Center Maryland: Some education funding venting misses the point

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Editor’s note: The following commentary appeared on CenterMaryland.org on February 20, 2015.

By Donald C. Fry

Baltimore City’s public schools are facing double-barreled deficit challenges that are raising a number of key issues related to education funding in the city.

But the issue of tax incentives for commercial development isn’t one of them, even though it has generated vociferous critical commentary amid media coverage of education funding deficits and proposed reductions.

Venting anger over fiscal challenges facing the city’s 85,000-student school system is understandable. No one wants underfunded public schools in a city that is a major driver of the state’s economy, has seen recent advances in its academic achievement, and is attracting new residents – particularly millennials – to its population base. But targeting as scapegoats the development projects that are framing the current private-sector renaissance in the city misses the point.

Here’s the gist of the city’s current school funding dilemma.

City schools CEO Gregory Thornton revealed this week that the system currently faces an operating deficit of more than $60 million in the next fiscal year’s budget.

Meanwhile Governor Larry Hogan’s proposed budget before the Maryland General Assembly would cut state education funding to Baltimore City public schools by $35 million in FY 2016. The confluence of these two developments means that city schools could potentially face a combined deficit of almost $100 million in the fiscal year that begins July 1.

The city school system is not sharing the reasons for its projected $60 million shortfall, but the Baltimore Sun cited increasing costs resulting from a teachers’ contract approved in 2010 as a significant factor.

Meanwhile, the $35 million reduction in state aid to city schools is attributed to three basic factors, all relating to the state’s education funding formula and decisions made by Governor Hogan in the submission of his budget to the General Assembly:

  • The freezing of the “per pupil” funding by the Governor in the education budget, combined with a “relatively flat” enrollment growth, resulted in the city losing $10.2 million in state aid.
  • The governor’s proposed budget reduces the “optional” Geographic Cost of Education Index funding to one-half of the potential allowable funding, which cost the city $11.6 million.
  • For the first time since the state formula was created, the city’s wealth – based on updated property tax assessments – increased at a rate that was higher than the state average, which resulted in a state aid reduction of $13 million.

The city’s “wealth” increased, for purposes of the state formula, when the most recent section of the city that was reassessed caused the city’s property tax base to increase by 7 percent in 2014, compared to the statewide average increase of 4.7 percent. Ironically, next year’s projected city assessment increases will again be less than the statewide average, which should revert to a positive effect on state education aid for the city, according to city officials.

Nevertheless, education advocates, city and state officials, commentary writers and at least one member of Governor Hogan’s transition team are calling for the state to base the “wealth” formula for education aid less on the city’s property assessments and more on family incomes in the city.

This approach makes sense. But what doesn’t make sense, from the standpoint of strengthening the city’s economic health, is criticism of the city leaders for using tax incentives to facilitate development opportunities which grow the property tax base of the city as well as increase other taxes such as personal income tax and personal property tax.

There’s an untenable irony in arguing that, in effect, Baltimore’s education funding future rests on the city remaining statistically poorer than the rest of the state.

The truth is that tax incentives enable projects to happen and to generate employment and related economic development, which is the lifeblood of any thriving city.

Developers will tell you that tax credits, PILOTs and TIFs are often necessary to make projects work financially. They mitigate high tax costs and costs of demolition, environmental remediation and infrastructure upgrades required of projects in an older city and less common in suburban and rural areas. Tax credits, PILOTs and TIFs are carefully scrutinized, and should be, by city officials before approval. The fact is that in many cases the projects would not move forward “but for” the approval of a tax credit, PILOT or TIF.

The current media-frenzy of piling on developers who take risks and invest in Baltimore City notwithstanding, it’s worth considering one key fact of economic growth: developers don’t have to engage in the city and for many years chose other jurisdictions in which to invest. They go where there is opportunity.  For its own economic health, Baltimore City must remain competitive as a city of opportunity.

Economic development is an essential and good thing for the city, not a drag on it.

As for education funding, developers are not the cause of the city’s education funding challenges. Economic growth from development projects will ultimately pull the city – its residents and its government – beyond fiscal challenges.

For now, the city’s elected leaders, the governor and state lawmakers should adjust formulas, identify efficiencies and take other necessary steps to ensure that students in city public schools are provided a quality education.

For the long term, state and city elected leaders must nurture Baltimore’s competitiveness as a place to develop, generate a vibrant economy and strengthen the quality of life, with the ultimate goal of growing its population and tax base and reducing its reliance on state aid.

Economic development and growth is not the cause of the city’s fiscal challenges. It’s part of the solution.

Donald C. Fry, president & CEO of the Greater Baltimore Committee, writes a weekly commentary for Center Maryland. His e-mail address is donaldf@gbc.org. 

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