(Guest Post by Robert Costrell)
Does the funding formula for the Milwaukee Parental Choice Program (MPCP) adversely affect Milwaukee taxpayers, even as it benefits taxpayers statewide? The answer I gave in my recent Education Next article is yes, based on data through the 2007-08 school year. Since publication, some confusion has arisen as to whether this result still holds for the current school year, as reported in the news and opinion columns of the Milwaukee Journal Sentinel (“Fairness is in the Eye of the Beholder,” by Alan J. Borsuk and “Taxpayers, Parents on the Same Side,” by Patrick McIlheran) as well as an early version of Greg Forster’s post, since corrected here.
So let me update my Ed Next figures to the 2008-09 school year (hereafter FY09, for fiscal year). The answer, in short, is still yes: the adverse impact of the MPCP formulas on Milwaukee taxpayers continues unabated, even as the statewide benefits grow. This is true, despite some modest efforts over the last two years by the Wisconsin legislature to address the problem.
First, let’s consider the size of the pie — the net savings available from the voucher program. These savings derive from the fact that voucher expenses are $6,607 per child, while state and local revenues for MPS are set by the revenue limit at $9,462 per child. These public savings are partially offset by the voucher expenditures on students who would have attended private schools anyway. My best estimate is that these students comprise 10 percent of MPCP’s 19,500 students (see my full report for an explanation of this estimate, as well as my evaluation of different estimates). Under this assumption, the net savings available to taxpayers totaled $37.2 million in FY09, up from $31.9 million in FY08 (the figure given in my Ed Next article).
The problem lies in the distribution of these benefits. The savings accrue entirely to property taxpayers outside of Milwaukee and to Wisconsin state taxpayers: Milwaukee property taxpayers do not share in these savings.
The fiscal impact of MPCP on Milwaukee property taxes is driven by the fact that 45% of voucher expenditures are deducted from MPS aid, even though MPS receives no aid for these students. As I explain in Ed Next, it certainly made sense to remove MPCP students from MPS enrollment counts when the system was reformed in 2000, but it made no sense to continue to deduct any of the voucher expenses from their remaining aid. Milwaukee is allowed to raise its property taxes to recoup this deduction (the “choice levy”), and has to do so if it wants to maintain MPS’ per pupil revenues at the level specified by the revenue limit formula. That is the essence of the “funding flaw.”
This is partially offset by 2 things. First is that the removal of MPCP students from MPS enrollment counts saves the state aid money and some of that is passed on in statewide property tax relief; Milwaukee receives a small share of this. The other offset, which began last year, is “high poverty aid,” an ad hoc appropriation to alleviate a portion of Milwaukee’s choice levy.
For FY09, these 3 pieces are $58.0 million (45% of voucher expenditures) minus $3.4 million (my estimate of Milwaukee’s share of statewide property tax relief) minus $9.9 million (“high poverty aid”) equals $44.7 million. This is the adverse impact on Milwaukee property taxpayers of the voucher funding mechanism.
It is worth emphasizing that this impact is on property taxpayers, not Milwaukee Public Schools. Per pupil revenues available to MPS are unaffected by the voucher program, so long as Milwaukee fully utilizes the tax capacity granted to it under the MPCP formulas. Milwaukee did utilize its tax capacity in FY09 (as it has done in all other recent years, with one exception noted below).
The picture is different for the rest of the state. For FY09, I estimate the net benefit to property taxpayers outside of Milwaukee at $52.0 million, and the net benefit to state taxpayers at $30.0 million. (The assumptions underlying these calculations and the basis for them are laid out in my Ed Next piece and my longer report for the School Choice Demonstration Project, along with details of the calculations.)
Taken all together, the net benefit to Wisconsin and Milwaukee taxpayers from the voucher program is $52.0 million (benefit to property taxpayers outside Milwaukee) plus $30.0 million (benefit to state taxpayers) minus $44.7 million (adverse effect on Milwaukee taxpayers) equals $37.2 million. This is the net savings figure given above.
The pattern of winners and losers is depicted below, in the update of my Ed Next Figure 4. The loss to Milwaukee property taxpayers is depicted by the blue bars in negative territory; the gains to other property taxpayers and state taxpayers are depicted by the maroon and tan bars in positive territory.
What was the impact of the “high poverty aid” program, enacted last year to alleviate the “funding flaw?” As the diagram indicates, because of this additional aid, the adverse impact on Milwaukee property taxpayers for FY09 is no worse than in FY07, which is to say it did not grow as it would have without the aid.
In addition, last year Milwaukee chose, for the first and only time in recent years, not to tax all the way up to the limit allowed by law. There was $15.1 million of unused tax capacity. Consequently, the diagram’s blue bar depicting the adverse impact on Milwaukee property taxpayers is shorter than it would otherwise have been for FY08. This means that MPS received less than the per pupil revenue limit. The figure attained was $8,978 instead of the revenue limit of $9,141. The per pupil revenue still exceeded the FY07 figure, but did not increase as much as state law allowed. In other words, this $15.1 million represents the shortfall for MPS, relative to the per pupil revenue limit. This is depicted in the figure by the green bar for FY08, in negative territory.
This year, Milwaukee has resumed its past practice of taxing up to the revenue limit, so the green bar disappears and the blue bar is no longer truncated: there is no adverse impact on MPS, as the property taxpayers of Milwaukee make good on the full amount of the choice levy.
To summarize:
(1) Net savings from the Milwaukee voucher program continues to grow along with MPCP enrollments, and the widening gap between the voucher and the MPS revenue limit. I estimate the net fiscal benefit at $37.2 million for FY09, up from $31.9 million for FY08.
(2) Milwaukee property taxpayers do not share in these benefits. I estimate the adverse impact for FY09 to be $44.7 million. The “high poverty aid” enacted in FY08 has kept the adverse impact from growing beyond its FY07 level, but has not materially reduced it either.
The “funding flaw” persists. As I stated in the conclusion of my Ed Next piece, “It remains to be seen whether, as the program grows, this flaw will undermine it or instead lead legislators to complete the reforms … so the benefits can be shared by all.
(Note 1: the bars depicted for FY08 are revised from those published in Ed Next. There I assumed Milwaukee taxed up to the revenue limit, as it had for preceding years. This one-year departure from past practice came to my attention when the article was in press, too late to amend Figure 4.)
(Note 2: Alan Borsuk’s article, “Fairness is in the Eye of the Beholder,” includes a short summary of my Ed Next article, which states that I conclude “MPS is losing money […] on a per-pupil basis.” My article actually states, “To avoid this result [MPS revenue loss on a per-pupil basis], MPS is still allowed to offset the [voucher] deduction by raising property taxes and it has chosen to do so.” As the diagram above shows, the loss is for Milwaukee property taxpayers, not MPS, except for FY08, when Milwaukee chose not to offset the entire choice levy.)
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