The High Cost of Education Reform

The Republican revolution has a cure for the troubles of primary education in America, and it can be summarized in one word: competition.

After more than a decade of dubious reform efforts, conservative Republicans are looking to change public schools from without, rather than from within. Their proposals have shiny names that are sound-bite-friendly--open enrollment, vouchers, charter schools. They champion the concept of parental choice.

Under the Republican vision, government would pay for a child's education through high school, but parents would choose who provides the education. There would still be a public school system. But parents also would be able to move their children, and the government funding for their children's education, to other schools.

It is the market pressure from these alternative schools that, GOP reformers say, should force public education to improve. And if public schools don't improve, they would lose more and more of their students and funding.

Along with his counterparts in Wisconsin and Michigan, and with the support of his party's congressional leadership, Arizona Governor J. Fife Symington III has been in the forefront of market-based education reform.

"It's time for charter schools; it's time for open enrollment; it's time for parental-choice grants and decentralization of the bureaucracy," he said in his 1994 State of the State address.

Although the state Legislature rejected Symington's school-voucher proposal--government funds for children who attend private school--Arizona has embarked on an ambitious variant of the voucher program: charter schools. And Symington stepped up his pro-choice, antibureaucracy crusade this year, calling for abolition of the state Department of Education--even though it is headed by one of his Republican allies.

The lackluster performance of public schools has boosted the intuitive appeal of market-based education reform. Yet Arizona's experience with the education revolution provides reason for caution and even skepticism.

A two-month review of state and local documents, combined with interviews of those on the front lines of educating Arizona's children, shows that, as state leaders talk of fundamental reform, their policies are pushing the existing system of public education to the brink of financial crisis.

The key elements in this impending education crisis are:
* A level of state funding for public education that, when inflation and population increases are taken into account, translates into significant reductions in state support.

* A startling shift of the tax burden for public education from the state to local school districts. In many school districts, this has resulted in large local tax increases.

* An equally dramatic shift in the tax bases of school districts. This shift has given major businesses huge school tax cuts, while increasing taxes for homeowners even above the levels that would be needed to replace diminished state aid.

* An explosion of school-district debt. A significant portion of this new debt is now being used to fund day-to-day school operations, meaning that tomorrow's money is being used to teach today's students.

* A refusal by the state to deal with unconstitutional inequalities in the school finance mechanism, despite evidence that thousands of children are attending substandard--even dangerous--schools.

There may come a sunny day when Arizona's parents will be able to choose from a wide variety of good schools, kept on their toes by free-market competition. Yet most of the educational reforms espoused by the Symington administration are, at this point, little more than theories. They remain untested on a large scale.

And many educational professionals worry that, amid the talk of market reform, Arizona's system of public education is approaching financial collapse.

In 1980, Arizona adopted what was widely considered one of the country's most equitable and fiscally sound systems for funding public education.

That system gave each school district a fixed sum for each student and included a formula to account for annual inflation. This state funding augmented property taxes collected by each school district.

Today, the state's school-funding system is wildly out of whack. It does not adequately provide for enrollment growth. And the reality of inflation has been all but ignored by the state during Fife Symington's tenure.

Arizona's funding formula is literally backward. The state doesn't fund schools according to current population, but on the number of students enrolled the previous year.

That funding scheme does not take into account the 3 percent growth in statewide student population that occurred during each of the past five years. Some districts have grown as much as 54 percent during that time, yet the dollars to educate the new students always came a year too late.

And, as enrollments swelled, state GOP leaders waved a magic wand and decreed that schools were somehow impervious to inflation. Under Symington, Arizona has never fully funded the cost of inflation for public schools. Last year, the Legislature, with the governor's blessing, eliminated inflation from the school-funding formula altogether.

Since Symington took office, the state has failed to fund school districts for more than 8 percent of inflation costs.

During that time, of course, the price of education hasn't gone down. The textbook that cost $21.13 in 1991 is now $31.60. Paper costs 18 percent more. Pencils went up another 15 percent. Teachers' salaries have risen 8 percent.

And students with special needs continue to be very expensive. Special education--the program that deals with disabled students--is underfunded by at least $40 million, according to a state Department of Education study.

Children with limited English skills are becoming an ever-larger portion of Arizona's school population, now making up 15 percent of all students. They are at greatest risk to become dropouts. Right now, educating a child with limited English abilities costs about $334 more each year than school districts receive from outside funding sources.

As bleak as the picture has looked, the next few years offer little prospect of improvement. State budget projections say school districts should expect little, if any, increase in funding through 1997. On top of that virtual freeze in state funding, limited-English and other school programs are targeted for federal budget cuts next year--and perhaps every year, until the federal government balances its budget.

At the state level, the Republican view of this funding squeeze is broad and theoretical.

State Senator John Huppenthal, a Republican who chairs the Senate Education Committee, uses supply-side-economics theory to explain why budget cuts will actually be good for education. In his view, those cuts will make for a healthier economy, which will increase tax revenue, so more money can be invested in education.

"I look forward to the cuts," Huppenthal says. "The payoff could be pretty big in terms of being able to pump money into education."

But schools have yet to enjoy the fruits of three years of robust economic expansion in Arizona. Over that time, school districts have begged and borrowed from their regular education programs to make up state funding shortfalls.

The effect of Symington's policies on day-to-day education has been dramatic:

Arizona ranks 46th among the 50 states in education spending. Four years ago, the state ranked 39th.

Arizona has the fifth-highest ratio of students to teachers in the nation.
In the past four years, Arizona has dropped from 24th to 28th nationally in teacher pay. A beginning teacher is paid just $22,000 a year.

Conservatives argue that it's not prudent to put more money into an educational system that's broken. Before throwing more money at school districts, they want to see improved academic achievement.

That approach may sound pragmatic. But in Arizona, there has been no payoff, even when schools have improved.

"We've cut the budget, we've trained our staff, we've put computers in the classroom, and our test scores are the highest in the Valley," says Cheryl Crates, an assistant superintendent in the Madison Elementary School District in north central Phoenix. "I've done what you [state government] told me to do, so where's the check?"

Governor Symington and the Republican leaders in the Legislature want their constituents to believe that stripped-down public education in Arizona is doing more with less.

Exactly the opposite is true. Unless you own a large business, you are probably paying higher taxes for a degraded educational product.

Schools depend on local property taxes for the lion's share of their budgets. While state funding tightened over the past five years, school districts have looked to property-tax payers to make up at least some of the shortfall.

In the name of supply-side economics, however, the state Legislature, with loud support from Governor Symington, has embarked on a series of tax-cutting moves--mostly aimed at business--that directly affect the ability of school districts to raise revenue through property taxes.

The tale of the Scottsdale Princess resort illuminates how arcane, seemingly uncontroversial tax "reform" has pushed Arizona's school districts to their financial limits.

In 1986, the state instituted a tax on private property located on nontaxable government land--such as land leased from the City of Scottsdale by the Princess hotel, a tony resort.

The tax was a response to cities' increasing use of free or low-cost government property as an incentive for business expansion or relocation. But the tax didn't apply to businesses already operating on government-owned land.

In 1993, the Scottsdale Princess sued the state and Maricopa County, arguing it was being taxed unfairly. The court agreed.

Instead of applying the tax across the board, the Legislature repealed what is known, in government-speak, as the possessory interest tax.

Once the tax was abolished, a legislative committee was formed to study whether and how businesses located on government land should be taxed. In the meantime, however, those businesses stopped paying property tax--probably forever.

Under a constitutional amendment passed in 1992, any tax to replace the one on possessory interests would require a two-thirds vote of the Legislature--an unlikely event, given the preponderance of antitax Republicans at the statehouse.

The elimination of this obscure tax law has devastated the Wilson Elementary School District.

Wilson is located just east of downtown Phoenix. The district's average home is valued at about $40,000. Its two schools are home to 1,000 children, 85 percent of whom are Hispanic. All Wilson students qualify for a free- or reduced-cost lunch program--meaning that all of them live at or below the federal poverty line.

Sky Harbor Airport sits in the Wilson Elementary School District. When the Legislature repealed the possessory interest tax, Wilson's tax rolls lost $50 million in value assessed on the businesses that operate on city-owned land at the airport.

To compensate for that lost-business tax revenue, the tax rate for homeowners in the Wilson school district increased 135 percent. The property-tax bill for a $40,000 home rose from $119.88 to $281.30.

"We were trying to be fiscally responsible, and we were planning for the future," says Wilson Superintendent Roger Romero. "And then, all of a sudden, up jumps the devil."

There's more.
Last year, the Legislature enacted a gradual reduction ofthe rate at which two of the state's largest business sectors--mines and utilities--are assessed for property-tax purposes. In the years to come, those industries will see their property-tax values drop from 29 percent of their assessed value to 24 percent.

And in school districts where mines and utilities are located, homeowners will again see their property-tax burden increase.

School-district tax hikes caused by state funding shortfalls and legislated shifts in the property-tax base are significant and widespread.

Increasingly, Arizona school districts are asking voters to approve tax overrides--that is, increases in tax rates above the level normally allowed by law. These overrides can pump up to 10 percent more revenue into a school's budget through a property-tax hike.

Between 1990 and 1995, the revenue that school districts received from such overrides increased 24 percent statewide.

The Mesa Unified School District--with 65,000 students and 65 schools, one of the largest districts in Arizona--included an $8.8 million tax override in its budget this year. It is the first override in the history of the school district.

"We are using that override to cover for the lack of inflation funding and for the lack of current-year funding," says assistant superintendent Chuck Essigs. "If the statehad funded those things, we wouldn't have had the override."

Secondary school taxes in Arizona--those connected to overrides and debt payments--have increased more than 13 percent in just the past three years. And debt has exploded.

Confronted by growing enrollments, shrinking federal and state funding and obstacles to levying new taxes locally, Arizona's school districts are doing something that is anathema to the tenets of the Republican Revolution and the Contract With America.

They are borrowing.
Between 1991 and 1994, long-term school district debtjumped 37 percent, to a staggering $3.3 billion. The interest on the debt alone was more than $330 million in 1994, the last year for which official data are available.

School districts take on debt by selling bonds, which can only be issued in Arizona with voter approval. The bonds, repaid through local property taxes, are ordinarily used to pay capital expenses, such as building new schools and renovating old ones.

To be sure, part of the increase in school-district debt is directly related to growth. More than 65,000 new students came into Arizona's public school system between 1991 and 1994.

But there's more to the school-debt explosion than just building classrooms to house more kids.

Arizona law allows school districts to move a portion of their capital money into operating budgets meant to fund day-to-day education. And, largely because of state funding shortfalls, some 70 percent of school districts in the state are using a portion of their capital money to run their schools.

The net result is not the type of frugality that Symington and legislative leaders tout. School districts go into long-term debt for short-term operations, mortgaging their ability to pay for the education of future students. For example, a $1,500 computer paid for through a ten-year bond issue, sold at a 3.5 percent interest rate, ends up costing more than $2,000.

During the 1993-94 school year alone, Arizona school districts borrowed more than $133 million in capital funds to pay day-to-day expenses.

The law sets debt limits for school districts--a hedge against insolvency. By 1994, 75 school districts were within $1million of their legal bonding limits.

And some had used creative financing to exceed the limit.
The Kyrene Elementary School District has one of the fastest-growing student populations in recent history, thanks to an explosion of development around South Mountain in Phoenix. The district grew by nearly 5,000 students from 1990 to 1994.

Because the state funds school districts according to the number of students who attended the previous year, the district's budget couldn't keep up with the flood of kids. (Critics also have accused Kyrene, comprised largely of upper-income families, of overspending to build elaborate schools.)

In any event, the district issued bonds through a complicated financing scheme. Kyrene is one of 22 school districts in the state that used the borrowing mechanism--known as Capital Appreciation Bonds--to exceed legal debt limits.

Through a variety of bonding measures, Kyrene has borrowed an amount equal to about 30 percent of the assessed property value of the district--or twice the legal debt limit.

In October, a taxpayer lawsuit effectively halted this form of borrowing for Kyrene and 21 other districts.

It is projected that the Kyrene district needs to build two more schools within five years to handle the unabated growth. If taxpayers win their lawsuit, the district will have nowhere to turn for funds to build those schools.

The Picacho Elementary School sits, literally, next to the railroad tracks in the desert of Pinal County, near Picacho Peak.

Its students come from poor families that make their homes in run-down houses, trailers, motels, buses. They make their living any way they can, primarily in migrant labor.

The roof over the school cafeteria is rotted and sagging. One of the two buses that bring Picacho children to school was pulled off the street recently because it was unsafe; students wait a little longer each day for the remaining bus and hope it doesn't break down.

At school, the students are greeted by exposed electrical wires, open-flame heaters and buildings that date to the 1930s.

Picacho is not alone.
There are 400 school buildings in Arizona with "emergency life and safety needs," according to a private study commissioned by the Legislature.

"The needs of these schools may require some legislative assistance during the 1995 regular session," Governor Symington said in a September 1994 press release.

The assistance never came.
A year later, Symington said, "I intend to work with the legislative leadership during the next month to see whether we can come up with a solution to immediate problems right now."

That solution hasn't come, either.
In theory, public education is the great equalizer, the one institution that gives everyone the same chance to succeed, regardless of where or to whom he was born.

But the shameful inequality of schools in Arizona has been a festering sore for more than a decade. The disparity grows as state policies force school districts to rely, more and more, on their local property-tax bases.

It is a matter of mathematics: Districts that have low property values must set high tax rates to collect even a minimal level of revenue for their schools. Richer districts can have low taxes, and still fund more than adequate educational systems.

Last year, the Arizona Supreme Court decided that this disparity in educational funding violated the state constitution. Yet the gap between the haves and the have-nots remains unbridged.

More than 10,500 children attend school in the Roosevelt Elementary School District in South Phoenix. Ninety percent of them live at or below the poverty level.

Statistics show that those children start school behind their peers across the Valley. More than 3,500 of them come from families that don't speak English. Only 17 percent have access to a computer--either at home or at school.

"Our children don't have access to programs like other kids in this state do," says Roosevelt Superintendent John Baracy. "Neither do our teachers. They don't have current materials or current equipment.

"It affects our ability to attract quality teachers, and it affects the ability of our children to compete."

The district can't raise additional money on its own. It is tangled in the Catch-22 that haunts education in most poor areas in Arizona: Low property values mean high taxes. The tax rate is already at the state maximum.

There is no room in the Roosevelt budget to buy computers, let alone to wire its classrooms for them. And the district can't finance such improvements with bonds, because Roosevelt is too close to its debt limit.

Roosevelt's population will likely swell by another 800 students in the next three years alone; the district must use its remaining bonding authority to build at least one more school soon.

This funding dilemma led Roosevelt to sue the state over its education-funding formula. That suit produced the landmark Supreme Court decision of 1994, which held that Arizona's reliance on local property taxes caused gross--in fact, unconstitutional--disparities in educational opportunity.

So far, the courts haven't mandated a remedy for the school-funding dilemma.
And, while professing a commitment to resolving the funding inequities, Governor Symington also has used the Supreme Court ruling as an opportunity to continue his long series of attacks on what he sees as improper judicial activism.

"The ruling is just another example of the court's unbridled proclivity to engage in public policymaking," Symington said in a September address.

"The decision was not based on a thorough airing orunderstanding of the issues--it was based on a desire by three members of the Court to sympathize with the emotional pleas of school officials aided by opportunistic lawyers."

In early December, more than a year after the Supreme Court ruled, school equalization was pulled from the agenda of a special legislative session because Republican leaders could not agree on even the outlines of a solution.

And not everyone in the revolutionary camp agrees that an emergency is at hand.

"As far as I know, no child has ever died because of a building-safety problem," says Huppenthal, the education committee chairman.

Rather than focus on reforming an underfunded, overburdened, inequitable and bureaucratic system of public education, Arizona's conservative leaders have set about building a new one.

In the process, their approach to reform has created a climate of near-hatred in educational circles--a climate that has stalled most grassroots attempts to improve the education of children.

During the past two years, Arizona has launched two much-publicized reforms: open enrollment in public schools and the charter school program. Both of these market-driven programs fall under the rubric of "parental choice," a part of the Republicans' Contract With America.

Open enrollment allows parents to send their children, and the state funding attached to them, to schools in any district, regardless of where the parents reside. Under prevailing Republican theory, open enrollment will allow parents to move their children to high-quality schools, putting pressure on poorly performing schools, which will lose students and state funding if they don't improve.

Whether open enrollment can do any of that remains an open question, if for no other reason than the short time the reform has been in place.

Under its charter-school program, Arizona allows individual education providers--both for-profit and nonprofit--to contract with the state to educate children. The program is generally considered the most ambitious in the country.

Free from most of the restraints of the state's labyrinthine Education Code, charter schools have an undeniable potential to offer real improvements over standard public education. These schools are able to limit their size and provide a boutique-style, individualized education often absent from public-sector schooling.

But charter schools serve just 1 percent of the state's total school population. They're not likely to replace the neighborhood school anytime soon.

Symington wanted more than open enrollment and charter schools. He pushed long and hard for Arizona to be the first state to use a system of public-money vouchers to pay for private-school tuition.

But Symington lost a vicious, three-year legislative battle over vouchers. He blamed the public teachers' union for the loss, and has made a habit of nearly demonizing teachers ever since.

When the state gave public schools a minor budget increase for inflation, it came with a caveat: None of the money could be used to pay teachers' salaries.

The state's undeniably archaic, seniority-based teacher pay schedule is by far the largest share of every school budget. But teachers saw the salary restriction not as reform, but as punishment.

Conservative Republicans, meanwhile, began to blame educators publicly for the global downfall of education.

The hatred-and-blame game has continued to this day.
In a September speech, Symington contended that "westill have the agonizing problems of low test scores and high dropout [rates]." He even claimed that entrance-exam scores for the college-bound had fallen.

Actually, Arizona students have, on average, scored about the same on national tests in each of the past four years. They are a few notches above the national average in nearly every category. Scholastic Aptitude Test scores--the bench mark for admission to college--are up slightly, too.

But there are ominous problems in Arizona public schools, particularly in the state's resource-starved inner-city schools. Those problems involve poor and minority children who drop out of school at astonishing rates or, if they stay in class, lag further behind their more affluent suburban counterparts with each passing year.

Arizona's style of education reform has offered little new money and less short-range hope to these schools and these students. If anything, state funding cutbacks are widening the divide between wealthy and poor school districts, and will continue to do so, if state and federal budget projections are to be believed.

And, as Republican leaders propose new programs that affect relatively small numbers of children, reform of the existing education system--the system that will teach the vast majority of young people well into the next century--has ground to a standstill.

After spending vast amounts of time and money to develop standards and testing for public-school students--a system of measuring the actual performance of public schools--the state Education Department recently abolished its own skills-assessment program.

Lisa Graham, the state superintendent of public instruction, says she has a new standardized testing program on the drawing board. As yet, it does not have a shiny name or a prominent place in the rhetoric of the education revolution.

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Lisa Davis