The Education Gadfly Weekly

Ohio Education Matters
August 2009

This report by Ohio Education Matters (OEM) analyzes the Buckeye State’s efforts over the past five years to address its prodigious high school dropout rate. In late 2004, the graduation and dropout rates in Ohio reached such a point that the State Board of Education’s Task Force on Quality High Schools moved to action, proposing systemic changes to combat the problem. Five years later, however, there has been little progress and the problem has worsened: the state’s average graduation rate dropped from 86.62 percent in 2004 to 84.2 percent in 2008. 

OEM disaggregates dropout data to examine the drop-out problem more closely. The report examines high schools statewide, specifically the 30 with the lowest graduation rates. Most of the conclusions drawn from this data are obvious and have been long-known. For example, the finding that the heart of Ohio’s dropout problem lies in the urban core is not a new one. However, the report draws two hopeful conclusions.

First, that schools with the highest dropout rates made above average progress in graduating students. Additionally, a few of the worst case schools were able to make significant improvements. The report also examines current strategies to address dropout rates and finds that a number of programs, such as the Initiative for Increasing the Graduation Rate, hold promise or have already begun to yield positive results.

Overall this report is a comprehensive survey of Ohio’s progress toward improving graduation rates. It proposes several common-sense solutions, but nothing particularly new or bold. One thing the report does well is highlight the significant economic and social costs Ohio will pay in the future if it does not take significant action to successfully address this problem. Read it here.

Michael DeArmond & Dan Golhaber
National Center on Performance Incentives
February 2009 

Though released last winter, this report from the National Center on Performance Incentives is especially timely for the state of Ohio, where the State Retirement Teacher System (STRS) is facing serious fiscal liabilities and skepticism from lawmakers (see video above).  “Scrambling the Nest Egg” uses 2006 survey data from Washington state to explore: 1) How well do teachers understand their pension plans and 2) What do they think about alternative retirement plan structures?

The authors link survey results (to what extent teachers understand their pensions, and what type they say they prefer) to school and district characteristics. They found that teachers are fairly knowledgeable when it comes to their pension plan, although new teachers appear less knowledgeable than veterans. The data also reveal that teachers show a preference for investing additional retirement savings in alternative plan structures, such as defined-contribution (DC) plans, which offer more portability, choice, and risk than more traditional defined-benefit (DB) plans. Moreover, newer teachers are far more likely to favor DC contribution systems than DB plans.

The answers to the questions sought out by this report are critical because pension structure can support (or hinder) effective staffing by informing who decides to teach, when they teach, and where they teach. Under current DB plans participants are eligible to receive benefits only when they have taught in their state long enough to become vested (usually after five years), which encourages longevity, but discourages people from becoming teachers if they plan on changing careers or moving out of state.

DC plans, on the other hand, could attract new teachers because these arrangements do not penalize people who leave the system early or move between jobs. Also, DC plans do not create sharp incentives for teachers to retire at a particular time or age, which could help retain effective veteran teachers who, otherwise, may be encouraged to retire while still in their early to mid fifties.

Ohio lawmakers should pay attention to the results found in this report, and consider moving toward a DC teacher pension system. Not only would a portable pension system help recruit promising teachers to the profession and minimize the perverse incentives of the current setup (see Fordham’s report on incentives here), but it is a reasonable solution when the current STRS is facing financial instability. See the report here.

Fordham has had a keen interest in STRS since 2007. We frankly were not surprised last month when it came out that the STRS was facing serious funding shortfalls. As we have worked hard to better understand this issue and talk thoughtfully about it, we reached out to experts in Ohio and beyond.

One of the most thoughtful people in the Buckeye State on this now is Rep. Lynn Wachtmann, who also happens to sit on the State Retirement Study Council. His perspective and insights on the challenges facing the STRS and the state’s four other retirement systems are important for all who worry about these systems’ sustainability and their impact on things like new talent recruitment.

Mike Lafferty recently sat down with him to discuss his perspective on the STRS and retirement systems in the state of Ohio. View the interview here.

The justification behind tax credits is straightforward – to stimulate investment in a particular area by providing incentives that reduce the tax liability of individuals and/or corporations. Traditionally, tax credits have played a valuable role in industries that lack market momentum (think, the Ohio Historic Preservation Tax Credit, or the Film Tax Credit for Ohio), often receiving bipartisan support and flying below the radar. Let’s face it: fixing historical buildings and promoting the film industry are not rife with contention.

But some tax credit advocates argue for their use in K-12 education as a tool to help families exercise school choice and save taxpayer dollars. There is no doubt that applying tax credits to K-12 education in the Buckeye State would create a stir (especially if it were to cost $120 million or $30 million, as Ohio’s Historic Preservation or Film Tax Credits cost, respectively). But considering the current condition of the state’s K-12 budget, the role played by tax credits – to spur much-need investment – is one that increasingly is worth examining.

With the Ohio Supreme Court ruling that Gov. Strickland’s slot machine plan is subject to voter approval, his school funding plan is short nearly $1 billion. Strickland has admitted his exasperation with the situation, telling the Dayton Daily News, “I’m hoping we can find [another] option. If you think of one overnight, write it down.”

Gov. Strickland isn’t the only one doing a double-take at the state’s balance sheets. Even before the billion-dollar hole crystallized, Ohio school districts and charter schools were facing excruciating cuts and had opted to lay off staff, cut busing services, and – as South-Western Schools have done – cancel all extracurricular programming for middle- and high-school students. Enter the concept of education tax credits.

In Arizona, individuals may claim a credit for donating money to public schools for extracurricular programs. At minimum, this version of a tax credit program could ameliorate some Ohio districts’ pain. For those more sympathetic to funding private schools, now’s the time for that, too. Ohio’s new budget bill cuts $59 million from “auxiliary services” for children attending nonpublic schools. The families of these 190,000 children would presumably support a tax credit program that could compensate for these brutal funding cuts.

Several states, including Arizona, Florida, and Pennsylvania, have implemented tax credit scholarship programs. Other states combine tax credit programs with opportunities for personal tax deductions (Minnesota, Iowa, and Georgia) and many others have considered variations of these programs. Given the growing popularity of tax credits as school choice vehicle, and their potential to save Ohio taxpayers money (see here for a report examining the fiscal effects of tax credit programs), it’s worthwhile to review educational tax credits and deductions, and some political arguments for them.

An educational tax credit is a “direct reduction in tax liability for educational expenditures such as tutoring, books, computers, and, in some states, private school tuition. State legislation determines the amount of credit and which educational expenses qualify.

In some states, families with no tax liability may receive a refund for some or all of the amount spent on qualifying educational expenses” (to learn more, see here ). States can allow individuals and/or corporations to receive tax credits (for example, Arizona’s program allows individuals to receive a dollar-for-dollar credit of up to $625 for donations; Florida’s enables corporations to contribute up to 75 percent of the amount of their tax). Donations are maintained through a school tuition organization (also known as a scholarship granting organization), which uses its own criteria for distributing scholarship funds to eligible students.

An educational tax deduction “allows for certain educational expenses to be deducted from taxable income prior to the calculation of tax liability. A tax deduction offsets a portion of the cost of qualifying educational expenses, depending on the percentage tax bracket an individual is in. A family with no tax liability will receive no benefits from this type of program” (to learn more, see here ). For example, Illinois gives families a tax break of up to $500 to cover education expenses for public or private school.

Proponents of education tax programs realize they have several advantages over vouchers. Because they are funded privately rather than through government coffers, such programs are less likely to be challenged in court, less susceptible to burdensome regulation, and more popular among the general public and politicians (to read a full argument for public education tax credits, see here).

In fact, a May 2009 survey by the Friedman Foundation for Educational Choice found that a majority of respondents (54 percent) favored tax credits for individuals and businesses funding private school scholarships. This is twice the number of those who prefer charter schools (27 percent), and nearly the same amount favoring vouchers (55 percent). For a full version of the Friedman survey, “Ohio’s Opinion on K-12 Education and School Choice,” see here.

Should Ohio explore tax credits as a vehicle for school choice, choice opponents will certainly find reasons to attack it. But with Ohio schools facing severe fiscal pain, education tax credit programs are worth a serious debate.

Ohio Education Matters
August 2009

This report by Ohio Education Matters (OEM) analyzes the Buckeye State’s efforts over the past five years to address its prodigious high school dropout rate. In late 2004, the graduation and dropout rates in Ohio reached such a point that the State Board of Education’s Task Force on Quality High Schools moved to action, proposing systemic changes to combat the problem. Five years later, however, there has been little progress and the problem has worsened: the state’s average graduation rate dropped from 86.62 percent in 2004 to 84.2 percent in 2008. 

OEM disaggregates dropout data to examine the drop-out problem more closely. The report examines high schools statewide, specifically the 30 with the lowest graduation rates. Most of the conclusions drawn from this data are obvious and have been long-known. For example, the finding that the heart of Ohio’s dropout problem lies in the urban core is not a new one. However, the report draws two hopeful conclusions.

First, that schools with the highest dropout rates made above average progress in graduating students. Additionally, a few of the worst case schools were able to make significant improvements. The report also examines current strategies to address dropout rates and finds that a number of programs, such as the Initiative for Increasing the Graduation Rate, hold promise or have already begun to yield positive results.

Overall this report is a comprehensive survey of Ohio’s progress toward improving graduation rates. It proposes several common-sense solutions, but nothing particularly new or bold. One thing the report does well is highlight the significant economic and social costs Ohio will pay in the future if it does not take significant action to successfully address this problem. Read it here.

Fordham has had a keen interest in STRS since 2007. We frankly were not surprised last month when it came out that the STRS was facing serious funding shortfalls. As we have worked hard to better understand this issue and talk thoughtfully about it, we reached out to experts in Ohio and beyond.

One of the most thoughtful people in the Buckeye State on this now is Rep. Lynn Wachtmann, who also happens to sit on the State Retirement Study Council. His perspective and insights on the challenges facing the STRS and the state’s four other retirement systems are important for all who worry about these systems’ sustainability and their impact on things like new talent recruitment.

Mike Lafferty recently sat down with him to discuss his perspective on the STRS and retirement systems in the state of Ohio. View the interview here.

Michael DeArmond & Dan Golhaber
National Center on Performance Incentives
February 2009 

Though released last winter, this report from the National Center on Performance Incentives is especially timely for the state of Ohio, where the State Retirement Teacher System (STRS) is facing serious fiscal liabilities and skepticism from lawmakers (see video above).  “Scrambling the Nest Egg” uses 2006 survey data from Washington state to explore: 1) How well do teachers understand their pension plans and 2) What do they think about alternative retirement plan structures?

The authors link survey results (to what extent teachers understand their pensions, and what type they say they prefer) to school and district characteristics. They found that teachers are fairly knowledgeable when it comes to their pension plan, although new teachers appear less knowledgeable than veterans. The data also reveal that teachers show a preference for investing additional retirement savings in alternative plan structures, such as defined-contribution (DC) plans, which offer more portability, choice, and risk than more traditional defined-benefit (DB) plans. Moreover, newer teachers are far more likely to favor DC contribution systems than DB plans.

The answers to the questions sought out by this report are critical because pension structure can support (or hinder) effective staffing by informing who decides to teach, when they teach, and where they teach. Under current DB plans participants are eligible to receive benefits only when they have taught in their state long enough to become vested (usually after five years), which encourages longevity, but discourages people from becoming teachers if they plan on changing careers or moving out of state.

DC plans, on the other hand, could attract new teachers because these arrangements do not penalize people who leave the system early or move between jobs. Also, DC plans do not create sharp incentives for teachers to retire at a particular time or age, which could help retain effective veteran teachers who, otherwise, may be encouraged to retire while still in their early to mid fifties.

Ohio lawmakers should pay attention to the results found in this report, and consider moving toward a DC teacher pension system. Not only would a portable pension system help recruit promising teachers to the profession and minimize the perverse incentives of the current setup (see Fordham’s report on incentives here), but it is a reasonable solution when the current STRS is facing financial instability. See the report here.