Investing in children is important; the issue is how
“The only thing I require in this moment is leadership that’s prepared to invest in our children.” So said Chicago Mayor Brandon Johnson, who was voicing frustration over both the state’s failure to fully fund the Chicago Public School system, and the refusal by Pedro Martinez, the CEO of CPS, to take out a $300 million loan to cover current operational expenses of the district. Now, while there’s no such thing as unanimity in opinion on any public policy, there’s certainly broad consensus that investing in a quality education for every child is the right thing to do. Heck it’s even supported by the data.
The question isn’t really whether this investment should be made, but rather how best to pay for it. The answer is with recurring, reliable tax revenue — not by borrowing. From a textbook fiscal policy standpoint, borrowing to cover ongoing operating costs is a decided no-no. The reasons for that are fairly obvious. Say CPS took out that $300 million loan to cover educational expenses in the current budget. Next year, there’d be no money available to pay for whatever educational programs the loan proceeds covered this year. Worse, CPS would have to start repaying the debt, with interest, meaning the district’s fiscal hole got bigger — and whatever was previously funded with loan proceeds would likely be cut. That’s not in the best interest of CPS or its students.
For a real life example of how problematic borrowing to spend is, look no further than — CPS. In the mid-1990s, then Mayor Richie Daly, and his CEO for CPS Paul Vallas, decided to significantly underfund the Chicago Teachers Pension Fund for a decade. When that irresponsible practice started, the CTPF was 100% funded. CPS didn’t owe a penny in unfunded pension liability debt. But to deal with then existing budget shortfalls without raising taxes, Daley and Vallas made woefully inadequate contributions to CTPF, effectively borrowing against what was owed to the pensions, to cover current operational expenses. That borrowing may have gotten CPS through its short-term budget crunch, but it created significant long-term costs.
Today the CTPF is only 46% funded, and CPS is saddled with nearly $14 billion in pension debt. Repaying that debt is costing the district over $661 million this year alone. Put another way, CPS started the year with a projected deficit of $505 million. If it hadn’t irresponsibly borrowed against contributions it owed CTPF, this year it’d have a surplus of $156 million, rather than a half-billion dollar deficit. Borrowing to spend on current operations creates long-term fiscal havoc.
The only responsible way to fund any public service, including education, is through recurring, annual tax revenue. Nationwide, state tax dollars on average cover 46% of the cost of funding public education, while local tax revenues typically cover 44%. In Illinois, however, the state only covers around 26% of education costs, while local revenue — primarily from property taxes — covers 65%. And Illinois’ share of education funding actually rose by five points over the last few years, after the “Evidence-Based Funding for Student Success Act,” or “EBF” passed in 2017.
The EBF represents best practice in school funding because it ties the dollar amount taxpayers invest in schools to covering those educational practices that research indicates improve student achievement. Funding what works is good policy, and Illinois has been making incremental progress toward fully funding the EBF. That said, it’s still underfunded by $2.7 billion statewide, while CPS is underfunded by $612 million, which is no bueno.
The main reason the EBF isn’t fully funded yet is the state lacks the fiscal capacity to do so. That lack of fiscal capacity is driven by Illinois’ tax policy, which is so flawed that historically revenue growth doesn’t keep pace with cost growth. Which means all Illinois children won’t get a well-rounded education until state lawmakers develop the political will to raise sufficient state-based tax revenue to fund the EBF fully.
• Ralph Martire, rmartire@ctbaonline.org, is Executive Director of the Center for Tax and Budget Accountability, a fiscal policy think tank, and the Arthur Rubloff Professor of Public Policy at Roosevelt University.