Is Education a Public Good?
If So, How Should It Be Funded?

Edward J. Dodson

[Reprinted from Equal Rights, Fall 2007]

Over the last thirty years or so, many people in the United States have become increasingly disenchanted with the options available for the schooling of our children. Some parents have opted for homeschooling rather than enrolling their children in any public or private school. In 2003, around 1.1 million students (2.2 percent of the total) were being homeschooled. Another 6.5 million students (11.7%) attended private or parochial schools. Their reasons for choosing homeschooling vary, but one of the ironies is that because of how public schools are funded in the U.S., parents who are directly absorbing the cost of homeschooling also share in the cost of maintaining the public school system. This is also true of households that send their children to private or parochial schools.

Every community is responsible for providing schooling opportunities for the children of residents within one or more defined school districts. Elections are held annually to select members of the community to serve on the local school board. And, in most school districts, a significant percentage of the funding for the schools comes revenue raised by taxing the assessed value of real property. In recent decades, there has been a heightened level of debate over whether these arrangements are effective, equitable or even constitutional.

WHY DO WE HAVE PUBLIC SCHOOLS?

Despite the fact that the U.S. social structure of late 18th and early 19th century was primarily rural and agrarian, the literacy rate was reported to be much higher than that in the Old World. One of the first serious studies on the subject was made by the Physiocrat, Pierre Samuel DuPont de Nemours, who brought his family to the U.S. to escape almost certain execution during Robespierre's reign of terror. DuPont's book, Education in the United States, was published in 1812 and spoke quite favorably on the system of private schools that had become commonplace.

Despite this historical experience, DuPont's friend Thomas Jefferson pressed for the creation of publicly-owned and funded schools as consistent with principles of equality of opportunity espoused in the nation's founding documents. Jefferson was one of many leading citizens to come who believed that universal education was a cornerstone to preservation and growth of the infant democracy his generation established.

Attitudes among leading educators and civic leaders came to the Jeffersonian view in response to the waves of immigration that filled eastern cities, then the interior after construction of the railroads. Horace Mann, of Massachusetts, became the nation's leading voice for establishing public schools in order to ensure children were taught the responsibilities of citizenship and to respect the American System. In 1852, Massachusetts became the first state to require schooling for all children. However, not until the end of the First World War was compulsory education adopted by all the states. While the U.S. remained significantly agrarian and its industry depended on unskilled or semi-skilled labor, keeping young people in school into their teens was not a priority. Thus, as the nineteenth century ended, only around 6 percent of all children completed high school.

The twentieth century developed into the century of the industrial manager, the engineer, the research scientist, and a proliferation of many other professions - all requiring a high level of education and training. Competition for skilled employees brought pressure on local communities to improve and expand curricula in their public schools, and numerous reforms were instituted. State government also assumed an expanded role in almost all states. As early as 1917, federal funding initiated the development of vocational training programs.

Federal involvement in education imposed many new regulations and increased costs on local public schools. Beginning in the 1960s, new initiatives attempted to expand educational opportunities for poor and minority children, as well as meet the challenges of other countries where an emphasis was being placed on teaching mathematics and the sciences. For reasons outside the scope of this brief commentary, students in U.S. schools were falling far behind many of their international counterparts in these areas.

THE EXPENDITURE SIDE OF THE EDUCATION EQUATION

Until the Second World War, most funding for public schools was raised locally, with around 70 percent of all revenue coming from property taxes. Today, federal and state sources contribute more than half of the total expended.

The expenditures on elementary and high school education have also increased enormously as the decades have passed. Population increase has demanded the construction of larger and larger schools, equipped with up-to-date technologies to facilitate the shift from a purely classical education in the liberal arts, to embrace skill-development and preparation for adult entry into the workforce. Teachers, poorly compensated until recent decades, organized and lifted themselves by use of both collective bargaining and strikes. Whether teaches are today appropriately compensated, under-compensated or over-compensated is a matter of some debate.

Every community wants its schools to employ dedicated, high-quality teachers. Although teaching is both a calling and a profession, there has been a general perception among proponents of reform that the nation's "best and brightest" do not choose teaching as a career because the compensation opportunities remain well below what is achievable in other professions that demand far less formal education and training.

PAYING THE BILLS

While the debates continue to rage over the quality of our public schools, the costs continue to increase. This is occurring at a time when the U.S. population is aging and millions of households are headed by retired senior citizens or by "baby boomers" who are very close to retirement. For many, perhaps even a majority, of those who are retired, they experience a significant decline in annual income. At the same time, many living costs - particularly utilities and medical insurance - are constantly increasing. For this segment of the population, absorbing the additional burden of rising taxes to pay for public education imposes a very real hardship. Many have already chosen one of several options: selling their home and relocating to less costly housing in a community with lower taxes, or trading the equity in their property (increasingly, the rising value associated with the land parcel on which their house rests) for a monthly income provided under a "reverse mortgage."

By 2040 the senior population of the U.S. is expected to reach 80 million, and a new trend is already underway. People who retired in their early 60's and relocated to Florida or the Southwest are returning to their place of long-time residence because of declining health and the desire or need to be close to family members. These returning elderly will certainly need access to more intensive social welfare services, adding to the already skyrocking costs of local government. Property taxes and taxes on income, on commerce and on many other activities are certain to rise to meet these expenditures.

All across the United States residents are organizing in an effort to stop or at least impose limits on the rising burdens they feel from property taxes. To the extent they are successful, the revenue required to continue to fund the public schools - and the public goods and services provided by local governments - must come from other sources. An increasing number of states now provide rebates or other property tax subsidies to seniors who meet income criteria. Some provide tax credits or homestead exemptions on primary residences. These and other circuit breakers lessen the burden of property taxes on some owners.

The most commonly-used measure of property tax burden is property taxes per capita. Data reported by the U.S. Bureau of the Census puts New Jersey at the top of the list and Arkansas at the bottom, with a ratio between the two of ten-to-one.

At present almost all of the states impose taxes on the sale of various goods. Only Alaska, Delaware, Montana, New Hampshire and Oregon do not yet have sales taxes. Almost as many states rely on income taxes as well, although the tax applies to interest and dividend income only in the states of New Hampshire and Tennessee. The map below shows what the tax burden of state taxes was in 2001 in every state.

THE OPTIMUM TAX ON PROPERTY

Our cities, counties and school districts have a long history of raising revenue by taxing the assessed value of both land parcels and whatever improvement is constructed on that parcel. Few civic leaders or public officials have given any serious thought to the fact that land and buildings are two very different types of property. Readers of Equal Rights know just how important the distinctions are, from the standpoint of economic efficiency as well as equity in how the costs of public goods and services are paid for.

One of our great challenges is to explain to citizens and to decision-makers that there is an optimum amount of public revenue to be collected from property, but only from that form of property the value of which arises because of community - the value of land. Every parcel of land has some annual rental value (i.e., what the parcel would yield to the owner if leased under competitive bidding circumstances). Collecting this rental value from every land owner is the optimum tax on property. Collecting more (by taxing property improvements) inappropriately and unjustly confiscates legitimate private property. Collecting less permits realized or imputed rental income streams from the ownership of land to be capitalized into a selling price for land. This is equally unjust.

It may be the case in some communities that the current aggregate rental value of land is insufficient to cover the full cost of local government and the public school system. Even in those states where other revenue sources are replacing revenue from property taxes to pay for public schools, collection of land's rent fund is essential. This revenue can be effectively utilized to develop amenities that improve the quality of life in any community. Or, some of the rent fund can be returned to citizens as a pro-rata dividend. Not only does this fund belong to the community as a whole, the social and economic consequences of failing to collect it are with us every day. Speculative holding of land may be financially lucrative to individual land owners, but for communities rising land prices and artificial shortages of developable land impose heavy stresses on the general population.

In an era when the prices for many goods and services are determined by global markets, businesses are hard-pressed to maintain profit margins while trying to absorb rising expenses demanded by land owners reflected in leasing fees for space in office buildings, warehouses and other facilities. Businesses respond by replacing employees with new technologies; and, when that is not sufficient, by closing down and relocating or moving much of their operations offshore. Thus, allowing land owners to claim a share of the wealth produced by others comes with a heavy societal price that need not be borne.

CREATING A COMPETITIVE MARKET FOR EDUCATION

From the very beginning of the public school system, there has always been a demand for alternatives. And, in fact, the elimination of private and parochial schools (and, now, of homeschooling) would greatly stress the resources of the nation's school districts. To the extent we as a people agree that education is a public good to be supported by public revenue, the next question is how this funding ought to be distributed.

One of the most debated subjects concerning education funding is whether public funds should continue to be channeled directly to school districts or be put in the hands of parents in the form of education vouchers. Quite understandably, the people who administer and are employed by public schools vigorously oppose the voucher system. They argue, in part, that parents with higher incomes would supplement the vouchers and enroll their children in private schools, leaving the public schools as repositories for the poor. This class separation of children could be significantly prevented by awarding vouchers based on financial need. Children living in households with the lowest levels of income in the community would receive full funding for any child. As household income increased, the amount of the voucher would decline. Households with incomes in, say, the top 20 percent for that community would receive no financial assistance.

Vouchers could be an important means of stimulating competition in the market for education and, thereby, improving the quality of education services provided by all schools. Yet, there is another issue that deserves consideration, which is the hierarchical structure of almost every school, whether public, private or parochial.

Policies are made for public schools by an elected board, who then hire administrators, who hire teachers and other staff. Private and parochial schools also have boards, although they may be appointed or (if a for-profit corporation) elected. In all cases, the individuals charged with classroom instruction are hired as employees with limited input into curricula development and measurements of achievement. Teaching as a profession is further diminished by the unionization of teachers, trading off individual accomplishment for group security. Education might be far different - and far better - if individuals who shared the same philosophy of education were encouraged to enter into partnerships and establish schools that thrived or failed on the basis of their ability to attract and retain students. Just as in other partnership structures, new individuals would be brought in as associates until they proved themselves worthy of being brought into the organization as an equal partner.

Schools formed by professionals who either selected a managing partner to handle administration, or hired administrative staff, would elevate the status of teachers in the community and, therefore, attract more of the best and brightest coming out of our universities to the teaching profession. The needs-based voucher system would extend access to the best schools to every child.