. Spending fatigue only set in during the past two budgets, as legislators gradually came to four realizations: 1) no amount of funding would satisfy the school spenders; 2) the public did not believe school funding had been fixed, because despite the massive increase in state funding, local districts were still regularly on the ballot for more local dollars; 3) the state could no longer afford to continue constant spending growth for education; and 4) all this new spending had little impact on overall student achievement (see above).
Despite these challenges, Governor Ted Strickland, Democratic lawmakers, and the Ohio Coalition for Equity and Adequacy of School Funding declared victory when House Bill 1 was signed into law in July 2009 as it promised billions more in annual state spending on K-12 education to be fully phased in over the next decade. The reality, as has been pointed out by the Columbus Dispatch and others, is that the new funding model will likely never be fully funded. Even worse, if it were to be funded it would still not fix the real problem with school funding in the Buckeye State.
The root of the school-funding problem
School funding is in trouble not because of insufficient revenue from the state but because school spending continues to outstrip revenue growth. In today’s troubled economy, the state is broke and so are local taxpayers. The money just isn’t there to keep the spending train on the track of steady and unremitting growth.
To illustrate this disconnect, compare annual per-pupil revenue for K-12 education in Ohio over the past decade to the rate at which state revenue has changed over the same time. The black bars in chart 1, below, show real per-pupil K-12 revenue since 2000. The gray bars show what each year’s K-12 revenue would have been had school spending increased (or decreased) according to the growth of the state’s resources. The two aren’t far apart in the early 2000s, when Ohio’s economy was humming along and property values hadn’t plummeted. But by 2010, the gap between the two tops $2,700 and is widening.
Chart 1: Real Ohio K-12 Per-pupil Annual Revenue vs. Estimated Per-pupil Revenue Based on Growth Rate of State Resources
Sources: Ohio Department of Education, Ohio Legislative Services Commission
Personnel policies are barriers to getting costs under control
It’s clear that despite well-intentioned plans to increase school funding in the coming years, K-12 education will undergo some painful cuts in the upcoming budget cycle out of necessity if nothing else. But deciding where to cut isn’t as easy as it sounds.
There are several major obstacles to getting spending under control – specifically, personnel costs, which in most school districts represent upwards of 85 percent of school spending. It is the personnel budget and specifically teacher salaries that drive the unremitting cost increases. There are three significant ways in which personnel policies cement current school spending trends in place.
1) Longevity-based step increases combine with regularly negotiated cost-of-living adjustments to make salary spending grow regardless of economic conditions
There are two major components to salary increases for teachers: cost-of-living adjustments (COLAs) and regular longevity-based step increases. COLAs are well-understood and publicly discussed. Voters, school board members, and state policymakers can all understand the effect of raises over time to keep pace with inflation, and they can evaluate whether the proposed contract provisions seem reasonable. But at the same time there is little discussion—and less understanding—about the second component of salaries.
Every non-rookie teacher is paid higher than a new teacher on a set, longevity-based schedule because of “step increases”. For example, a second-year teacher in Columbus City Schools is paid four percent more than a first-year teacher in the district. The salary steps escalate through the first 15 years of a teacher’s career and then level off with occasional further bumps. By the 25th year of her career, a teacher will be paid 85 percent more than a first-year teacher, irrespective of her performance, the demand of her subject area, or the population she teaches. (We use the Columbus City Schools example to illustrate this phenomenon, but similar salary schedules apply to all Ohio districts.) Even if there is no COLA awarded in a given year, the district will pay more for its teachers because of automatic step increases.
What fewer people understand is that when COLAs are awarded, a returning teacher’s salary is increased by both the COLA and the step for her longevity cohort. So while some districts today are giving publicly disclosed COLAs in the range of two to three percent annually, a returning teacher in her first 15 years of service is getting roughly a six to seven percent annual raise in salary. Over her career Mrs. Jones will see an annual raise averaging between 4.2 percent and 5.2 percent for each of her 30 years in service. The results are similar across the state’s school districts.
2) A multi-year levy cycle in most districts leaves spending at the end of the cycle significantly higher than current revenue; thus another tax levy is needed whether or not spending is increased—and to get the levy passed, personnel cost increases will have to be promised.
School levies are generally designed to cover the spending needs of a district over five years. Property taxes increase by a flat amount in the first year, and spending ratchets up each of the five years of the levy. In years one and two, the new tax revenues exceed the new spending and that surplus is banked to be spent in years four and five. By the time year five comes around, there is a significant gap between the district’s revenue and its spending, a gap that is typically paid for with the early years’ surpluses.
So let us consider: What happens in year six? No one ever asks that question when levies are floated. In year six, the spending – even with no increases – starts at year five levels but unlike year five, there is no accumulated surplus to pay the difference. Though districts will try to economize, eventually the only option is a new levy. How much of a levy? Well, not just to fund year six levels. To gain the critical support of the employee unions, the tax usually must be high enough to fund additional benefits to employees (on top of the step increases they automatically receive) during the new five year levy term. That means that the tax rate in year six and beyond must be significantly higher than year six spending (which is higher than year five’s) so that a surplus can be built up to pay for the spending in later years. But the same problem will repeat again in year 11 when the surplus of year six runs out – and so on and so on—but each cycle the total tax burden grows so that the imbalance occurs at higher and higher spending levels.
3) Collective bargaining laws make a district’s “YES” to the union contract trump the taxpayers’ “NO”-- regardless of the fiscal circumstances.
The scene is all too familiar across Ohio. The school district says it is running out of money; taxpayers vote down a proposed levy, and then the district brings out the heavy guns. Threats are made to cut extra-curricular programs or art and music offerings. Reluctantly voters agree to a new tax increase. Management gratefully pledges careful stewardship, but the same scene repeats itself in the future.
While voters may be forgiven for blaming waste and mismanagement, and politicians will often cite unfunded mandates, the real culprit is the state’s collective bargaining laws. Ohio’s teacher collective bargaining agreements trump everything: both state law (at least many aspects of it) and the laws of economics yield to it. If the contract calls for a three-percent raise but the budget would allow only a one-percent raise, then something else must be cut, or additional revenues must be found. After all possible cuts have been made to non-personnel costs and to non-union personnel there is only one source for the new revenue needed: taxpayers, either at the state level or the local level.
The levy system gives taxpayers only an imperfect way to force spending restraints. In theory, taxpayers can reject levies until the district finds itself under the state’s fiscal control. But in reality, taxpayers are squarely behind the eight ball: either they pass the levy or lose services and programs they care about. They can do nothing about the ever-increasing personnel costs.
Because of Ohio’s collective bargaining laws and local school district levy cycles, all too often school-spending increases are unavoidable and higher taxes inevitable. But, things are different now in that Ohio’s budget pains aren’t going away in the next few years, and constant increases in spending for schools is not sustainable. Regardless of how the elections shake out Tuesday, this cycle of automatic spending increases is going to be a pivotal challenge for lawmakers as they struggle to craft a balanced biennial budget for 2012 and 2013.
by Terry Ryan and Jeff Jacobson
Jeff Jacobson is a former state senator and is a consultant for the Fordham Institute.