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Allegheny Institute

Allegheny Institute:

Governor Buys Into Seriously Flawed Costing Out Study

by Policy Brief

The Governor has released a plan to invest an additional $2.6 billion in the public education system over the next six years. While this increased funding might seem like a fresh new start to parents and an opportunity for the teacher unions to increase their numbers in Pennsylvania, this "new plan", unfortunately, does not guarantee anything besides increased taxes and another set of education programs that have yet to prove they will deliver promised improvements in Pennsylvania's academic achievement.

As discussed in earlier Policy Briefs, this new funding plan is based on the recommendations contained in the 2007 study (Costing Out the Resources Needed to Meet Pennsylvania's Public Education Goals) done by consultants for the state at a cost of $650,000. Previous Briefs have outlined a series of shortcomings of this study. Its methodologies in conducting the research are questionable at best. Among the most egregious was using a panel of forty-five education "experts" that excluded critics of increased spending, which makes the study's findings and suggestions extremely questionable. Interestingly, the study found that thirty districts exceeded their recommended per pupil spending. Instead of decreasing funding in these schools, the state will be raising its funding to each school by at least 1.5 percent.

The study's recommendations rest solely on the conviction that researchers can calculate for each school district the exact spending per pupil that will guarantee 100 percent of students will achieve proficiency in math and reading by 2014. Given the fact that no district in the state has accomplished 100 percent proficiency to date, including the very best performing districts and the highest spending districts, it requires an enormous leap of faith to believe that schools with less than 15 percent of students currently attaining proficiency are going to reach 100 percent in five or six years. Moreover, an Allegheny Institute report (April 2002, #02-04) —along with many other studies—demonstrates that higher per pupil funding, lower student-teacher ratios, and higher teacher pay are statistically not correlated with student performance.

Many of the programs proposed as ways to lift proficiency include smaller class sizes, a longer school year, longer school days, and Classrooms for the Future. These programs will require a large initial investment and continued funding to maintain them. Smaller class sizes will boost teacher demand while longer school days and a longer school year will add to the number of teacher workdays in addition to lengthening them. As a consequence teacher pay will rise substantially.

Since all these programs are sure to cost a lot more money, the obvious question is; Where will the state get the revenue? Not to worry. The Costing Out Study has devised a scheme to produce more revenue. Their proposal uses the concept of relative tax burden, comparing Pennsylvania to six neighboring states (New York, Ohio, Maryland, New Jersey, West Virginia, and Delaware). Using data from 2004, the study finds that Pennsylvania generated combined state and local tax revenue of $3,447 per capita and $103.46 per $1,000 of personal income – not far off from the national averages of $3,440 per capita and $104.09 per $1,000 of personal income. By comparison, the averages of the six surrounding states show $3,933 in taxes per capita and $110.78 in taxes per $1,000 of personal income.

According to the Study's calculations, Pennsylvania falls 12.3 percent behind the neighboring states average taxes per capita and 6.6 percent behind the average taxes raised per $1,000 of personal income. The Costing Out Study then proposes that it would be reasonable to produce the needed additional revenue by having the state adopt the six- state average of tax burdens per $1000 of income or tax burden per capita. If Pennsylvania tax burdens were at the six-state average per $1000, it would have produced an additional $3.17 billion in revenue for 2004 or, alternatively, raising the taxes to the six-state average of per capita taxes would have raised $6.02 billion in additional revenue in 2004.

Unfortunately, this funding scheme idea shows the Study has stumbled into yet another stunning methodological blunder. First of all, New York's tax revenue was $5,260 per capita and $137.47 per $1,000 of personal income. These outsized numbers badly skew the six state averages. For example, Ohio, with the second highest taxes per $1,000 of personal income, raised a relatively meager $109.73 per $1,000. Because New York City generates enormous sums of tax revenue from visitors and workers who commute in from out of state, New York's combined state and local tax collections are in no way comparable to other states where the residents are paying the overwhelming bulk of local and state taxes. Thus, it makes no sense to use New York's outsized tax data as part of the comparison sample for Pennsylvania.

When New York's tax collection data are deleted from the six-state sample, the averages drop dramatically. On a per capita basis the new revenue average is only $3,668 and on a per $1000 of personal income basis, the new average is $105.44. Compared to Pennsylvania, the new averages are much closer and offer little in the way of a justification for the Commonwealth to be raising taxes.

And that is not the last of the Study's flawed logic. In addition to the problems with the inclusion of New York's numbers in the state comparisons, the authors could have noticed that most of the states used in this study have a significantly higher percentage of their population in the public schools than Pennsylvania. For example, New Jersey's proportion of students enrolled in public schools is 9.1 percent higher than Pennsylvania's. Meanwhile, the ratio of public school students to population in Ohio exceeds Pennsylvania's ratio by 8.7 percent. Thus, it is reasonable to attribute higher-than-Pennsylvania tax rates in Ohio ($109.73 per $1,000 of income) and New Jersey ($109.43 per $1,000 of income) in substantial part to the need to support a public education system that is much larger on a per capita basis. That is to say there are fewer people per student to pay taxes in those states compared to Pennsylvania.

Also, the Study's authors failed to take into account the role played by differences in per capita income and by extension total state personal income. For example, Delaware and Maryland pay $100.82 and $101.32 per $1,000 of personal income respectively in taxes. However, in Delaware, the average per capita income is $37,085, and in Maryland it is $41,768. By comparison, Pennsylvania's per capita income is only $34,899. Maryland and Delaware have higher incomes and that means their tax burdens per dollar of personal income can be lower and still raise adequate revenue for public purposes including schools. By raising its already relatively high tax rates compared to these neighboring states, Pennsylvania would be making itself even less competitive economically. And, ladling the additional revenue on highly questionable school improvement programs would mean little or no benefits would be achieved to weigh against the loss of competitiveness and making taxpayers even angrier.

Obviously, in light of the many demonstrable methodological shortcomings and lack of analytical sophistication in the Costing Out Study, the Governor and General Assembly should discard it as a guide to education funding requirements and pay absolutely no attention to its prescriptions for increasing revenue. Any further use of the Study's suggestions or analyses by the Commonwealth reflects an obdurate unwillingness to face reality. It's either that or fealty to an unhealthy, politically driven agenda.

If the Governor wants to promote reform that will have a substantial positive impact, he should support an unrestricted voucher program that gives parents $8,500 per year per student to send their children to a school of their choosing. The reform would also provide $1,500 per year to parents of home schoolers to cover the costs of educational materials and equipment needed for education. It works well in every country where it has been tried including Canada and almost every European country. How much more evidence do we need? And yet governments cling to the notion that more money and more programs will solve the problems of lagging academic achievement. What a travesty for the state's taxpayers and children
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Jake Haulk, Ph.D., President Sarah Titus, Research Assistant
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