Update on Fiscal Impact of Milwaukee Vouchers

December 15, 2008

(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.

bob-3

 (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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Posted by Jay P. Greene

MJS: Failure to Steal Money Is a “Funding Flaw”

December 11, 2008

pickpocket

“I beg of you, Monsieur, watch yourself. Be on guard. This place is full of vultures . . . vultures everywhere. Everywhere.”

HT mcgady.net

(Guest post by Greg Forster)

Update: Robert Costrell says he thinks the claim that vouchers are now saving money for local taxpayers is incorrect. Apparently it comes down to a question of whether a certain item in the funding formula varies by enrollment or not. Costrell knows this stuff better than anyone, so I’m happy to defer to him.

At the time I wrote this post, I only had the MJS story to go on, and even the school choice opponents quoted in the article (Mayor Barrett and Superintendent Andrekopoulos) weren’t disputing the savings claim. So I wrote the post as though the savings claim had been implicitly accepted by voucher opponents because it had, in fact, been implicitly accepted by them. But I shouldn’t have actually reported the claim as true just because voucher opponents were implicitly accepting it as true, and I apologize for my carelessness.

That said, the MJS story is still amazingly irresponsible and I don’t regret a word of what I said about its complicity in Barrett and Andrekopoulos’s attmept to fleece Wisconsin taxpayers. I only hope that my own carelessness doesn’t help get MJS off the hook for printing this stuff.

(This update has been edited to more clearly differentiate Costrell’s thoughts from my own.)

For years, the Milwaukee voucher program had what the locals call “the funding flaw,” under which some local Milwaukee property tax revenues were diverted for every student who used the voucher. When the program was first enacted in 1990, there was no “funding flaw,” and it saved money for both the state and local Milwaukee taxpayers, just like most voucher programs. But in 1999 the rules were changed, and the program began diverting property taxes; the state profited handsomly at the expense of the city, using the voucher program as an intermediary. As a result, from 1999 until 2007, the program was a drain on local resources. The school choice movement in Milwaukee never supported this practice and worked to help stop it, but of course state politicians were never interested in helping, and the voucher program was always blamed for the local tax drain.

But now things have changed. This year, the program is once again saving local money – the amount the city loses from the program is now down below what it saves in reduced educational costs because it doesn’t have to teach the students in the program. So there is no more “funding flaw.”

Not so fast! Over the weekend, the Milwaukee Journal Sentinel ran a very strange story claiming, not as opinion but as fact, that the “funding flaw” was never just about property taxes. Another, much more serious “funding flaw” has been lurking unnoticed in the bushes for all these years – namely, that the program fails to steal money from state taxpayers and transfer it to Milwaukee public schools.

I’m not sure anyone had ever heard about this “other” funding flaw before now. Call it the super double secret funding flaw.

1) The article begins by citing an argument between voucher proponents and opponents over whether the “funding flaw” still exists. It evenhandedly reports the claims on both sides: on the one hand, the school choice movement has facts and figures showing that voucher kids are now a net gain, not a net drain, for Milwaukee taxpayers. On the other hand, property taxes are going up and the people who run the public school system “associate a lot of that increase” with the voucher program. Facts and figures on one side versus mere assertion on the other – well, obviously there are two equally valid points of view about this controversial question! Who says the media aren’t evenhanded?

 

2) The article then lays out the facts: the “funding flaw” was always that a voucher student cost Milwaukee more than a public school student in property taxes. Now that’s not true anymore. The school choice folks are pointing out this inconvenient truth and saying, reasonably enough, that there’s no more funding flaw.

Then we get this: 

[Milwaukee Mayor Tom] Barrett and MPS Superintendent William Andrekopoulos dismiss that notion, saying the amount of property tax dollars per student illustrated only one part of the flaw. It was the main thing they pointed to because, frankly, it was easier to understand than other aspects. But, they say, the other aspects are actually a bigger deal.

So all these years they’ve been making a big deal over less important issues while concealing the real problem, but now, at last, they’re prepared to come clean and talk about the real problem.

Did you catch the casual insertion of the word “frankly” in the second sentence? This is the MJS reporter speaking in his own voice rather than quoting – but he’s such a puppet of the system’s defenders that their “frankly” comes out of his mouth. When Barrett stubs his toe, do MJS reporters say “ouch”?

 

 3) Then comes the really amazing part. MJS reports, as fact and not opinion, that the funding flaw always consisted of two problems. The first was the property tax issue, which now favors vouchers rather than public school kids – although when the story gets into the details of this, it never directly admits this as fact; it is reported as a claim being made by school choice proponents, and only sophisticated readers will be able to figure out from the reporter’s convoluted words that what the school choice proponents are saying is, in fact, indisputably true.

The alleged other part of the funding flaw, the super double secret one, is that voucher students are not counted as students being educated in Milwaukee public schools for purposes of setting the funding levels for Milwaukee public schools.

 

Got that? MJS reports as fact, not opinion, that the voucher program is flawed because it fails to force the state to pay Milwaukee public schools to teach kids that Milwaukee public schools do not, in fact, actually teach.

 

But of course the story doesn’t say this as clearly as I’ve just put it, or it would be obvious that this is sophistry in the service of a naked political agenda. A reader who didn’t already know the ins and outs of school finance would never realize from the article that the supposed other “flaw” is that the program doesn’t pay Milwaukee schools to teach students whom they don’t teach.

 

4) The article then goes on to note that fixing the super double secret funding “flaw” would be deeply unpopular because it would take money away from other areas of the state. The unstated implication is that it would be much more sensible to scrap the unworkable voucher program altogether.

Well, no kidding it would be unpopular for MPS to try to use the voucher program as an excuse to take money from state taxpayers to teach students that MPS doesn’t teach. Taking money to do something that you don’t do is called stealing.

What’s really galling is that this attempt to steal from state taxpayers is framed (by MJS as well as by Barrett and Andrekopoulos) as an attempt to “fix” an alleged funding “flaw” – the implication being that money is somehow being unfairly withheld from MPS. So the guy warning you about thieves is in fact the thief. I think that may actually be Andrekopoulos’s picture at the top of this post.

 

5) The article then parades Robert Costrell’s big cost analysis showing that vouchers cost more than they save for local taxpayers. At the very end of the paragraph, it quickly notes that this analysis “does not include figures from this fall.” In other words, the conclusion that the voucher program costs Milwaukee money is out of date because the facts on the ground have changed, and it has no relevance to the story (except by confusing readers who aren’t paying close attention).

 

6) Finally, at the end, the school choice movement is allowed to come back onstage and point out that Milwaukee public school spending and state aid to Milwaukee have both been growing relentlessly for years. Then we get this:

 

Andrekopoulos said in an interview that the main point is that something has to be changed, and the state funding system, including how vouchers are paid for, is the place to turn.

He said that Milwaukee residents are facing a 14.6% tax levy increase this year, even though the actual MPS budget went up less than 2%.

“Doesn’t that seem wrong?” Andrekopoulos said. “Something’s not right.”

This, like the previous claims about the super double secret “other funding flaw,” is sophistry pure and simple. Property taxes pay for much more than just schools, and the MPS budget gets a lot of revenue from sources other than property taxes. So these figures are apples and oranges; you can’t compare the two.

 

It would be like the UAW arguing that Rick Wagoner’s salary costs GM more than the UAW jobs bank, because budget category A (which includes spending on Wagoner’s salary, engine parts, steel bolts, and the company health plan) costs more than budget category B (which includes spending on the jobs bank, tires, car doors, and lunches in GM company cafeterias).

 

Until you break down the categories and look at what the individual components cost, you’re just blowing smoke. And when you break down the categories, vouchers save Milwaukee money – which is exactly what the MJS article established all the way back at the beginning.

I’ve seen a lot of irresponsible journalism, but this article just leaves me dumbfounded.

(UPDATE: Bob Costrell’s new analysis is here)

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Posted by Greg Forster

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