The Week in Public Finance: After Teacher Strikes, Voters Will Get a Say on Education Funding

Support for raising teacher pay is near historic highs, but is it enough for voters -- some in red states -- to approve tax increases?
BY  AUGUST 24, 2018

Teachers protested outside the Colorado state Capitol in Denver this spring. (AP/David Zalubowski)

For a summary of November's most important ballot measures, click here.

After wide-scale teacher walkouts and strikes in six states this spring, support for teacher raises is nearing an all-time high. That could be a determining factor this fall in three states where voters will be asked to approve changes to boost school funding.

Arizona, Colorado and Oklahoma all have ballot measures on education funding and saw teacher walkouts this year. According to a new poll by the journal Education Next, nearly two out of every three respondents in those states, and others with teacher strikes, favor raising teacher pay -- a 16-point jump since last year. Nationally, about half of respondents support increasing teacher pay, the second-highest it has been in the survey's 12-year history.

This spring's walkouts were driven by years of low pay and stagnant education funding. In Arizona and Oklahoma’s cases, the failure to restore education funding to pre-recession levels came amid tax cuts. While in Arizona and Colorado, teacher salaries have seen double-digit decreases over the last decade, as salaries have not kept pace with inflation.

“The teacher strikes indicate the kind of energy there is around education,” says Michael Leachman, senior director of state fiscal research for the progressive-leaning Center on Budget and Policy Priorities. “To me, it also connects to the cracks that have opened up in the tax-cut narrative that has dominated in these states.”

While this surge of support bodes well for those who are backing the ballot measures, they take very different approaches to school funding.

In Arizona and Colorado, voters will be asked to raise income taxes to support more money for public schools. Each proposal would be a dramatic shift in state tax policy and are supported by educators and progressives while opposed by pro-business and free-market forces.

In Arizona, which now spends just 86 cents of every $1 it put toward education a decade ago, voters will be asked to approve a near-doubling of the state income tax rate for high-income individuals making more than $250,000 a year. A poll conducted in late May and commissioned by ballot measure supporters found that 65 percent of voters were likely to support the measure.

Meanwhile, Colorado voters will be asked to change the state’s income tax structure from a flat tax to graduated rates. One in 10 Coloradans would see a tax hike between less than one percentage point to more than three points on their income. Polling is not yet available for the measure.

In both states, average teacher pay has dropped by more than 10 percent in the last decade. In Arizona, that’s in part because spending on pensions and other benefits has been crowding out other education-related expenses for the state. According to a study released this week by the pro-education reform nonprofit Bellwether Education Partners, Arizona now spends nearly 18 percent more per pupil on benefits than it did in 2005 -- even as overall per pupil funding has gone down.

In other words, cautions the report's author Max Marchitello, more education funding in general doesn’t always guarantee more money spent on students and working teachers. “More folks are interested in investing in education," says Marchitello, “but I don’t think they realize the degree to which dollars aren’t going toward schools or pay increases.”

In Oklahoma, State Question 801 would give schools more flexibility in funding by lifting a restriction that roughly 11 percent of the local property tax revenue districts receive must be reserved for building funds. That revenue would be deposited instead into general funds, meaning districts could use the money for day-to-day operations and teacher pay.

Unlike the Arizona and Colorado measures, the initiative in Oklahoma was placed on the ballot by the state legislature. Republican lawmakers approved the measure largely without the support of Democrats, a signal that legislators may be looking to push future funding debates onto the schools themselves, says Oklahoma Policy Institute’s Gene Perry. “The political pressure on administrators and school boards to spend all of the money available to them would be intense,” he wrote earlier this year, “and it could result in deferred maintenance that turns into a much more expensive problem in the future.”

The measure doesn’t raise new revenue but instead shifts money from other categories. Still, lawmakers did raise revenue to boost teacher salaries when they approved the state's first tax hike in nearly 30 years this past spring. Reviews are mixed on the ballot measure, and no polling is yet available.

For a summary of November's most important ballot measures, click here.


In other public finance news:

SEC: Munis Have to Disclose Bank Loans

In a big step forward for municipal finance disclosure, the Securities and Exchange Commission is now requiring that governments have to disclose in a timely manner direct loans from banks. Currently, direct loans are disclosed in annual reports, which means they don’t become public for months -- or even more than a year -- after the fact. By March of next year, governments will have 10 business days to disclose a new loan and other related events (such as a default on a bank loan).

The announcement this week was lauded by credit rating agencies, bond investors and the Municipal Securities Rulemaking Board, who have all long been asking for better bank loan disclosure. Direct loans from banks have become more popular in recent years, generating as much as $50 to $60 billion in deals annually. Governments like them because they are sometimes a cheaper and more efficient means of getting cash. But the investor community has become increasingly concerned that bank loans they don't know about could take precedence over their bond holdings in the event of a municipal default or bankruptcy.



High Pension Investment Fees Don’t Pay

New research has shed doubt on a common refrain that higher fees for private equity and hedge fund managers are worth it because those managers are beating the market. The Boston College Center for Retirement Research has found that pension plans that paid higher fees to external asset mangers more often missed the investment return goal, or benchmark, set on those assets by the pension plan. This finding was true for all major asset classes, the research brief says, “but was particularly pronounced for alternative assets, such as private equity and hedge funds.”

In recent years, public plans have increasingly scrutinized the fees they pay to external asset managers to gauge whether the fees are justified. “These initial findings,” the brief says, “suggest that investment fees -- in particular, outsized fees on alternatives -- may play a meaningful role in plan underperformance.”

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