None of these are bad ideas, and frankly, none of them are all that dramatic. On whole, DPI’s plan is more of an incremental approach to improving education finance than a radical shift in the way the state funds its public schools.
Consider the transfer of the School Levy Tax Credit funding to school aids. Currently the credit is paid directly to municipalities across Wisconsin for purposes of lowering local school property tax levies. It is calculated, according to the Legislative Fiscal Bureau, by taking the entire $747.4 million credit and giving each district a share equal to “each municipality’s share of statewide levies for school purposes during the three preceding years.” In other words, if a district’s levy makes up 5% of the sum of levies throughout the state, the district receives 5% of the tax credit.
Because wealthier communities tend to have higher education levies (which is by design in the equalization aid formula), wealthier districts are more likely to get a greater benefit from the School Levy Tax credit. This fact was the subject of a critical report by UW-Madison Professor Andrew Reschovsky. He found that “property owners in the property-wealthiest school districts are allocated school levy credits that are nearly seven times larger than those going to property owners in the poorest school districts.” Again, this is true, because it is by design.
Importantly, shifting funding for the School Levy Tax Credit into school aids does not mean that the money behind the tax credit will be used to increase public school spending. In general, it would still be used for property tax relief. Though DPI’s plan, unlike Walker’s budget, increases per-pupil revenue limits, it still caps the amount of state aid and local property tax districts can raise. This means increases in school aids will still reduce the property tax ley. The only way school districts get to increase their spending above revenue limits is by going to referendum.
So what does the shifting of the money behind the School Levy Tax Credit to school aids actually accomplish? First, putting the money into the equalization aid formula will create a redistribution of school aids (this is why DPI’s plan includes hold-harmless money for the 5% of districts negatively impacted). Second, it ends the political optics of having a sizable pot of education funds explicitly set aside for property tax relief…which is probably why the School Levy Tax Credit will never go away. In a political argument of direct property tax relief vs. more indirect property tax relief the latter loses.
Why am I writing about this now? Well it sure seems like the Governor’s education proposals are going to be modified by the Republican controlled Joint Committee on Finance. It makes sense for DPI’s proposal, as well as the status of the School Levy Tax Credit, to be part of the ongoing budget discussion.
Tax to the max. You may have heard this phrase in regards to your local school district, as every fall there is a flurry of newspaper reporting on school boards setting their property tax levies. The role Wisconsin school boards play in setting property tax levies is one of the more misunderstood parts of school finance.
You might think school boards first make a budget based on the needs of their district, and then set their levy at an amount that funds that budget. You’d be wrong. For the majority of Wisconsin school districts (about 77%), the setting of the property tax levy is a passive process that is relatively straightforward:
The state determines how much revenue the school district can raise per-pupil from state and local sources by adding a hard number (set by the legislature) to whatever the district raised per-pupil in the previous year.
The district’s membership count (which is the three-year enrollment average) is multiplied by the number determined by the calculation in step one to determine the total revenue the district can raise.
The amount of state aid sent to the district is determined by that district’s property wealth.
The levy is determined by subtracting the amount of state aid sent to the district from the district’s total allowable revenue.
It sounds more complicated than it is, here is a simplified example of how it works:
Say district A has 100 students and a per-pupil revenue limit of $10,000.
That district’s total allowable revenue, 100 X $10,000, is $1 million.
The state determines the district will receive $600,000 in state aid.
District A levies a property tax of $400,000 ($1 million – $600,000).
As I mentioned, all but 98 of Wisconsin’s 424 school districts levied at (or very near) the maximum allowable amount in 2011. Therefore, for most school boards setting the tax levy was a pretty simple task. But what about the 98 that turned down over $70,000,000 in tax revenue? Remember, because the allowable revenue in future years is based off of prior spending, leaving money on the table in any single year has a long-term impact on district budgets. What possessed these districts to leave so much money on the table?
My first thought was that conservative areas averse to taxation would dominate the list of 98. However, the district that forwent the most revenue, over $10 million, was Madison. So much for that thought. Most of my hunches failed to pan out. Districts that under-levied and districts that taxed to the max had similar:
Special needs populations;
Levels of math and reading proficiency;
Location distribution (i.e. no more likely to be rural, urban, etc); and
However, two significant differences did emerge in my analysis. First, the 98 districts that under-levied were, on average, larger (2,442 students) than those that taxed to the max (1,922 students). Perhaps larger districts have a greater ability to produce economies of scale that make turning down revenue less consequential than in a smaller district. Or, maybe larger districts are more likely to be in places with tax-control advocacy groups.
The other less interesting but likely more explanatory difference was that under-levying districts had higher average levels of state support (44%) than districts that taxed to the max (40%). Logically, it would be easier for a school district to turn down local revenue if a significant chunk of their total revenue comes from other sources.
Of course, there are many potential explanations for why a district under-levies that cannot found in a data set. The one time the Milwaukee Public Schools under-levied in recent memory, for example, was because of public pressure caused by a perfect storm of malfeasance by a board member and a potential double-digit levy increase. Likely, the local politics unique to Wisconsin communities matter more than district size or level of state support.
Both the Associated Press (AP) and the Department of Public Instruction (DPI) today highlight the relationship between reductions in school aids across the state and the way school choice and charter programs are funded. The AP story notes “$110 million [was] taken from public schools to pay for an expansion of voucher and charter schools in Milwaukee and Racine.” Unfortunately the story fails to mention that the statewide aid reductions to pay for the charter program and the aid reductions in Milwaukee and Racine to pay for choice do not translate into less funding for school districts.
Why? Neither the charter nor choice aid reductions impact revenue limits. Districts can and do make up for the reduction with property taxes. In English, this means the Milwaukee Public Schools, Racine Unified, and the majority of school districts in the state that set their education levy at the highest permitted amount do not lose actual dollars because of these programs, they simply receive them from a different source.
If property taxpayers are upset about supporting successfulreforms that cost less per-pupil than traditional public schools, so be it. But folks in Milwaukee, Racine, and the vast majority of Wisconsin school districts need not worry about choice and charter reforms taking money out of public school classrooms, because they are not.
Filed under: Taxes — Christian Schneider @ 12:22 pm
Wisconsin isn’t facing a $3.3 billion deficit because taxes aren’t high enough. Revenue has dropped because, due to high unemployment, there simply aren’t enough people paying taxes. To fill the deficit, instead of creating new taxes, Governor Scott Walker had decided to create new taxpayers.
It’s been well publicized that Walker intends to create new workers by luring businesses from other states. One piece of catnip he has dangled in front of out-of-state businesses is found in SS SA2 to SB3 and SSAB3 (which, if said out loud, sounds like someone falling down the stairs), the tax break for business relocation.
The bill, as amended, creates both a tax deduction and a tax credit for businesses that relocate to Wisconsin. Under the bill, “locates to this state” means moving either 51% or more of the workforce payroll of the business or at least $200,000 of wages paid to such workforce to Wisconsin during the first taxable year to which the deduction relates. In a nutshell, businesses that move here get to be tax free for two years.
According to the bill’s initial fiscal estimate, the cost of letting new businesses go tax-free is a fairly marginal $280,000. (A revised Fiscal Bureau estimate puts the cost at $500,000, with the expansion of the credit into an accompanying deduction.) The Department of Revenue came up with that estimate by figuring that the average tax liability for first-time filers in Wisconsin was $2,700, then figured that 25% of the 416 new filers in past years have been from out of state. ($2,700 * .25 * 416 = $280,800.)
Let’s hope this bill is a lot more expensive than that estimate.
The bill is meant to lure businesses from other states, which announces a change from past practice. If the tax credit/deduction is effective, the number of businesses relocating should be a lot higher than the 104 the DOR estimates has occurred in the past.
Furthermore, the mere number of new businesses brought in doesn’t tell the whole story. Size matters. If the lure of being tax free pulls in some big businesses (especially in the wake of Illinois’ recent massive tax hike), that will skew the cost upwards significantly. One also imagines many of the “new filers” in Wisconsin were startup businesses, which may account for why their liabilities only averaged around $2,700. Just a couple big fish in the Wisconsin pond will skew those numbers significantly.
Of course, if all goes to plan, the “cost” of the bill (which doesn’t really “cost” the state anything – it merely deprives them of taxpayer money) will be much higher – but the state will recoup that money and more by the number of new taxpayers created. Ratcheting down the unemployment rate from 8% to, say, 4% will have the state swimming in money once again. It will more than pay for the marginal cost of giving businesses a temporary tax holiday.
The bill has passed both the Assembly and Senate, and now heads to Governor Walker for his signature.
And if the tax break doesn’t help the state recoup its money, Wisconsin should just go bet $280,000 on the Packers in the Super Bowl.
UPDATE: After passing the relocation tax cut bill, the Senate engaged in some partisan sniping over who was to blame for the state’s high unemployment rate. Democratic Senator Bob Jauch stood and argued that the recession was a global one, Democrats weren’t to blame, and that the effects were being felt in states like Indiana and others.
Yet an analysis by the New York Times shows that Indiana’s budget deficit is the smallest in the nation, at 2% of spending. Indiana Governor Mitch Daniels has shown that balancing a budget can be done in times of economic distress – in Wisconsin, we just haven’t felt like it.
Filed under: Taxes — Christian Schneider @ 1:16 pm
Governor Scott Walker appeared on CNBC’s “Squawk Box” today to detail his plan to pilfer jobs from Illinois:
Perhaps most controversially, Walker claimed that Aaron Rodgers is “just as good” as Brett Favre ever was, and “without the interceptions” to boot. If he somehow just jinxed the Packers against the Falcons, I might actually sign on to the goofball campaign to recall him.
Filed under: Taxes — Christian Schneider @ 12:37 pm
Questions abound regarding Monday’s Refocus Wisconsin meeting held here in Madison – is former Wisconsin Revenue Secretary Rick Chandler calling for an increase in the sales tax? Is he doing so in his capacity as a budget adviser to Governor-elect Scott Walker? And why is orange juice served to large groups of people always so pulpy? Who likes that much stuff floating in their beverage?
I might be able to answer at least the first two questions. No and no.
Earlier this year, Chandler wrote an extensive article for the Refocus Wisconsin project that looked at the sustainability of Wisconsin’s long-term budget structure. He utilized the extensive polling data our project provided him, which detailed the public’s level of comfort with various taxes. Not surprisingly, respondents saw the sales tax as the fairest tax, while they loathed the property tax the most.
When Chandler looked at the viability of lowering some of the most hated taxes in exchange for raising what the public thought were the “fairest” taxes (the sales tax), he found some interesting economic modeling that predicted even more of a benefit from such a shift:
But here is the kicker: Economic modeling shows that rebalancing the Wisconsin tax system in a revenue-neutral way to reduce personal income and property taxes could generate about 10,000 more jobs, increase per capita income up to $400 per person, and increase investment. These are very substantial positive effects.
Chandler’s long and well-researched article goes on to describe the economic benefit from such a restructuring of our tax framework, including a look at other states that have made similar structural changes:
At whatever level of tax collections Wisconsin chooses, a tax mix that would collect less from personal income and property taxes and more from sales taxes would simply be better. It makes sound policy sense because it reduces taxes on earnings and savings. It would help in marketing the state to workers and businesses, who strongly dislike high personal income and property taxes, and would help combat Wisconsin’s “tax hell” reputation.
Economic analysis tells us that a tax mix change would boost employment, incomes and investment. Survey information tells us that the public would support a change. A tax mix change would help Wisconsin’s economy and make the tax system more acceptable to Wisconsin citizens. And in an era where there is great public distrust of government along with strong negative feelings towards incumbents both here and in Washington, this is a change that would have broad public support.
That’s something worth noting for our future lawmakers.
So Chandler was not making an immediate proposal – merely re-stating a long-term plan he had researched early in the year. He is not advocating a sales tax increase – although the public told our pollsters they are open to discussing the tax mix in future legislative sessions.
And of course, Chandler was not acting as an agent of the Scott Walker administration, which is made clear in the Cap Times article about the event. He was acting solely as an independent contractor to the Refocus Wisconsin project. Chandler’s statements have no connection to his capacity as an adviser to Walker.
As for the orange juice question, it remains unanswered. Much like why hotels put so many damn pillows on their beds. Seriously – I’m going to walk out and go to another hotel if my bed isn’t drowned with 50 pillows?
Over the past few months, we here at WPRI have issued a number of reports regarding the fact that state government employees pay nothing for their pensions. And for suggesting that state employees actually pay the “employee” portion of their pension benefits, we’ve gotten significant blowback. (See “Growing Anger Over Free Government Pensions” from our Refocus Wisconsin project.)
As it turns out, it’s not just actual state employees that can live the dream of paying nothing for their retirement benefits. Just take a quick trip over to the Wisconsin Department of Employee Trust Funds website, and fill out the Retirement Benefits Calculator the ETF provides on its site.
In order to figure out your lifetime annuity, all you need to do is fill in your date of birth, the date on which you hypothetically plan to retire, and your three hypothetical highest earning years.
For the purposes of this exercise, I plugged in that I was a 20-year teacher with a 3-year high salary of $75,000, $76,000, and $77,000, and would be retiring in 2026. As a result of my 20 years of service, I would receive an estimated lifetime annuity of $$1,669.89 per month. (I have the option of getting more up front and less on the back end if I choose the accelerated payment option.) All, of course, for my monthly required contribution of zero dollars and zero cents.
So at your next dinner party, fire up the website, gather the guests around, and play “guess what my monthly annuity would be if I were a state employee?” It’s bound to be a hit.
Last weekend, I took some time out from teaching my kids how to make daddy a martini long enough to let them watch the movie “Cloudy With a Chance of Meatballs.“ As I’m certain you recall, the movie features a young inventor, Flint Lockwood, who devises a machine that makes it rain cheeseburgers, pizza, and, yes, meatballs. (The movie also features the much-awaited voiceover return of Mr. T, who was robbed when the Oscar nominations were announced.)
Spoiler alert: As the movie goes on, Lockwood’s machine goes on the fritz from overuse. The city government of Swallow Falls, sensing a huge impending windfall from tourists wanting to see food fall from the sky, forces him to overextend the machine’s capabilities, leading to unanticipated consequences. Those consequences come when the food gets larger and larger, leading to giant pancakes falling from the sky and crushing buildings underneath. The island of Swallow Falls is buried under giant donuts, hamburgers, and steaks.
At the end of the movie, Flint flies a homemade spaceship into the middle of a giant meatball and manages to disarm his invention. When he gets back to the town, they treat him like a hero – even though it was his invention that caused all the problems to begin with.
Now shift ahead to today, where an even more implausible event took place: Governor Jim Doyle thinks he created some jobs.
Yesterday, Doyle announced a $1.5 million loan to the Marquis Yacht Company in Pulaski, in order to save 315 jobs. Marquis’ parent company filed for bankruptcy last year, and now Doyle’s Department of Commerce is ready to swoop in and aid the yacht maker.
But in the spirit of Flint Lockwood, we don’t need to guess how this all started:
1. Wisconsin’s high taxes and anti-business climate cost companies millions of dollars;
2. Additionally, high taxes prevent individuals from buying big-ticket items, like yachts;
3. Business owner says he or she can’t afford to pay their workers, as profits are tanking;
4. Jim Doyle swoops in to help only those businesses he deems worthy of block grant money, thereby “saving” jobs.
Sure, it’s not as dramatic as saving humanity from destruction by 50-foot bananas, but it’s the same concept. Doyle expects us to give him credit for saving jobs that he, in effect, forced from the state. And the only way for a business to be deemed worthy of a bailout is to drive down to Madison, pucker up, and smooch the posterior of of the outgoing executive.
So just like the movie, maybe we should send Mr. T to the Capitol to smack some people around. Clearly, he does not pity the fool who costs Wisconsin jobs.
Begin reading Mark Twain’s novel “The Gilded Age,” and you’ll discover a fascinating and humorous story about settlers in early Missouri. Its pages contain love, intrigue, and adventure.
But then, in Chapter 15, Twain (along with his co-writer Charles Dudley Warner) launches a broadside attack on Congress. See if this sounds at all familiar:
“If you are a member of Congress, (no offence,) and one of your constituents who doesn’t know anything, and does not want to go into the bother of learning something, and has no money, and no employment, and can’t earn a living, comes besieging you for help, do you say “Come, my friend, if your services were valuable you could get employment elsewhere – don’t want you here?” Oh, no. You take him to a Department and say, “here, give this person something to pass away the time at – and a salary” – and the thing is done. You throw him on his country. He is his country’s child, let his country support him. There is something good and motherly about Washington, the grand old benevolent National Asylum for the Helpless.”
Recently at WPRI, we’ve been trying to call attention to government employee salaries and benefits. Twain was on the same page:
“The wages received by this great hive of employes are placed at the liberal figure feet and just for skilled and competent labor. Such of them as are immediately employed about the two Houses of Congress, are not only liberally paid also, but are remembered in the customary Extra Compensation bill which slides neatly through, annually, with the general grab that signalizes the last night of a session, and thus twenty per cent. Is added to their wages, for – for fun, no doubt.”
Filed under: Taxes — Christian Schneider @ 11:46 am
Let me go on record. The Tea Party movement is wonderful. It gets people involved in the political process who normally never would. It forces viewpoints into the public that are sometimes hard to find. And Tea Parties irritate just the right people. They are on their way to being the most important movement for conservatism (or libertarianism, in some cases) in the past twenty years.
I attended the Tea Party at the Wisconsin State Capitol last weekend, and filed this video report. It was a great event – as I documented, plenty of colorful people showed up. It was funny – many of my liberal friends e-mailed me to express shock that I was “hard” on the Tea Partiers, while my conservative friends universally liked the friendly jabs I took. (My goal is to one day have an obituary headline like H.L. Mencken’s: “Mencken, Critic of All, Dies.”) I figured these are my people – I can kid with them a little, right?
In any event, despite the steaming bowl of wonderfulness that Tea Parties bring to American political discourse, there are always ways to improve them. As I walked around and observed the festivities, I jotted down a few things I think could help build on the great event that the organizers put together this year:
1. RECALIBRATE THE LANGUAGE
I hate paying taxes. You hate paying taxes. But several of the speakers took this meme to the next level, saying taxpayers are being “raped” and that taxpayers have become “slaves.” And they said it over and over and over.
Let’s be clear: paying exorbitant taxes is not like being raped. And the government taking more of your income, as damaging to your wallet and the economy as it is, is not akin to slavery. (Nobody on a boat headed to America from Africa in the 1800s was saying “boy, I hope they don’t tax my capital gains.”)
There are plenty of reasons to be irate about paying high taxes in order to fund wasteful government spending. But a truly skilled speakers can relay that outrage without slipping into offensive hyperbole. Using words like “rape” and “slavery” only serve to marginalize the great movement that has been built to this point.
2. CANDIDATES AND ELECTED OFFICIALS – IN OR OUT?
In years past, it seems like a conscious effort has been made to keep elected officials and candidates from speaking at the Tea Party rallies. But every now and then, one will slip into the mix. This year, Ron Johnson, who is thinking about taking on U.S. Senator Russ Feingold, was given a platform to speak, while other candidates were left off the docket. (Johnson’s speech was really good, incidentally.) Last year, fiscal dreamboat Paul Ryan spoke to the crowd, but other elected officials fighting for conservatism at the state level weren’t allowed to speak.
It seems one of the themes of the Tea Parties is that they aren’t connected to specific candidates or political parties. Sure, they’ll get behind candidates with whom they agree (they are in the process of endorsing candidates all over the country), but many of their members have just as much animosity towards Republicans as they do Democrats. Tea Party organizers should make it more clear what the standard is for allowing current elected officials to speak – there are plenty of state officials that would be really good.
3. COUNTRY MUSIC
Not all conservatives like country music. Just stop it. It’s almost like the musical selection is being written by what Keith Olbermann thinks right wingers would want to hear.
4. THE CULT OF PERSONALITY
Much has been made of former Governor Tommy Thompson’s appearance at the Tea Party in Wisconsin last week, where he announced he would not be running against Democratic U.S. Senator Russ Feingold. In some respects, Tommy injected free-market conservatism into areas of state government that badly needed it (school choice, welfare reform, etc.) But in other areas, Thompson represents exactly the type of politician that Tea Partiers despise. Even Thompson’s staunchest defenders wouldn’t necessarily consider him thrifty with taxpayers’ money.
But when Tommy wanted to speak at the Tea Party, the organizers were stuck with a quandary: Do we exclude the most popular politician in the state, even if he’s only there to serve his own purposes?
Thompson’s appearance weakened the message of the Tea Party – it told attendees that the event was more about personalities than ideas. Tommy’s announcement sucked media attention away from the people who had traveled to Madison from all over the state to be there, and focused it all on himself. And the fact that his speech led people to believe he was going to run, then pulled the rug out from under them, just discouraged the crowd.
In the future, organizers should reconsider if they’re going to allow their well-meaning event to be the host for individuals to latch on to serve their own purposes. It happened this year, and damaged the event.
5. EASY ON THE MEDIA
Nothing gets a crowd of conservatives riled up (and rightfully so) than speakers slamming the liberal media. And speaker after speaker did just that. It was ironic, however, that they did so while dozens of media cameras were right there at stage side, and while just as many nattily-attired reporters were roasting under the hot sun all day covering the event. We can rip them all we want when they pass on lefty talking points (and I will continue to do so), but on this day, they deserved credit for being there. Chastising the media when they’re right there in front of the stage covering you looks self-defeating. (Samuel Alito just mouthed the words, “I agree.”)
Seriously – who’s ever heard of a Wisconsin event where thousands of people get together and there’s no tailgating? Someone figure out the grilling rules for the Capitol lawn and let’s fire up the bratwurst.
7. LAUGH A LITTLE
Last week, speaker after speaker strode to the stage, veins bulging, demanding we take our country back. (By the way, the new Tea Party Drinking Game involves taking a drink any time any speaker says “of the people, by the people, and for the people.” You’d be drunk in 15 minutes.)
It might be a nice change to have some speakers that can use a little humor to make their points. The stereotype of conservatives is that they are angry and humorless. While there’s plenty of reason to be angry, there’s also enough reason to laugh at what’s been going on in America. It disarms people and makes the speaker seem smarter than they probably are. Plus, it would be a nice change of pace from the apocalyptic rhetoric we get from the rest of the speaking lineup.
8. TELL US WHAT TO DO
While some of the speakers mentioned some specific issues (Apostle David King, for instance, denounced the “ding dongs” in the Legislature about to pass a bill making it easier to commit vote fraud), many of them discuss conservatism and limited government in the abstract. Many of them go on at length about the Founding Fathers (including an interminable speech by a guy dressed like Thomas Jefferson) and recite passages from the U.S. Constitution. (Rule of thumb in politics: 90% of people who start talking to you about the true meaning of the Constitution are lunatics.)
More emphasis should be given to what people can do RIGHT NOW. The Founding Fathers are great, but Ben Franklin isn’t crawling out of his crypt to stop the global warming bill in the Wisconsin State Legislature. The people in the crowd on the capitol lawn have to do that. Immediately.
It would be helpful if the groups organizing the Tea Party had a framework for taking action on important bills right away. Schedule visits to legislator offices. Form a Political Action Committee and get people to donate to it while they’re all standing right there. Give them the tools they need to go back home and start making a difference.
9. TOO MUCH OF A GOOD THING
It seemed like there were a dozen speakers on the docket last Thursday. (I’m not sure how many there ended up being, but it was in that area.) The crowd seemed like it would have been just as happy with maybe five or six high-caliber speakers, as opposed to a dozen speakers of varying quality.
10. FEWER SIGNS THAT REFER TO BENDING OVER AND GRABBING ONE’S ANKLES
This one is self-explanatory. I would pay cash money for people to avoid providing me with this visual.
The Tea Parties are on a roll – and getting people involved in spreading the message of limited government is always a good thing. But they could certainly build on those successes, and focus that discontent into actual change. And I’ll certainly be there next year to help. Until then, we should all be grateful we live in a country where we can go buy a sandwich that uses two fried chicken patties as buns.