Could a do-gooder bond save Washington’s schools?
West Seattle High School Credit: Joe Wolf
Education needs more money. The state Supreme Court has ruled on Washington’s failure to meet the constitutional mandate to adequately fund K-12 education. The state’s higher-education budget was cut in half over the past four years, causing an 80 percent rise in in-state undergraduate tuition and fees at the University of Washington.
Both gubernatorial candidates propose an additional billion dollars for education — without new taxes. They would find the money, variously, through budgetary savings, closing tax-loopholes, and economic growth, which few see as sufficient and sustainable.
Not increasing taxes is understandable. Too many people are struggling. Taxing high-income individuals more seems unlikely for other reasons. How then can we find new money without new taxes?
Much of high income persons’ money would be invested anyway. I therefore call on them to invest some of it in new “Invest-In-Ourselves Bonds” for education. They would earn interest and later recover their money when the bonds mature — unlike “losing” that money permanently when paying taxes or making a donation.
The proposed bond plan introduces a voluntary method for generating additional money for public schools and colleges when taxing is unviable while there are investible funds around. These bonds would belong in the category of the “Social Choice Bond Fund” recently launched by TIAA-CREF, one of the largest managers of socially responsible assets in the United States. This type of fund consists of bonds that provide money for organizations or projects with positive societal benefits, while earning competitive returns.
The proposed bonds differ from the levy funds many school districts already seek in five significant respects. First, a school levy obligates all taxpayers in the district to pay a new tax, which may prove difficult for some. In contrast, the bonds would be purchased by those with money to invest.
Second, the levy funds are used principally for building long-lasting physical capital. The proposed bonds would be for education spending of any type, including education reforms. The rationale is that collectively they would build human capital, which benefits society long-term.
Third, the proposed bonds would be issued for different maturity dates and denoted for specific expenditure categories for bondholders to choose — building, faculty support, scholarship, information technology, etc. While bondholders have such choices, taxpayers of school levies could not express their preferences although they, too, may prefer one type of expenditure (teacher pay or scholarship) to another (building or a football field). One person’s favorite use may be another person’s idea of waste; taxpayer preferences matter since they influence voting on a school levy.
Fourth, whereas school districts request levy funds, the state would issue the proposed bonds. Why? For decades economic resources in school districts determine school funding. Thus, economic disparities among districts have brought unequal educational outcomes across the state. If this funding mechanism persists, some of our young, predominantly in poor districts, would unfortunately continue to learn under suboptimal educational conditions.
When the state issues these bonds, it could begin to equalize spending among school districts to provide more adequate education to all of our young, which I submit is our moral obligation.
Fifth, unlike a school levy that raises taxes for additional spending, typically in a short few years, the proposed bonds would spread the costs of additional spending over more years. Assume the state issues $1 billion of 20-year bonds at 2.5 percent interest. Paying this off over 20 years would require, on average, approximately $64 million annually because, once repayment starts in the first year, the principal balance of the bonds declines each year to require progressively smaller interest payments.
Spreading taxes over time would not only reduce each year’s total tax load, it would also lighten taxpayers’ burdens, individually, relative to their higher incomes in a better-performing economy, assuming improved education resulting from both more revenues and more reforms made possible by the bonds.
Designed to fill the revenue gap resulting from no new taxes, the Invest-In-Ourselves Bonds would be another form of socially responsible investing available to such investors as pension funds and mutual funds. The state may issue these bonds to provide additional money for public schools and colleges.
I realize this proposal raises many (solvable) issues. For example, one key question is what revenue stream would support the repayment of principal with interest. We must establish a mechanism to guarantee timely repayment with dedicated allocations from the state’s revenue sources. Let’s refine the plan and make it work; more money for education can’t wait for a robust economy.
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