K-12 spending guarantee ignores economics

On the face of it, it sounds reasonable enough to tie state education spending to inflation as the K-16 Coalition wants to do. They point out that salaries are fixed costs of school payrolls, health care costs are increasing for everyone — schools included — and schools’ employee pension costs are projected to rise sharply in the next few years. But the assumption that these costs are no different from any other employer is an erroneous one. Spending on K-12 public schools is not tied to the market like other goods and services; the amount public schools spend on salaries, healthcare and pensions is a byproduct of political machinations that have little to do with true costs.

The problem with determining spending in this way is, regardless of what the state spends, schools will rise to meet it. This is very different than a regular labor market where costs are more a function of what someone is willing to pay for something. Public education’s disconnectedness from the market is precisely what makes the automatic increases sought by public schools unsound policy — and in the end the seeds of its own destruction.

Free economies reward performance

That teachers should be paid well and receive good benefits is not in dispute. Teaching is a demanding job whose work hours often extend beyond the workday with evening preps. Like many other professions, it requires a college degree, certification and continuing education. Many teachers possess advanced degrees. A free economy generally rewards such preparation because with it, an individual creates value for someone else through his performance or accomplishments.

Unlike most other professions, however, teacher compensation (salary and benefits) is not based on performance or any kind of measurable value-added output. They may receive an added boost to their salary for a master’s degree, but this is rewarding input rather than output. Teachers’ labor unions vigorously resist rewarding output (such as through performance incentives) because their power and money come from keeping teachers employed at any cost, irrespective of output.

Instead, teacher salaries and benefits (which is essentially synonymous with school spending, since teachers are far and away where most education dollars go) is determined by how much political muscle unions can bring — usually directly — to bear on citizens, school boards, administrators and legislators.

Unions and courts

Sometimes the union’s muscle is applied indirectly by dunning the judiciary, as the "adequacy" litigation cases in New York City, Kansas and elsewhere illustrate. Within the past two decades, unions have hedged their bet so to speak, by seeking edicts from activist judges, thereby, strategically bypassing the taxpayer. As court-ordered largesse raises the level of state spending on education, compensation will rise to meet it. This in turn will cause further increases because a new spending baseline from which there is no retreat has been established.

Such costs are not subject to the countervailing forces of supply and demand, the market forces that keep the prices of most goods and services stable. Thus, the costs of educating our children will rise in the absence of market restraint. Under our current system, it is the only thing they can do.

Some education writers, such as Alex Molnar in "Giving Kids the Business: The Commercialization of America’s Schools," say that trying to apply market economics to education spending policies "threatens to turn every human relationship, inside and outside the classroom into a commercial transaction." Such criticisms, despite whatever feel-good quality they offer, overlook everything we know about incentives, performance, competition and economics, as if the nature of people who teach and administrate public schools is somehow different from the rest of mankind. Andrew Coulson has written extensively about this in an authoritative volume, "Market Education: The Unknown History."

While the beneficiaries of court-ordered tax increases may revel in their newfound windfall, one can be sure of two things: Their plea for still more money will only be temporarily abated, and they are overreaching to the point where the taxpayer-funded buffet line to which they have so generously helped themselves will, sooner or later, run out of food. This is to say, the ability to fund costs which have no built-in containment mechanism is finite.

An example from business

To illustrate this point, consider briefly the fate of the airlines industry. With the big carriers struggling to control costs and stay competitive, they can no longer afford to pay the pensions and benefits of their retired employees which were previously negotiated with the unions.

Faced with the Hobson’s choice of letting United Airlines go out of business and default on its obligations to retirees or go bankrupt and default on its obligations to retirees, a federal bankruptcy court in May allowed the company to stop paying its pension plans. According to The New York Times, "Greg Davidowitch, president of the Association of Flight Attendants, said the decision ‘very well may have triggered the collapse of the defined benefit pension system nationwide.’"

With or without the passage of the K-16 Coalition’s proposal, it’s likely only a matter of time before Michigan too can no longer afford to make the obligations it is now making to its public school employees. With one of the highest average teacher salaries in the nation coupled with an expensive defined benefits pension plan (including health insurance premiums), the entire system will ultimately collapse under its own weight as many districts are now doing. Passing Senate Bill 246 as the K-16 Coalition wants will simply hasten the collapse.

This is not to say that we cannot afford to educate our children. We simply cannot continue educating them at a price that is not tied to the market.

Brian L. Carpenter is the former director of leadership development for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.