Capital Expenditures and Bonds In Public Education

In 1995, the federal government recognized that property tax revenue was not sufficient to fund capital outlays for public schools.  The General Accountability Office (GOA) provided a report to congress reporting on the capital expenditure (CAPEX) needed to bring the nation’s public schools to good standing.  According to the GOA report, schools needed $112 billion.  The federal government was only mandated to cover $11 billion (Brimley, Verstegen, & Garfield, 2012).

At one point in time, local property taxes funds were solely used to fund capital projects (i.e. buildings, equipment, and property).  As the population grew, demands also grew.  Property tax could not keep up with the rising cost of capital expenditures.  In addition, property tax started funding education, funding for the school districts’ assets was reduced.  For California, there was a significant reduction in property tax revenue during the busting of the housing market bubble.  This environment created a domino effect and public education in California suffered.  The less tax the state collects, the less money public education receives and school districts are forced to get creative as traditional funding sources dry up.

Schools are forced to borrow money through bonds to fund the construction of buildings in order to provide a safe, educational environment for students.  In order for bonds to work, school officials need to inspire confidence in their stakeholders.  Parents need to know that their child is going to a good school district as accepting a bond measure is a long term debt.  A bond is a tax that is going to last 10 to 30 years, so school officials need to understand the type of bond they sell to the stakeholders.  In addition, bonds are not fair from community to community as there is an inequity (Brimley, et, al., 2012).  As result, some students in certain districts will not get the same education opportunity as those from neighboring districts.

References:

Brimley, V., Verstegen, D., & Garfield, R. (2012). Financing Education in a Climate of

            Change. Boston: Pearson Education

Funding California’s Education

Financing education in a democratic environment is a challenge.  The United States spends over $550 billion annually on public elementary and secondary education (Federal Education Budget Project, 2014).  Public education in the US is big business, and an adequate set of rules must be present for the collection and allocation of these funds.

Today, states and local government play a large role in public education funding.   This trend began in the 1970’s with the passing of various legislature bills that gave State and local government more control over the distribution of educational expenditures.

States rely heavily on taxes to fund public education.  Taxes are complicated and convoluted.  According to Brimley, Verstegen, & Garfield (2012), the system of taxation used to fund public education is not something easily embraced by all tax payers. There are court orders and legislative actions that mandate the collection of tax revenues.  Furthermore, these laws explicitly address the allocation of these funds.  These measures came to pass by the taxpayer.  For example, California’s proposition 13 mandates that property tax cannot exceed more than 1% of the property value.  There are pros and cons to every tax measure.  Using property tax in a school finance formula raises questions since this type of tax is not always equitable.  In some districts, this formula may benefit public education, especially in areas with high property value.  Also, the wealth of taxpayers in the same district is never the same (Brimley et, al., 2012).

A good tax model exists when all citizens and companies are required to pay tax to the government.  Not all citizens or companies owe taxes.  In addition, it is unfair when tax laws pass that create tax loopholes for citizens and business.  These types of laws create an unfair tax system and force other citizens to contribute more than their fair share of government support (Brimley et, al., 2012).

A wealth-based measure of taxation can be unfair for some citizens as this method may create financial distress on those citizens who inherit property or the elderly.  Their monthly income cannot account for the 1% of the property value.  This method may work for millionaires, especially if they do not own any property or choose to live where property tax is insignificant to their income.  In California, this tax system is favorable due to the high property value in many districts.

The consumption-based system of taxation is based on general sales tax.  It only applies to the value of the goods citizens purchase.  Citizens will have to use their money to get taxed.  This type of tax also burdens the lower-income citizens.  Lower-income citizens spend all their money to purchase goods while the wealthy can save a considerable portion of their earning.  Some economist favors  this type of tax since it does not penalize saving like income tax (Burman, 2012).  Further, this type of tax is more complex.  It may open avenues for tax evasion since goods and services can be hard to measure (i.e. food, clothing and medicine) at the consumption-based system of taxation can be an inefficient way to tax citizens (Burman, 2012).

Property and individual tax are the best measures to fund education.  If education funds rely on state funds for money, property tax can’t fluctuate as much.  Furthermore, it will make it simpler to forecast revenue.  Individual tax can help education, although, unemployment will need to be considered.  Most citizens will be able to contribute funds to educate the students.   As result, the stakeholders who provide monetary support by paying taxes will affect the financial security of public education (Brimley et, al., 2012).  The combination of these tax systems, have the potential to be a fair tax model for all citizens, an equal burden for all regardless of their wealth.  People in Beverly Hills will share the same tax burden as those in Baldwin Park.

References:

Brimley, V., Verstegen, D., & Garfield, R. (2012). Financing Education in a Climate of Change.

            Boston: Pearson Education

Burman, L. (2012). A Progressive Consumption Tax?

i.e. http://www.forbes.com/sites/leonardburman/2012/06/04/a-progressive-consumption-tax/

Federal Education Budget Project (April 21, 2014). School Finance Federal, State, and Local

K-12 School Finance Overview.

i.e. http://febp.newamerica.net/background-analysis/school-finance

Senate Bill 813 (1983) & Proposition 98 (1988)

California’s primary and secondary education system serves 6 million students and employees thousands.  With more than 9,100 public schools and 1,000 districts, it serves from 10 students in rural districts to 700,000 in the Los Angeles Unified School District (Brimley, Verstegen, & Garfield, 2102).  California k-12 system is big business, and policy-makers and education stakeholders have reshaped California’s finance history over the past decades.  Unfortunately, the guardians of California’s fiscal k-14 resources have made questionable fiscals decisions by passing legislative bills aimed to improve the funding of the state’s education system.

Senate Bill 813 (1983)-

SB 813 benefited students and teachers.  It is a piece of legislation that impacted California’s finances.  This bill was written to improve California’s funding for k-12 education.  Policy makers enacted this bill to help California’s schools provide a more productive learning setting for all students.  The introduction of SB 813 was intended to help California’s ailing school to generate additional revenues, increase graduation requirements and raised k-14 education expectation.   This measure introduces three major differences from previous education finance legislation: graduation requirements; it focused on teachers and linked revenue incentives to performance (Guthrie, Odden, Cagampang, and Picus, 1988).

In year one, the administration increased education appropriation by 11.5 % to increase instructional time and productivity (Guthrie et, al., 1988).  School districts were able to move forward by providing an adequate level of education for all students.  This increase would affect all students across the district.  Districts were encouraged to increased instructional time which led to increasing school productivity in exchange for additional funding.  Teachers were able to increase their salary by providing longer instruction.  The additional funds allowed for the development of several education programs.  Prior to 1983, several districts were forced to cut summer school from their budgets.  SB 813 allowed the re-institution of summer school in many districts (Guthrie et, al., 1988).  Teachers were able to identify and encourage those 11th graders needing additional units to meet the graduation standard to take summer school in order to graduate.

Teachers not only benefited from SB 813 financially, but administrators created teacher programs to help cope with the growing number of students.  These programs helped improve teaching and boost teacher morale since teachers felt valued by the administration.  One of the programs created to help teachers was the California Mentor Teacher Program.  This program provides a $4,000.00 stipend for up to five percent of the teachers in California.  The mentor’s job was to help teachers, per their contract they had to have direct student contact (Guthrie et, al., 1988).

Proposition 98 (1988)-

Prop. 98 is another public initiative that mandated change to financing education in California.  In 1988, the educational community decided to act and help California’s funding in k-14 public education as it remained one of the lowest in the nation.  Proposition 98 was put on the ballot.  The proposal gave California primary educational institutions a constitutional protective portion of the state’s budget.  This proposal guaranteed state funding per pupil is greater than the previous year.  Proposition 98 guaranteed a minimal funding level and ensures the increase in annual funding in education (Brimley, Verstegen, & Garfield, 2012).

This provision allows more funding in for California’s education as long as the state’s economy grows each year.  The problem is that if the state’s economy does not grow or remains stagnant, education does not move forward.  If education remains stagnant, students don’t learn.  Technology moves forward regardless of how the state’s economy is doing.  Putting the students’ education on halt due to the state’s economy is not an option.  Programs need to be funded to stay competitive.   Minimum funding does not allow for adequate forecast cost as there are environmental influences that affect the cost of education.  This is not a model for good business! As with any product in goods and services; a company needs to continue to invest to make it better.  California’s students are the product.  If we want students to be an influential part of our state’s economy, we need to invest in their education.

California faces a distinctive set of challenges in k-12 education.  It educates the largest share of English language learners and has the highest percentage of students from low-income families in the nation (California Budget Project, 2013).  According to a 2013 CNBC poll, California’s education system is ranked 43rd in the nation.  Policy-makers and education stakeholders need to make drastic changes to deliver an adequate education system to all students.  California’s children are entitled to receive an equal education opportunity.  Furthermore, it is the state’s obligation to ensure they receive enough an adequate education.

References

America’s top states for business (2013). CNBC Poll.

i.e. http://www.cnbc.com/id/1013865

Brimley, V., Verstegen, D., & Garfield, R. (2012). Financing Education in a Climate of Change.

Boston: Pearson Education

California Budget Project (2013). School finance facts. Rising to the challenge: Why greater

     investment in K-12 education matters for California’s students.

i.e. http://www.cbp.org/pdfs/2013/131003_Rising_to_the_Challenge_SFF.pdf

Guthrie, J., Odden, A., Cagampang, H., & Picus, L. (1988). School Reforms and School Finance:

What did senate bill 813 buy? Policy Paper No. PP88-8-4

 

Universal Financial Literacy Act

Abstract

There is a need for a Universal Financial Literacy Act (UFLA) in primary and secondary education in the United States.  Students need tools to help them make sound financial decisions when selecting a University.  According to The Washington Post (2012), college debt has surpassed auto and credit card debt.  Current legislation has given the power to the state to mandate financial literacy education in their district.  Currently, only four states mandate their high school students to take a personal finance course as a graduation requirement (Jump Start Coalition, 2014).

Policy Problem Statement

Knowing how to handle finances is a lifelong process.  The need to integrate financial education in high schools and universities is one subject manner that can no longer be ignored.  Millions of dollars have been invested in educational initiatives, but financial literacy has no part of the curriculum.  According to Mr. Ed Finkel (2010), after the great recession of 2008, school districts across the country have taken notice of the importance of financial literacy (pg. 69).  College debt is on the rise, and there is no policy in place to battle this problem.  This problem is simply worsening and lawmakers are attacking the issue on the back-end instead of offering solutions to stabilize it, control it or make it better. For example, President Obama recently signed a presidential memorandum to help millions of Americans that are struggling with their student debt (Money, 2014).  This memorandum simply helps students manage their current debt, but does not educate high school or current University students on how to stay debt free.  The scope of the problem is of national concern.  This is a severe issue since college debt has surpassed auto and credit card debt in the United States.  According to American Student Assistance (2012), 12 million college students borrow `annually to help cover college cost, this is 60% of the nearly 20 million Americans attending college each year.

Solution Using Public Resources

It is the responsibility of educational leaders of all levels to implement a system that interrelate educational and everyday life components uniting them to teach students on making sound business decisions.  Decision makers must make financial literacy an important component of any curricular reform starting from high school and progressively moving to universities.  In addition, any initiative must address staff development, especially in technology as it evolves rapidly.  The learning discipline system thinking helps organizations understand the need to rely on their environment to help the institution move forward.  After the financial collapse a few years back, school districts cannot afford to not address the need to embed financial literacy in their curriculum.

According to Beverly & Burkhalter (2005), “financial education or financial literacy is the knowledge and skills related to money management. With the increased focus on preparing students for high-stakes testing in schools, a reasonable approach to teaching students about being money smart” (pg. 122).  A UFLA will help school districts and colleges save money.  For example, community colleges and university have been forced to embed remedial courses in their current curriculum.  If high school students understand the cost for an additional year at university, they will make all efforts to avoid remedial classes in college.  This will allow colleges to reduce their cost by lowering the number of remedial courses offered.  The National Bureau of Economic Research states that the annual cost for remedial coursework at a community college level is nearly $7 billion (Scott-Clayton, Crosta, & Belfield, 2012).  The federal government will also benefit from this initiative, as it will reduce the amount of Federal aid awarded to students taking remedial classes.  In the same fashion, universities will lower the cost of institutional scholarships awarded to students enrolled in remedial classes for their first semester.  Teaching cash management to young adults will help the US economy.  Ameser (2009) states that FL can be implemented in all academic programs:

Mathematics and financial literacy appear to be the most closely correlated.  There                 are opportunities to combine studies in these topics… a teacher could design a                       worksheet as a checkbook, and then ask students to add or subtract the amount of                 money they use from the balance.  In this simple classroom situation, students learn               the fundamentals of balancing a checkbook while reviewing essential math skills (pg. 3).

This is an example of students being taught how to manage their money.  In private schools, many students are privileged.  They do not have to worry about paying for college.  These students are at risk once their parents decide to stop financial support while in school.  Without financial guidance, they turn to high-interest loans or simply drop out of college.  Supon (2012) states, teachers have a responsibility to inform students and communities on the importance of money managements (pg. 69).

Conclusion

Young adults must be taught how to manage their money inside and outside the classroom.  Educational institutions must educate students in money management to help avoid future disasters as the recession in 2008.  Policy makers are attacking the problem by passing legislation that will help student make affordable monthly payments. This is not a solution; they are simply “bandaging the problem.”  If a Universal Financial Literacy Act is not developed and all states are mandated to enact it, Federal loan debt will become the next financial crises after the crash of the mortgage industry.