Position Paper on Education Finance and Reform
For Utah Foundation Forum on September 7, 2006

Submitted by Dr. Richard E. Kendell, Commissioner of Higher Education

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Paradox Lost is a provocative article that should be the basis for needed discussion and debate about state priorities and the future role and development of public and higher education in Utah. Indeed, the state has many priorities and challenges as witnessed by the increasing attention and funding of health programs, human services, corrections, and transportation over the last several years. Included in this discussion is the question of whether our current tax structure is adequate to meet Utah’s future needs for public and higher education and for the other purposes as noted.

The report refers to the November 1996 constitutional amendment that allowed income tax revenues to be appropriated for higher education as well as for the K-12 public education system. As noted by the Foundation report, the use of income taxes for higher education had no particular benefit for higher education. According to the Governor’s Office of Planning and Budget, the Utah System of Higher Education received an average of 17.6 percent of state general and uniform school funds prior to the constitutional change, and has received an average of 15.1 percent of those same funds during the ten years since the change. Likewise, it can be argued that the change in policy did not reduce funding for public education beyond legislative intent. To say otherwise misses a very important point, namely, that funding has been, and will be, set where the Legislature wants to set it. The 1996 amendment produced no particular loss or windfall for either public or higher education outside of legislative intent.

The motive for the change in funding policy was not to enhance revenue nor to increase spending, but rather to give the Legislature greater flexibility to allocate revenue across multiple state functions and programs. Consequently, the efforts to return to the “earmarks” of an earlier time are likely ill-fated, principally because the underlying assumption is to limit legislative discretion in appropriations. Even if future revenue is dedicated to a specific purpose, the Legislature would still have the option, and perhaps the desire, to reduce such “earmarked” taxes.  The Foundation report provides ample evidence of this practice. In the face of rising property values and the potential windfall of new revenue, legislation was enacted to reduce the basic property tax levy. Some or all of these potential new revenues could have been spent on public education. Likewise, increases in income tax revenue have resulted in income tax reductions in 1996 and 1997. Further income tax cuts are being discussed, either for a special session this fall or for the regular session in 2007.

Therefore, the issue is not to find a funding device that binds the Legislature to a particular set of purposes, such as earmarks and fixed ratios applied to the uniform school fund, but rather to advance the idea that public and higher education will play a strategic role in the state’s future and that such a role constitutes a compelling reason for additional state expenditures. Gaining greater support from the Legislature for important educational purposes should be our principal objective.

What then are some of the compelling points for investing additional resources in public and higher education? Several follow; however, the list could be expanded.

There is an enormous amount of information indicating that our economy is changing and that our workforce requirements must change as well. A case study of the Caterpillar Corporation’s transformation into the new global economy is illustrative (New York Times, February 26, 2006). The CEO of Caterpillar noted that the company had to choose between being globally competitive or maintaining their former position of introducing thousands of workers (typically high school graduates) into the middle class. Maintaining their former position carried the risk of losing their position in the marketplace altogether. Caterpillar chose the path of being globally competitive. Gone are the high wages and benefits of a former time.  New starting wages for assembly line workers begin at $13 per hour. Benefits have been reduced proportionately. This case study is one example only. Nevertheless, the outlook for the future is that higher salaries and wages will require better preparation and more education. The U.S. Department of Labor has reported recently that 70 percent of the 30 fastest-growing jobs will require education beyond high school. The Educational Testing Service research reaches a similar conclusion, noting that 68 percent of new jobs will require some level of postsecondary education—nearly a third will require a bachelor’s degree. The connection between education level and economic well being is clear. Education will be the principal resource for advancing self-sustaining individuals, families, states, and the nation.

Nevertheless, there seems to be a dangerous disconnect between the reality of a different economy and a changing workplace and certain measures of educational achievement. These measures need further attention. For example:

• At the national level, the high school drop-out rate is approaching one-third (depending on the source of the research). According to international comparisons, the United States ranks seventh in high school completion rates. How can our nation remain competitive in the new economy when this many young people leave school without adequate preparation for work or for life?
   
• In Utah the drop-out rate is much better. Even so, it is between 20 percent and 24 percent (depending on the year and method of measurement). This means that every year several thousand students enter the marketplace with no diploma and few, if any, job skills.
   
• The drop-out rate for minority students exceeds that of white students by a large margin. The achievement gap for white and minority students in Utah is among the largest in the nation, according to the National Center for Public Policy in Higher Education. Only 56 percent of Hispanics over the age of twenty-five have a high school diploma. At the same time, the minority population in Utah is growing rapidly, a trend that is likely to continue into the future. Three school districts in Utah are now minority-majorities with more minority students than white students—Salt Lake City, San Juan County, and Ogden City School Districts.
   
• Too many Utah high school students are not preparing themselves for the demands of the workplace or college. The American College Testing (ACT) organization reports that ACT scores in Utah exceed the national average, and the percentage of test takers meeting benchmark scores for college and workplace readiness exceeds national averages, yet the numbers are still relatively low. Twenty-nine percent meet the benchmark score in Biology, 42 percent in Algebra, and 72 percent in English. Only 24 percent meet the benchmark scores in all areas.
   
• Participation rates in higher education are less than ten years ago. In 1994 approximately 41 percent of all 18- to 24-year-olds were enrolled in college. In 2004 only 36 percent were similarly enrolled.
   
• In terms of educational achievement, the older generation of Utah citizens (45-64 years) has a much higher level of educational achievement than the younger generation (24-35 years). More than 30 percent of the older students hold bachelor’s degrees while only 25.4 percent of the younger generation do so. County-by-county comparisons indicate that this slide in educational achievement is occurring even in areas that are expected to be centers of future economic activity. But can such expectations of continued growth and prosperity be realized if there is not consistent improvement in the education and training of those who will drive this growth?
   
• In a recent study by the Organization of Economic Cooperation and Development, thirty (30) nations were compared regarding educational achievement across younger (24-35 years) and older (45-54 years) populations. The measure was the percentage of those citizens who had earned an associate’s degree or more as their level of formal training.  Only two countries showed a reversal of increasing education achievement for younger populations.  In both Germany and the United States, older citizens had higher levels of educational achievement than younger ones.

Some states are taking these warning signs very seriously and embarking on new reforms and making investments to make their respective states more competitive for the demands of a different economy and a changing workplace. Indiana, Kentucky, Texas and several others are moving boldly with rather striking results.

The Washington Post noted in a August 14, 2006 editorial (“Security Through Education”) that a national security crisis is brewing in the United States. It is an educational crisis that requires immediate attention. This warning has been made many times before, but the progress to date has not been sufficient.  Much more needs to be done. Quoting from the Washington Post article:

“The prescription for what ails education in this country enjoys widespread consensus: Improve the performance of our primary and secondary school students and provide access to affordable, high-quality higher education to more people. But how the country goes about filling this prescription is a matter of significant debate.”

In Utah some changes need little new funding but others require a greater investment.  For example, helping young children to be fully literate in English and mathematics during their elementary years would be enormously beneficial and would improve high school attendance and retention rates. This will require smaller class sizes, more individual attention, more trained teachers, and the use of improved strategies—a fairly significant price tag. In higher education, many students are being priced out of participation because they cannot afford the cost of tuition, books, and related expenses. Utah has one of the lowest rates of need-based financial aid in the country. Improvements have been proposed many times, but such requests have not been a priority for the Legislature for many years. There is an investment to be made here. On the other hand, providing better assessment measures to align public and higher education requirements could be done for a nominal amount with benefits to both systems.

And so, the Utah Foundation provides a forum for the debate. The requirement for a stronger, more effective educational system is clear. The question about appropriate means is open for debate, but the issue of better performance, higher standards, and greater attention to those who require it is not one that can be put off or ignored. And just as there is no easy device or gimmick to bind the hands of the Legislature to provide more educational funding, there is no gimmick or “silver bullet” that will solve Utah’s most pressing educational needs. Being last in the nation in funding public education is no honor, and it is no strategy, either, for ensuring the future of Utah’s citizens.