TECHNOS

August 29, 2008

TECHNOS QUARTERLY Fall 1996 Vol. 5 No. 3

Restructuring Education Finance: A Dialogue across the Street from the Garden of Eden

By Morton J. Marcus

“It won't work, you know,” Septum Sixpack said, rocking with conviction. “You can't go around restructuring the way we finance our schools and changing the balance between the various levels of government. Folks just won't have it.” “It sure will work,” I responded with equal certainty, “if people will give it a chance.” That exchange alone summarized most of the conversations we had since I moved into the neighborhood eight years earlier. “But wait a second,” I had to confess my confusion, “what are we talking about this time?”

As usual, we were sitting on the front porch of Septum's home, looking out on the street, its traffic, and the people who passed by. Septum also used the porch as an observatory—to watch Henna Homestead, the widow who rented rooms and puttered about the garden across the way. “Can't do it,” he continued, “too many hurdles, too much doubt, too much trying to change the way folks think about schools. Gets right to the core of local control. And it won't work.”

“What,” I repeated, “are we talking about?” “Fool book you're writing,” he said, surveying the giant rhododendron bushes in the Homestead front yard for signs of Henna's presence. “How do you know what I'm writing?” I asked. “Everybody knows you're writing a book. You've used it for months as an excuse to avoid everything you don't want to do,” he sneered. “But you don't know what's in the book. We haven't talked about it. Nobody, other than the folks at AIT, has read it,” I insisted.

“Don't need to read it,” he replied. “I know everything in your head from talking to Serina. She goes over there, and you talk to her, and then she comes back over here and talks to me. Don't take no special training by the CIA to know you're pushing higher taxes, advocating federal control of the schools, and wanting to cut local school boards down to nothing at all.” Serina Seriatim is Septum's granddaughter, a frequent visitor to our house, where she plays with our dogs and our grandchildren. She is the neighborhood mosquito, an innocent carrier of information viruses.

“Hold on,” I said, “your granddaughter is charming, but she doesn't necessarily understand everything she hears. And, you know as well as I, she loves to use information to inflame well-known passions. She is your daughter's daughter.” “You leave Suzannah out of this,” Septum blazed, defending his daughter, whose one great crime, in his eyes, was marrying an accountant. “Suzannah, my darling Serina, and that parasitic CPA Sheldon are the only family I have left,” he sighed, as his eyes scanned the garden across the street. “Exactly,” I declared, “you and millions of others who are retired or are going to be retired soon. All you have is Suzannah, Sheldon, and Serina. Broadly speaking, that's all any of us have.

“Everyone has heard about the great baby boom, but most people just do not appreciate its significance. That's what I was trying to tell Serina one day when she was watching me write. The greatest force in America for the last half of the 20th century and the first third of the next century is the baby boomers, those persons born between 1940 and 1964.” “Wrong,” Septum interrupted, “the baby boom started in 1946.” “Yes, most people think that, but I look at the data and they tell me the boom started in 1940. The important thing in economic and social affairs is the relative magnitude of a change. Births from 1940 to 1944 increased by 18% over the level of the preceding half-decade. It was the first increase in 15 years. Only the 1945 to 1949 half-decade saw a greater increase. Even when we had those huge numbers of births in the 1950s, we didn't have percentage increases as great as those we experienced in the early 1940s.”

“And it was the baby boomers who put all the pressure on the schools,” Septum said in a hollow voice, as he spotted Henna. “Sure,” I continued, knowing that I had only his ear and not his brain. “When the first wave of children entered the schools between the Second World War and the Korean War, there was excess capacity in schools which had been built for larger populations before the Great Depression. But since the 1960s, the edge of the wedge for changing markets, for redirecting resources, has been those born 1940 and on.”

“So what?” he asked, now turning his rocker to face directly toward the presumed Garden of Eden just beyond the flow of traffic. “So what?” I echoed. “So we now have to provide for the health care and retirement income of approximately 70 million Americans.” “Do not,” Septum answered, smoothing down his rumpled few locks of hair. “Folks like me have their retirement income and social security. I did it all myself. I saved and put money aside in the stock market, and I have my pension, and I don't depend on anybody. Don't need to have nobody's help on that.”

“Do too,” I countered, ignoring the invalidating double negative. “Who's going to pay the taxes to support your monthly social security checks? Who's going to create the profits that will pay the dividends which give your stocks value? Every person expecting to live without earning income in the years ahead is dependent on the income generated by those at work. And how do we get higher levels of income?” Septum was not listening. Henna was on her toes, her arms extended to trim some over-hanging limbs.

“Well, I'll tell you,” I persisted. “This country has to generate earnings by having an internationally competitive labor force. And that is Suzannah and Sheldon today, joined by Serina in a few years. Your social security check comes from the taxes on their income. Your pension payout comes from the dividends companies distribute out of profits and the sale of stock in your fund's portfolio. And the price received for that stock is a function of the present and prospective profitability of the firm. All that income flowing to you and other retirees depends on the creativity, imagination, and productivity of our children and their children.

“Your family, Septum, is typical of the demographic reality toward which America is moving. You have two adults of labor-force age: one child and one person of retirement age. That's the future population profile of our country. You don't want to be denied your retirement pleasures, to take less income. You don't want to be forced into seeking employment because your social security check is inadequate and your pension insufficient. That's why you should support measures to help today's and tomorrow's workers be more capable of generating income.

“And how do we do that?” I knew I was talking to myself, but I went on. “We reopen our school systems to our former students. We use our school resources to go into the community, the offices, factories, and homes of adults who are 25 to 45 years old today, and we help them learn what they did not learn when they were in school. We need an all-out effort to eradicate not only illiteracy but also the deficient knowledge that so many adults have in math and science. Even if a person got top grades in a 1973 high school biology or chemistry class, he or she could be seriously deficient today. Educators will have to work with employers to identify the areas where the deficiencies are greatest impediments to productivity . Together, they will have to design flexible programs that school systems can provide to improve both knowledge and skills needed on the job.

“And how do we pay for that, Septum? Do you want to see the federal deficit grow? Do you want this country to go further into debt?” “NO!” he roared. There's nothing like debt and deficit to get Septum's attention. “Blasted government is going to drag us all to perdition.” He was listening again, on guard, attentive. “Right,” I agreed. “We need to spend money carefully, and we need to pay for the things we want. That's fiscal responsibility. That's the mature conduct of government affairs.” “Hmm,” he grunted in concurrence.

“So,” I proceeded, “we need to raise taxes. And what should we tax? I think it's a good idea to tax discretionary consumption. It won't hurt too much to consume a little less today in order to have more tomorrow. Yes, I do think we should raise taxes on a few selected goods and services. For example, when you go bowling, what do you pay?” My friend thought for a moment, and I could see in his eyes an image of Henna Homestead hooking a ball into that sweet spot between the one and the three pin. “Oh, ‘bout $3 at one of those places that has a $1-a-line for seniors in the early afternoon.” “Would you be willing to pay $3.30, if you knew the revenue was going to be invested in raising the productivity of the American labor force, increasing income, making it easier for Suzannah and Sheldon to earn enough to support you and themselves?” “Might be,” he said softly.

“Right,” I rolled on. “There are taxes we could raise. In addition, there are funds currently used to hide the extent of the federal deficit. These we could use to assure every Serina, wherever she may live, a good, fundamental base of financial support for her education from kindergarten through high school.” “That's how you're going to do it, isn't it?” he smirked triumphantly. “You're going to raise taxes and have the federal government dole out money with heavy chains attached. You'll lure schools into the control of the Department of Education with the carrot of federal funds and then slam them with mandated programs. You'll have Big Brother telling schools all over America what they should teach and how they should do it.” “Did you hear me say that?” I protested. “You don't have to say it,” Septum replied, his eyes flashing with anger. “Just let the Feds get their funding foot in the door and there will be regulations and mandates coming out of every window before long.”

“There are three considerations here,” I said, trying to defuse the situation. “First, there is a legitimate national interest in education and workforce development. Wherever we live, we have a stake in the education of people in other places. Education is not something that can be left entirely to the states and localities. What was reasonable when the country was formed over 220 years ago is not efficient in America today. Second, the local property tax which is currently used to fund so much of the spending done by our schools is inappropriate for that purpose. We should be taxing income, one of the benefits of education, to support education. Third, there are ways to organize the distribution of funds without the Department of Education deciding who should teach what, how it should be taught, or where it should be taught. To a degree, the day-to-day operations of school systems can be separated from their funding and their accountability.”

“Those are easy things to say,” Septum responded, as his eyes drifted to Henna hauling a garden hose into position for an arboreal libation. “And difficult to do? Yes,” I agreed, “but we don't have the luxury of arguing for a decade. Those born in 1940 are enjoying 56 candles on their birthday cakes this year. They will be demanding more and more health care in the next few years, and they will want their full retirement income shortly thereafter. America needs to expand income. There has to be more to share so that Sheldon and Suzannah can attain the standard of living that you and…,” my eyes indicated the lady across the street who looked as if she were in actual combat with a serpent, “…others of our generation have achieved. As a nation, we want to avoid the bitterness and intergenerational rivalry that could result if the economy does not expand sufficiently to accommodate these claims on income. We don't want you and Suzannah, and ultimately Serina, contesting over a small pie. Improving education is one way of increasing the size of the pie we all must share.”

“You're right,” Septum said, as he rose from his rocking chair. “A nice piece of pie would taste good. Maybe you could go over and ask what's-her-name there if she'd like to join us. I'll go cut a few slices of apple pie or whatever's in the kitchen and make a fresh pot of coffee. There's a touch of autumn in the air.” “Sure,” I responded, “what's-her-name and whatever. Sounds good to me. I'll be right back.”

Morton J. Marcus is an economist and director of the Indiana Business Research Center at the Indiana University School of Business, where he teaches both graduate and undergraduate courses. He is also AIT's 1996 Distinguished Fellow. For the past 23 years, he has studied the changing economy and population of Indiana and the United States. Marcus writes a weekly column on economic issues for 27 Hoosier newspapers from his home in Indianapolis, where he and his wife maintain a household of unemployed dogs and cats. His book on financing public education in the 21st century, Tightrope to Tomorrow: Pensions, Productivity, and Public Education, was published by TECHNOS Press in 1997.

Click here for ordering information on TECHNOS Press's Tightrope to Tomorrow book by Morton Marcus.