Tuesday, October 16, 2012


A College Tax?

It’s “Bad Idea Week” over at the Chronicle.  They’ve solicited “out of the box” ideas for changing higher education.  Some of them -- hey, what if community colleges hired faculty to teach? -- are just banal.  (What, exactly, do you think we’ve been doing?)  But others are interesting failures.

One proposal was for a dedicated tax specifically to fund higher education.  The idea is that higher ed is a public good, like highways, and so it deserves a dedicated funding stream, just like the gas tax.

(Forehead slap.)

Admittedly, there’s a surface appeal.  When legislators divert money from higher ed to, say, prisons, it’s easy to be seduced by a mechanism that would take that choice out of their hands.  

But it isn’t as simple as that.

Some states already have a variation on this, called “millages.”  A millage, as I understand it, is a property tax (expressed in “mills,” which are tens of cents per dollar of assessed value).  A community college (or its “district”) will put a millage on the ballot, and it will win or lose.  

Entire sessions at the CASE conference were devoted to tactics for winning millages.  The public perceives millages as tax increases -- which, to be fair, they are -- and often votes against them.  Entering the political process while remaining nonpolitical requires a certain finesse, and a cultural tailwind.

California has taken the concept farther.  There, they govern almost entirely by referendum, reducing the legislature to vestigial status, like an appendix.  Let’s just say that since the state went to that system, higher education has not fared well.  

The college tax manages to combine several bad ideas into one.  It isolates colleges politically, making them conspicuous targets.  It increases the year-to-year instability of funding, making intelligent planning harder.  It completely divorces funding from performance, creating a powerful incentive for colleges to divert funding from education to marketing.  Depending on the level of government that assessed the tax -- federal, state, or local -- it could fall prey to any number of political flaws.  A federal tax would shortchange the blue states and enrich the red ones, as federal taxes do.  A state tax would be vulnerable to a race to the bottom, as states try to lure businesses.  A local tax could fall prey to the race to the bottom, but even worse, would quickly reflect existing disparities of wealth; rich areas could have low rates and still be fine, while poor areas could have high rates and still suffer low quality.  A quick look at the K-12 system is proof enough of that.

But worst of all, it lays bare for the world to see our single greatest flaw: stagnant productivity.

As a labor-intensive industry with high fixed costs and a time-bound measurement of performance, higher ed’s costs will increase more quickly than most of the rest of the economy.  (See this post for details.)  There is simply no way that the revenue from the dedicated tax would increase anywhere near as quickly as costs.  Over time, we’d be caught in an inexorable pincer movement.  For a sense of how that works, look at the California system.  

I concede without argument that many of the frustrations we have with state legislatures have some basis in reality.  But this idea is so much worse.  The frying pan is no fun, but it beats the fire every time.  Let’s hope this idea fades along with Bad Idea Week.

Obligatory nit pick:
A "mill" is one dollar per thousand, based on the Latin "mille" (1000 or M in roman numerals), from which we get millimeter and mile. At least I can put some of my HS latin to work.

Agreed on dedicated taxes. There is another way such systems can fail: Someone decides to bond against that revenue stream (like for new construction) in the hope that a booming economy will bring in even more taxes, and you end up having all of the taxes going to pay debt with nothing for current expenses when it doesn't.
There's also a sign for a mill: ₥. It's one-tenth of a cent, which works out to one cent per 10 dollars.

Various parts of Canada have dedicated taxes to pay for the health system. This is at the provincial level. (There are also redistribution payments from "have" provinces to "have-not" provinces to address the issues that DD points out. This works in Canada, but would probably be more difficult in the US.)

I think there's a major difference between health and education, though, which is that everyone can imagine that the health care system is going to be there for them. Education, not as much.
My state has an oddly hybridized millage system. The property tax goes to both the local K-12 system and the county-based technical college system, but while the K-12 appropriations (and therefore the tax bite) is voted on by the general public, the technical college authority can simply announce how much it will be taking. Needless to say, this latter aspect is not without controversy, particularly in recent years when the technical college board has been simultaneously constructing campuses that mimic the state university's campuses and insisting that it has no money to pay adjunct faculty anything approaching a decent wage.
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