Civil Beat: “There Are Good Reasons To Support The Education Tax”

 In News

We need new thinking. Thinking about simple solutions that fix more than one problem. More precisely, consider virtuous circles where favorable outcomes in one area lead to favorable outcomes in another area that reinforces everything through a feedback loop.

The constitutional amendment on education can do this. It can solve problems with our school system and unaffordable housing.

A substantial body of economic research indicates that higher property taxes reduce home prices. A targeted tax hike contained in the amendment can make housing more affordable by shutting down real estate speculation that is driving high home prices.

Randy Roth and Ben Cayetano in their Sept. 24 Civil Beat Community Voice titled, “There Are Many Reasons to Oppose the Education Tax,” provide a mind-map of the conventional wisdom that has prevented any real progress on education here in decades.

“Investment properties” is not a vague term. It’s commonly used in council meetings, at the Legislature, and can even be found in Chamber of Commerce in testimony. (The chamber claims it’s “vague” too). It means properties bought, like stocks, to increase wealth.

The most notorious example is Genshiro Kawamoto, who bought a number of beachfront properties in Kahala, tore down the houses, and then reaped a 5 percent annual appreciation rate when he sold them 20 years later.

The example points to the fallacy that this measure will raise rents when landlords pass along property taxes to tenant. A lot of these properties aren’t rented, others are rented to visitors.

Roth and Cayetano point to per pupil expenditures that are 17 percent above average. They say, “It supports the … view (that) the current level of education funding as adequate.” Later they ask where that 17 percent extra goes.

Simple question, simple answer: prices.

Per Pupil Expenditures
The Hawaii Department of Education spends 12 percent of its operating budget on electricity. Rates in Hawaii were 224 percent higher than the national average in 2016. Work through the math and that means electricity prices drive up per pupil expenditures 27 percent other things being equal.

Things were not equal. Teachers average salaries have been below the national average. General administrative expenses have always been far below average. That 17 percent higher per pupil expenditure is entirely explained by electricity prices.

Roth and Cayetano cite a 13.6 percent teacher pay raise over four years and say with that “we expect per pupil spending to be more than 17 percent.”

That 13.6 percent raise is a combination of across the board increases and “step increases.” These are derived by pretending no one quits or retires, and everyone moves up a higher step.

Employee turnover means higher-salary teachers are replaced with lower-salary teachers. Prior contracts have used the same formula and predicted similar raises.

Nationally, the average for teacher salaries in 2017 was $58,950; in Hawaii it was $57,674. Our price level in Hawaii is 18.4 percent higher than average. So the purchasing power of a teacher’s wages was $48,629. A 21 percent across the board wage increase would have brought teachers up to average in 2017.

That’s an interesting number. Estimates of teacher raises between 2010 and 2017 were about 21 percent. Instead, average teachers salaries rose 4.7 percent over seven years.

Estimates on raises aren’t lies, they are mistaken. Mistaken estimates about a teacher’s standard of living leads in turn to overestimates of projected general fund expenditures.

Thus a teacher’s pay should have been $12,000 more than it was in 2017; thereby overestimating expenditures by $156 million. This, combined with the teachers shortage, ends up as a budgetary surplus.

That surplus does no one any good. Children in schools receive no benefit. Because it doesn’t come back into the economy it lowers growth.

Roth and Cayetano also imply benefits make up for low pay. The main benefit the state pays for is health care. (Pensions are mostly self funding).

The state reports that the state pays 59 percent of the total premium. A teacher who chose the most inexpensive plan pays $266 a month; $3,127.92 a year. A 5 percent pay cut not reflected in the average. Add that in and the raise would be 26 percent. Better for accounting purposes to eliminate to copay and add it to the health insurance fund.

Per pupil expenditures would rise 13 percent. There are also necessary capital expenditures of about $1 billion. (According to a report on school air conditioning, which actually indicated schools needed a complete refurbishment).

A $297 million increase in the annual DOE budget is needed. That consists of a teacher’s pay raise of $156 million; $41 million toward eliminating the health insurance copay and $100 million for school capital expenditures.”

Our budget process blows smaller numbers numbers up to larger numbers, so that’s $2.97 billion over 10 years. Which could be covered by a half cent general excise tax surcharge? Didn’t we just have that war?

Old thinking pretends funding is adequate while not meeting the most basic requirement of having a teacher in each classroom. Old thinking forces thousands to pay private school tuition, a massive, regressive “tax” on the middle class, while claiming doom from a tax rate of pennies on wealthy property owners.

New thinking means an honest recognition of our problems and that we use the full power of our state financial system to solve them. Simple steps that solve multiple problems. This amendment is a first step.