Wednesday, October 06, 2010


$35 Million in Perspective

Apparently at the White House Community College Summit yesterday, President Obama announced no new public money for community colleges. But the Gates Foundation announced it would contribute $35 million.

Obviously, for any one private entity to give $35 million is very generous. But it’s worth putting in perspective.

It’s less than my college’s operating budget for one year. My college is one of 1100 community colleges across the country.

Depending on the size and ambition of the buildings, it would pay for one to two new classroom buildings. If they’re renovations, you might get three.

If it were put in an interest-bearing account at today’s interest rates -- call it one percent, to keep the math easy -- it would generate $350,000 in income. Divided evenly by 1100 community colleges, that’s a little over $300 per college.

Private philanthropy is lovely, but if we think that it’s a serious substitute for sustained public funding, we’re kidding ourselves.

I don’t mean this as a criticism of Gates. They could have kept their money, or given it to some other cause. No argument there.

But as far as bold leadership gestures go, Obama whiffed completely. This isn’t even close. If you want to double the number of college grads by 2020, this doesn’t even resemble a gesture.

Meanwhile, the shape of the policy debate is over whether to extend tax cuts for dead rich people.

When I voted for “change,” I didn’t realize it meant “spare.”

I think a lot of people are realizing they were had in the last election. ;-(
The larger issue is that we probably have double the number of community colleges we really need. Higher education has wandered too far away from vocational training, with billions spent by students for no measurable economic gain.

This bubble is about to burst.

BTW, dead people don't pay taxes. But their heirs, who are not rich, do bear that burden. They are fighting the death tax so that they can keep more to meet the college bills of their progeny.
I understand your frustration but those tax cuts for "dead rich people" have also greatly contributed to the demise of living family farms whose equipment that sometimes costs six figures per piece has to be sold to pay off the estate taxes levied on top of the annual taxes paid each year. I'm surprised since your comments usually realize the arguments aren't quite as simple as the pundits make them.
I don't know the details about this Gates' Foundation money, but the previous money from them and the Lumina Foundation seem to have only gone to the larger, well known CC systems. Other, smaller schools are doing great things and taking risks, too. You can't only fund 5 of the 1100 CCs and expect change that will affect the entire country.
the fact that PhDs were so easily swindled by the election is kinda funny to me.

our agency lived on the same amount of money for 5 years straight. so as costs and salaries went up, the budget was static. and this is for the agency that keeps planes in the air, monitors the air quality, water & sea quality, and lets people know when a natural occurence is going to hit. millions of lives & safety at stake, and a flat budget (which is basically the same as losing money).

the fact that anyone seriously thinks (or thought) that the way gov't works is going to change is moronic. that's like thinking 'one day, i bet car salesmen are just going to offer me a fair price at the very beginning; no haggling required...'

i didnt vote at all. my guy didnt win his primary, and voting for the lesser of two evils is still voting for evil.

not that it would've mattered.
Note also that the estate of Bill Gates will never pay a death tax, he's set up nonprofits to manage his wealth now. Why do the uber-rich get to pick how their fortune is dispensed, while the little people have to pay theirs to the government? To make an estate tax fair, the unlimited charitable gift tax and estate tax deductions would have to be repealed.

You want to tax the rich? Take away the tax-free treatment of muni bond income. That's a multi-billion dollar giveaway every year, going only to the truly rich, that we just can't afford now.

You want to tax the rich? Stop taxing hedge fund managers at 15%! (The "carried interest" rule.) A few Democrats have raised this, but absolutely nothing is happening.

Plus, what Kelly in Kansas said.

Warren Buffett is a big fan of the estate tax. Why? Because his estate won't pay it, but it puts other businesses in distress, which he then buys at bargain prices.
I have to agree with Kelly. The "dead rich guy" tax also--and far more drastically--affects family farms and ranches that are land rich and cash poor. I know of several family ranches that have been sold to Hollywood-esque buyers and developers because the inheritance taxes broke them.
Higher education has wandered too far away from vocational training, with billions spent by students for no measurable economic gain.

But what's breaking colleges is vocational ed. Do you know how cheap a liberal arts degree is to produce? Very! Voc ed requires simulators and equipment - lab rooms and supplies. Part of this is the perception of colleges that there is "per student funding" which makes voc ed departments look like sucking black holes. Some states pay a premium for voc ed to account for this disparity but most do not. Fix that and you'll pull the colleges toward the kind of ed you think they're for. And good luck with that - because as long as hiring and tenure are based on scholarship rather than teaching skill, teaching skill and faculty with skills (Master's level nursing faculty for example) will be marginalized in favor of research which produces little product (student education is the product of colleges in most people's eyes - they couldn't give a rat's behind about research.)

I think Obama has pushed forward a pretty progressive agenda but the Republicans have not cooperated and even the Dems have been less than totally helpful. Reminds me of the first two years of the Clinton administration. It's like the old joke about how many therapists it takes to change a light bulb - only one, but the light bulb has to want to change. The American people want to live in a low tax / high service state. That's not possible - you can do high tax / high service or low tax / low service - those are the options. Good luck selling that come election day.

DD think you don't really want federal money anyway. What you want is local money so you can control better what strings come attached to the money. You also can better make the argument for the worth of your program at the local level. Band together with your other CCs and go to the state capitol with the most expensive lobbyist you can find. That’s the approach that will get you more funds.

Gates would get more bang from his buck if he ran an advertising campaign that convinced people that it's OK to pay state taxes - also on the list of things that aren't going to happen – but still a girl can dream.
I think the better question is how community colleges manage to teach students Calculus I at tuition a fifth of that at State University, despite having no endowments and far less state support per student.

A far more controversal, but effective, proposal would be to announce that all public institutions will recieve the same funding per student credit hour. Then again, it might force all the legislators who graduated from State University to reconsider those alumni centers, football stadia, and other fringe benefits that others pay for.
Dean, as a CC employee myself and a former senate staffer, I have to tell ya that the shape of the policy debate is not about extending tax cuts for dead people. You're a little off.

Though the dead people applies in some form, the debate itself is framed as extending tax cuts for everyone. Both versions aren't entirely accurate.

The tax cuts were planned by the GOP to expire at the end of the year. That's how they were designed, by Bush and his party. Obama and the Democrats in charge now don't have to do anything for them to expire. But the people framing the debate are making it sound like Obama is going to pass a bill that will raise everyone's taxes. It's a sad distraction away from what is really happening. And Democrats are lifeless at stopping it.

Extending the tax cuts for everyone will add at least an additional $5 trillion to the deficit in the next 10 years, making it all but impossible to add any new money for community colleges. There's much more to it than tax cuts for dead people. I'm sure you know this but it is worth pointing out.

I may not be a dean (yet) but my politics are spot on.
Excellent post and lots of great comments here.

The problem is that politicians up to and including Obama exploit people's confusion or outright ignorance about this country's priorities and what must be done to achieve them. We really are seeing just how much the 2008 election was a triumph of style over substance.

You can't have a country that invades, er, intervenes, in other countries and decrease taxes. You also, as Ivory points out, have a country that offers a lot of services, as the Europeans have, without paying European-level taxes. (The Europeans are finding out that even the level of taxes they're paying isn't enough to support the system to which they've grown accustomed.) And you can't have a welfare state with a liberal immigration policy.

Unless people understand those things and vote accordingly, all of the debates about higher-education- funding--and any other debate-- will be, for lack of a better word, academic. If/when the system breaks, we're not going to have very many community colleges, or much of an education system at any level, left.
@Kelly - I call shenanigans. The estate tax only applies to estates worth over $3.5 million, and there's an additional $1M exemptions for estates operated as family farms. Obviously, you can have a family farm worth $6M, and some inheritance taxes would need to be paid on the amount that exceeds the $4.5M exclusion. But I don't see that as a problem, and I don't think that most people who think about family farms are actually thinking about a multi-million dollar agribusiness enterprise.

@Edmund - Repealing the municipal bond exemption might be the right thing to do, although you have to be prepared for the fact that it will cost cities billions of dollars which they are, at the moment, ill-prepared to bear. The municipal bond exemption is, basically, a subsidy from the federal government to municipalities. The exemption allows cities to offer bonds at below market rates; people buy them because the below market rate is made up by the tax exemption, meaning that the overall return for the investor is at or above the market rate. The difference between muni bond rates and market rates is made up by forgone federal tax revenues - this is the subsidy.

If the tax exemption were removed, bond buyers would no longer accept the below-market rates currently offered by cities on their bonds, and the cities would have to increase the amount they pay for bonds to market rates. Although this loss could, in theory, be made up by a direct federal subsidy to the city in the amount of the increased interest, I have no confidence that this would happen at all. As cities get little enough love from the federal government, I think be are better off keeping the exemption.

(Note that adopting a flat tax (which is a horrible idea) would also cause the exemption to apply equally to all taxed individuals - the greater tax benefit enjoyed by wealthier individuals is solely an artifact of having progressive taxation in the first place.

Re: Bill Gates - Bill's heirs will have to pay taxes on his estate like anyone else. Setting up a non-profit isn't any more a way of avoiding inheritance tax than taking a vacation to France is: the money is exempt from inheritance taxes because it's not going to Bill's heirs. It's not a tax dodge - if you give away all of your money before you die, you won't owe inheritance tax, either. (Really, you just have to give away all money above the $3.5M limit; you can leave the rest tax free.)

On the general topic - yeah, 35M is a tiny amount to give to community colleges generally.
A recent article in the American Educator talks about the one size (BA/BS) fits all approach to college and how it does not do justice to a vast number of students. The article talks about a number of factors for this.

From my perspective as a math professor, one of the main culprits is developmental math and its rigid syllabus. Students starting in developmental math must clear a sequence of courses before earning any college credit. And the math courses in that sequence lead to precalculus and calculus , which most non-STEM majors do not need. Many drop out - with nothing in hand. No transfer. No credits. Just debt if they took out loans.

The Bill Gates foundation, along with the Carnegie foundation has funded Mathway and Statway which provide alternate routes to mathematical literacy - one that is not the standard dev. math sequence. And perhaps CC's can encourage more students to pursue AA's in skilled trades rather than enrolling them in remedial courses and expecting that they can actually transfer to a four year program.

CC's need funding to accomplish this. And $35 million is not going to do it.
I don't know, I keep hoping Obama is smarter than he acts. I mean he's offered his alternative plan to the Bush tax cuts expiring, something that would add a ton of money to the deficit. But he hasn't pushed it very hard. So he can look like he's trying to keep taxes low, and when the republicans prevent anything from happening, the Bush tax cuts will expire automatically and we'll all not have to deal with the huge deficit issue.

So maybe that's the case with this. Yes he supports education and community colleges, but what's the benefit of giving a lot more money to CC's when the people graduating won't have any jobs? Maybe he recognizes even though in theory we'd like a higher educated workforce, it isn't necessarily a big economic benefit right now. Too many people get "liberal arts" degrees and can't get jobs, and even many of the vocational programs are having a lot of trouble placing people. So why would he want to inflate the education bubble even further?
Edmund writes "BTW, dead people don't pay taxes. But their heirs, who are not rich, do bear that burden."

If the tax is not paid by dead people, it is not a death tax. If it is paid by the estate (which it is), it is an estate tax. Further, if the heirs are standing to inherit a multi-million dollar estate -- the proposals do not tax estates of less than a million -- they are, by my definition, soon-to-be rich who should be smart enough to discuss with their parents ways of structuring that estate to minimize any inheritance tax.

The horror stories usually result because Mom and Dad don't trust the kids enough to transfer the farm or business operations to them before they die. They may also be choosing to run a huge business as a pseudo-small "S Corp" business to minimize taxes, thus limiting the possibilities for transferring stock as gifts on a regular basis.

The farm example doesn't fly with me because I know that one living family on a living family farm that exceeds a square mile of land transferred it all to the living children.
I'm sure our CC would be happy to take our share (about $30,000) from the Gates Foundation and use it to endow a minor scholarship in his name. Maybe one that would give an Apple laptop to a deserving student each year for a few years.

I think it is pretty funny that Dean Dad talks like he was swindled, or that others think he was taken. The reason President Obama can't propose new funds for CCs is that he knows that it would be blocked by the Republicans in Congress.

You can't blame the man for being a realist. You can only blame him for not placing blame where it belongs, each and every day. The reason there is uncertainty in the business world is that no one knows if the Republicans will ever abandon obstruction and Herbert Hoover's policies in favor of ones that will produce recovery. Since the Republicans fight any additional stimulus, business' only hope is that the Fed will move to negative interest rates.

I wasn't taken. I knew the choice was between a minor depression and a Great Depression, and chose the former. Voters today appear to be leaning towards the latter.
CCPhysicist: and Obama seems content to let it happen. That's the part I wasn't expecting.
@Punditus: I'm likely quite a bit older and thus less naive about the odds that any Democrat will speak bluntly about how Republicans have been actively trying to destroy America for political gain.

@ Ivory: "because as long as hiring and tenure are based on scholarship rather than teaching skill ...." Certainly at a 4-year college, but not relevant at a CC as far as I know.

Our CC does not even look at scholarship when hiring, and it plays ZERO role in tenure decisions. We literally throw away the parts of a CV that contain publications. That does not even appear in our scoring rubric when reviewing candidates, even if the research pertains to teaching.
Change - comes from within, not through government or otherwise handouts. I am starting to get really pissed off about how so many organizations have some belief that they must get something more for doing their jobs ineffectively. Some of the best systems of education in the world (Scandinavian) have been leading with respect to outcomes and attainment levels with far less money....I also know that a lot of people will whine and say that this is because they are socialized to some extent or another.....what would you rather have....well utilized tax dollars or a continuous system of handouts? Bill and Melinda Gates, Warren Buffet, and a host of others have agreed in theory to give their money away, others make generous planned giving donations, and some invest in personal educational attainment....the point I am really trying to make here is Thanks to those who CHOOSE to give, but no thanks and don't let the door hit you in the ass on the way out for all your gross mismanagement and ineffective systems of tenure for ineffective teaching etc....
@Chris--yes, the expiration of the tax cuts was deliberate, but it was not the first choice. It was done to get around the Byrd rule and the fact that not enough Democrats would get on board to reach 60 Senate votes for cloture. Please don't make it sound like they wanted to plant this land mine, it was an unfortunate side effect.

also, please note that 80% of the "cost" of renewing the tax cuts would go to those defined as "not rich" by Obama. in terms of the percentage of income tax reduction (as opposed to dollar value), those folks actually had the greater benefit from those cuts. that's why we now see articles that the middle class will be hit hardest if all the tax cuts expire.

@PeterW--I totally agree that eliminating the muni bond tax preference would discourage muni borrowing because of higher costs. That is a feature, not a bug. States and municipalities have long been abusing their borrowing privileges, and it has put them into an unsustainable situation.

So, I guess we can all agree that the "carried interest" rule for hedge fund managers has to go? Please tell Democrat Chuck Schumer your feelings, he's the one who has been protecting their perks.

BTW, the Republicans lost control of Congress in 2006. Anyone remember the unemployment rate back then? Anyone?

4.4%. Perhaps that was one positive effect of the Bush tax cuts.
@Edmund Dantes: you already lied about how the Estate Tax works. Nobody is going to listen to you about anything else. Please enjoy the economy your side has worked so hard to create.

I like conservatives better when they don't hide their hatred for Americans and prosperity.
@Punditis--lied? How? Is it that you don't think the estate tax falls on the heirs? Or something else? Please be specific.

BTW, it's the left and the environmentalists who advocate against growth and prosperity, not the right.

From the Congressional Research Service, last April 23: When the estate tax goes back into effect next year, with a $1 million exemption, total estate tax collections will represent only 1.3% of all federal revenue. (It's never been above 2%.) Nevertheless, 3,030 estates of small businesses owners and 1,659 family farms will have to pay it, says CRS.

Maybe they are also liars?

More than 90% of the impact goes away if the exemption is lifted to $5 million, yet collections don't go down in proportion. Because most of the estate tax dollars, such as they are, come from estates of $20 million and up.

I belabor this only because the estate tax is so widely mischaracterized and misunderstood. And to support Kelly in Kansas, above.
"I understand your frustration but those tax cuts for 'dead rich people' have also greatly contributed to the demise of living family farms whose equipment that sometimes costs six figures per piece has to be sold to pay off the estate taxes levied on top of the annual taxes paid each year."

There are literally zero examples of heirs selling family farm equipment or land to pay estate taxes when they wanted to keep the farm going. Seriously, in a country of 300 million people, it has never happened. We know this, because the Chamber of Commerce looked for family farms which were so impacted, and they didn't find any. Not even one!

"They are fighting the death tax so that they can keep more to meet the college bills of their progeny."

The Estate Tax exempts the first $1 million in inherited wealth. No college on the planet has a yearly tuition greater than $250,000/year, or $200,000/year if your kid takes five years. In addition, the wealth after that is taxed at 45%. Finally, it is incredibly stupid to pretend that the opposition to the Estate Tax is funded by persons who are not extremely wealthy, in the tens or hundreds of millions of dollars of assets. Their children's education is determined by their kids' choices, not by anything resembling penury.

"Why do the uber-rich get to pick how their fortune is dispensed, while the little people have to pay theirs to the government?"

The median American household has approximately $80,000 in wealth, less than 10% of what would be affected by the Estate Tax. The "little people" are entirely exempt.

Edmund Dantes, you are a liar. That's what you are, and I am grateful that you announced it so loudly the moment you entered the conversation, so that no one labored under the misapprehension that you do not routinely lie.
Ah, I see that attributed one of Kelly in Kansas's falsehoods to you, Edmund. Well, sorry about that. You'll have to settle for the other lies as your personal record.
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