Sneak Peek: Education Funding in the Commonwealth of Virginia

School funding per pupil is down 16 percent compared to 2009, after adjusting for inflation.

The state now covers just 41 percent of the cost for teacher salaries, building maintenance, and other school operations.

The average Virginia locality puts in 82 percent more money toward the core education costs included in the state’s standards of quality formula than is required by that funding formula.

How can all this be, when that formula is used by the state each year to calculate its share of school funding costs? Because state legislators have made a series of tweaks to reduce required state spending on K-12 education, while also reducing funding for key needs like school construction, leaving Virginia’s localities to make up the difference.

The state of education in the commonwealth is something that matters to all Virginians. The better our schools and the more our children learn, the better our economy will be in the long run.

This updated infographic (pdf) has a few key figures about K-12 education in Virginia, including school funding issues and a brief look at the needs and performance of Virginia students.

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Over the next several months, we will be releasing a series of similar school division-specific infographics to provide a look at how Virginia’s schools and students are faring on a local basis.

Meanwhile, Virginians who care about the quality of their local schools should be asking their state legislators, local elected officials and school boards some tough questions about how we can all bring to the table the resources that Virginia’s kids need.

—Laura Goren, Policy Analyst

Opportunity’s Broken Ladder

To climb the ladder of success in the working world, you need enough rungs to get you from the bottom to the top. Yet if we look at where job growth in Virginia has been strongest, it’s at the upper and lower ends of the wage scale, while the jobs in the middle have gone missing.

That makes it harder for people to climb out of low-wage jobs, since the next rungs on the ladder are missing.

Middle-wage occupations — those that have median wages between $14.51 and $24.09 per hour — lost over 87,000 jobs between 2007 and 2010. But they have regained just over 18,000 jobs between 2010 and 2013. The lowest-paying occupations also suffered significant job loss during the recession, and while they’ve recovered a larger share of these jobs, they’re still below pre-recession levels, too. Only Virginia’s highest-wage occupations, which grew in employment even during the recession, have seen net growth in jobs since 2007.

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Collapsing job opportunities in the middle create major challenges for Virginia’s middle class families. Jobs in high-wage occupations may not be easily accessible to workers displaced from the middle, since they may not have the skills or education required for those jobs. Instead, these workers may be forced into lower-paying jobs. And without opportunities to get a foothold in the middle, workers at the bottom can’t very well work their way to the top.

Creating more and better middle wage jobs is essential to building a stronger economy where Virginia’s businesses, communities, and families can thrive, and the ladder to success offers hard-working people a real chance at climbing up.

—Laura Goren, Policy Analyst

Of Pensions and 401(k)s

Before policymakers rush to reduce pensions for new employees or shift retirement plans from pensions to 401(k)-type accounts, they should take a crash course in “pensionomics.”

Replacing steady retirement income (a pension) with income susceptible to market downturns (a 401(k)) may create significant economic consequences, according to a report issued by the National Institute on Retirement Security.

That’s because traditional pensions have fewer costs than 401(k)-type plans and because spending by retirees with traditional pensions provides a steady, economically efficient boost to the economy even during economic downturns because the dollar amount of the benefit stays the same. In contrast, balances in 401(k)-type accounts can fluctuate with market conditions and may cause retiree spending to dip during economic downturns when the steadying impact of retiree spending may be most needed.

And pensions are an important part of supporting Virginia’s economy. Each dollar a pension retiree spends supports $1.18 in economic activity. Pension spending by state and local government retirees generates 40,838 Virginia jobs, which pay a total of $2 billion in wages and salaries. This doesn’t even include the large number of federal government and private pension benefits received by Virginia retirees.  

What’s more, state and local pension payments made to Virginia residents produced $927 million in tax revenue. This tax revenue is invested in our schools, roads, and communities.

Traditional pensions are also a highly cost-effective retirement solution because the retirement fund receives regular contributions over the course of a person’s career, providing many years of investment earnings. Finance 101 says that accumulation of investment earnings over a span of decades can be substantial. That means investment earnings make up the bulk of pension fund payments, not tax dollars. And for the small amount taxpayers do invest, there’s a big economic return. For every $1 invested over 30 years, they receive $3.30 in economic output.  

So why the interest by some policymakers in scaling back or ending traditional pensions for public employees? Because 401(k)-type plans shift the risk of underfunding the plan or lower-than-expected investment returns off of states and localities and onto their employees. But they do so at a high cost. Researchers have found pensions can deliver the same amount of retirement benefits at about half the cost of a 401(k) plan.

The Great Recession showed just how vulnerable our communities are to economic downturns. Now imagine if the thousands of state and local government retirees – teachers, police officers, and firefighters – also had their income subject to Wall Street’s nosedive. Surely the impact to Virginia’s economy would have been even worse. Let’s preserve the pension system that for decades has been providing stability to our retired workers and communities.

—Emily Uselton, Research Intern

Common-Sense Policy Takes a Holiday

At first glance, “sales tax holidays” seem like a great idea: consumers get to save money, and more shopping activity boosts the economy. It turns out, though, that sales tax holidays don’t actually do much of what supporters claim. And there are better ways to help the people who need it the most.

While the back-to-school sales tax holiday that starts today in Virginia is billed as a way to save consumers money, much of the benefit goes to businesses instead. A study of retailers during a sales tax holiday in Florida showed that 20 percent of the benefit that shoppers expected to get actually went to retailers, because retailers did not need to provide their own discounts to draw in shoppers.

For big retailers, this can mean big bucks, but for ordinary Virginians the savings are quite small. For example, by not being charged the sales tax, someone that spends $100 on eligible goods only saves five or six dollars.

And what benefits there are for consumers are spread very unequally. For example, a millionaire saves money that he or she could easily have afforded to pay. Meanwhile, low-income families that often live paycheck-to-paycheck can’t afford to increase the amount they buy during a “holiday.”  Families making under  $30,000 a year are unlikely to shift the timing of their purchases to coincide with the sales tax holiday so they save very little, a recent study found.  

That brings up another issue. The sales tax holiday isn’t effective in spurring economic growth because a lot of the increase in sales that occurs is simply people shifting when they make a purchase rather than buying more.

But this questionable tool for boosting the economy and saving hard-pressed families money does have one clear impact: It costs Virginia $6.4 million in lost revenue. 

There is a better way to help Virginians who need it most: strengthen the state’s earned income credit (EIC).

The EIC is a tax credit that low-paid, working families can use to reduce their state income tax, with the amount depending on their earnings and the size of their family. Today families only get the credit if they owe state income tax. Reforming the system by making the credit refundable would mean they could get the EIC even if their income is so low they owe no income tax.

The EIC helps families pay for necessities, and because they are very likely to spend the money close to home it’s a boost for their community’s economy too. And that helps businesses grow and prosper. Unlike the sales tax holiday, earned income tax credits have been shown to actually increase economic activity, not just shift it around on the calendar. 

Virginia should pursue policies that spur economic growth and do so responsibly, not just the ones that look good in advertisements. 

—Asasi Francois, Research Intern

Talk is Cheap, Tax Preferences Aren’t

Spending cuts are the go-to when it comes to closing a budget shortfall in Virginia. But there is another pathway: reforming or eliminating tax breaks that drain money from the budget but aren’t doing what they were set up to do.

The Joint Subcommittee to Evaluate Tax Preferences met last week to talk about just that and to get a handle on which of the state’s multitude of tax credits, deductions, exemptions, and preferential rates are actually achieving their intended goals. And which aren’t.

At the meeting, lawmakers gave sales tax exemptions significant attention, and for good reason. They account for over 45 percent of foregone revenue — about $1.3 billion — and include food, nonprofit organizations and prescription and non-prescription drugs.

But other tax preferences are also worthy of review, like the Virginia Coal Employment and Production Incentive tax credit. This credit was designed to encourage coal production and use, and indirectly create new jobs in the coal industry. During fiscal year 2013 it cost the state nearly $60 million, or 19 percent of total tax credits. Add in the Coalfield Employment Enhancement tax credit ($21.8 million) and 26 percent of tax credit costs rest with just two policy initiatives.

The General Assembly’s own auditing arm pointed out that these credits aren’t achieving their intended goals in a 2011 report.

What’s more, less than half a percent of jobs in the state had a connection to coal mining in 2013, and job growth in the industry has been a paltry 0.24 percent from 2007-2013. Even more surprising, less than 50 tax filers claimed these two credits in 2013.

By comparison, Virginia’s low-income tax credit benefits over 343,000 hard-working Virginians — roughly 6,000-times more Virginians than the coal credits — and costs just over twice as much.

Discussing these facts is a good start. But talk alone is not enough, as the credits keep racking up.

Since fiscal year 2008, lawmakers have passed 10 new tax credits potentially costing over $14 million, according to official estimates from the state Department of Taxation. Those new credits — and their cost — sit on top of at least $12.5 billion in money lost to existing tax credits identified by state auditors in their 2011 report that launched the joint subcommittee’s work.

The point here isn’t to just take aim at the expenditures that cost the most. Tax preferences can be a useful tool to advance state economic goals and social well-being. But as legislators slash funding for education, healthcare, and transportation, it begs the question: How can we get the most bang for the buck?

—Emily Uselton, Research Intern

Other States Benefit From Closing the Coverage Gap – But not Virginia

It’s becoming clearer every day that there is a stark and growing contrast between states that have closed their coverage gaps and those – like Virginia – that stubbornly hold out against accepting federal funds to cover their low-income residents.

In other states the number of people with health insurance is going way up. And the costs to hospitals of taking care of people who don’t have insurance are going down. But not in Virginia.

States that have closed their coverage gaps have seen nearly a 38 percent reduction in their nonelderly uninsured population in less than a year, according to a recent Urban Institute study. Compare that with the paltry 9 percent drop in states that continue to refuse the federal funding – like Virginia.

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And people using their new health coverage to help pay for medical treatment are helping hospitals avoid bad debt. States that have said yes to expanding coverage saw drastic declines in charity care and people paying out of pocket, while intransigent states – like Virginia – saw no improvement, according to a hospital industry analysis. For example, Arizona hospitals have seen a 30 percent reduction in their uncompensated care, which translates to $76 million saved in just the first four months of this year.

That’s the sort of help that many hospitals – especially in rural areas – could use. Without closing the coverage gap, hospitals across Virginia will lose out on hundreds of millions of dollars to care for uninsured people. And without that money, many hospitals will be forced to make tough decisions about cutting staff, closing off units, or shuttering entire facilities, as happened in Lee County.

Today Mayor Adam O’Neal from Belhaven, NC is walking through Richmond on his way to Washington, D.C to highlight the plight of his town. Like in Lee County, the hospital in Belhaven closed and terminated about 100 jobs, largely because his state legislature has also refused to close the coverage gap.

There is no more if and when.

Right now, too many Virginians struggling to get by in a still-tough economy can’t afford the quality health care they need. And many hospitals, which often are the largest employers around, face significant challenges from bearing the costs when people without insurance show up at the emergency room. It is time to close the coverage gap, so people can get help paying for the care they need and hospitals can avoid painful layoffs that will only compound the problem.

—Massey Whorley, Senior Policy Analyst

Closing the Coverage Gap Can Help Reduce Depression

There is growing evidence that closing the health insurance coverage gap could help thousands of Virginians who desperately need mental health care. The General Assembly has responded to the tragic events that befell one of their own — Sen. Creigh Deeds and his son who struggled with mental health issues — by taking small steps to address mental health crises. But now it’s time for the Commonwealth to take a more proactive approach to tackling the mental health challenges that affect so many Virginians.   

A recent report from the White House Council of Economic Advisers estimates that closing the coverage gap could reduce the number of Virginians experiencing depression by 17,000.  This estimate comes from applying data from an important study on Oregon’s expansion of health coverage to Virginia. The Oregon study found that people who gained health coverage through Medicaid were 31 percent less likely to show signs of depression than those who were unable to gain coverage.

About 553,000 Virginians experience depression every year, and people with low incomes are more likely to have symptoms of depression than those with higher incomes. Adults 45-64 years old whose income is below 100 percent Federal Poverty Level ($11,670 a year), have the highest rate of depression and would stand to gain access to the doctors and medication they need if Virginia closes the coverage gap.

The consequences of letting a mental illness go untreated can be devastating. Depression alone is known to increase morbidity, mortality, and reduce productivity. It’s thought to be responsible for up to 70 percent of psychiatric hospitalizations and around 40 percent of suicides. Depression can keep individuals with other chronic illnesses from seeking the treatment they need, reducing their quality of life, making the condition worse and potentially more expensive to treat. Individuals experiencing depression are as much as three times as likely to die from heart disease.

The most important thing for treating mental illnesses is receiving an accurate diagnosis. Unfortunately, many people go undiagnosed because they do not have health insurance and cannot afford to go to the doctor.  Closing the coverage gap would allow thousands of Virginians to gain access to the treatment and services they desperately need.

 —Asasi Francois, Research Intern

Down a hole, and still digging

Virginia’s level of investment in our schools, communities, and future will hit a new post-recession low next year.

How can that be, when the state’s total general fund spending — the pot of money that legislators have the most discretion in spending — is higher than in past years?

Because that’s not the whole story.

Virginia’s population grows every year, and with that growth comes a need for higher levels of investment in things like K-12 education, since we now have more students in our public schools than ever before. Plus, the costs of buying goods and services goes up every year for the state due to inflation, just like it does for you and me.

After adjusting for factors like growing school enrollment, the additional need for Medicaid due to the weak economy and loss of jobs and benefits, and inflation, the real level of investment for the fiscal year 2015 — which started July 1 — is $5.4 billion below 2007 levels. And it will be even worse next fiscal year at $6.1 billion below 2007 levels, a new post-recession low point.

These reductions in state investments may lead to larger class sizes, fewer educational services, and increased pressure on hospitals as they respond to these cuts.

Education has been particularly hard-hit. State funding for K-12 schools is down by about $1.5 billion per year compared to before the recession. Other state education spending — almost all of which goes to higher education — is down by $1.4 billion this year and $1.6 billion next year.

How did this happen?

When employment and consumer spending decreased during the recession it caused a deep dip in state revenue. Virginia legislators chose to close almost all of the resulting revenue gap with budget cuts, rather than raising significant new revenue. Now, with revenue again expected to be lower than both prior projections and the amount of money needed to maintain the current level of services to Virginia’s growing population, legislators are again closing almost all of the resulting gap with cuts rather than new revenue.

It doesn’t have to be this way. When the General Assembly returns in January to revise the current budget, they need to think about taking a more balanced approach – one that includes new revenues — as opposed to. this cuts only approach that threatens our economic health and prosperity.

—Laura Goren, Policy Analyst

The Budget Gimmick That Would Not Die

A budget gimmick lawmakers introduced four years ago to help balance the budget — and that was on its way out — has come back to life.

Four years ago, lawmakers used some voodoo economics to close looming budget shortfalls, creating 13 months of revenue in a 12-month year. They did this by changing the schedule for some retailers to remit sales taxes that customers pay at the register. It’s called the Accelerated Sales Tax, or AST.

Before the change, all retailers sent the tax revenue to the state once a month, after it was collected. AST required retailers with annual sales of over $1 million to estimate their future sales for one month and send that payment in a month early. Under this scheme, lawmakers booked a one-time cash bump of about $227.7 million.

But the gimmick is not without cost when it gets unraveled, which is why lawmakers intended to phase it out slowly beginning in 2013, with complete elimination by 2021. And they started to. They even accelerated the timeline. Right before leaving office, Governor McDonnell’s proposed budget reduced the number of businesses subject to AST to only those with taxable sales of $138.3 million or more in 2016.

Virginia was on the right track.

But we’re back in budget shortfall territory, again, without sufficient resources to meet the state’s needs for education, health care, public safety and other necessities. And, once again, lawmakers are relying on tricks like AST to make ends meet.

In fact, the budget just passed for this fiscal year and the next not only halts progress toward unwinding this gimmick, it actually rewinds it. Lawmakers expanded the number of retailers subject to AST to those with taxable sales of at least $26 million in 2015; in 2016, it narrows slightly to those with sales of $48.5 million or higher.

Once again, instead of dealing with the underlying challenges in the economy and considering a more balanced approach to shoring up the budget — one that includes modest new revenues — Virginia lawmakers conjured up a quick fix. And while ramping up the AST again may book dollars now, Virginians will pay for it later.

—Sara Okos, Policy Director

Healthy Graduation Rates

Virginia’s on-time graduation rate has steadily climbed for the past five years, to 89 percent in 2013 from 82 percent in 2008. That’s good and steady improvement. But what if there was more we could do? 

It turns out there is. National expansion of public health care in the 1980s and 1990s produced long-term educational benefits, according to a recent study from the National Bureau of Economic Research. There’s no reason why closing today’s coverage gap in Virginia could not produce similar benefits.

States that expanded their public health insurance coverage had lower high school dropout rates, increased college attendance, and more bachelor’s degrees, the study showed. A 10 percentage point increase in Medicaid eligibility translated into a 5.2 percent decline in high school dropouts; a 1.1 percent increase in college attendance; and a 3.2 percent increase in students completing bachelor’s degrees.

By closing the coverage gap, Virginia could have similar results because increased Medicaid eligibility leads to improved educational attainment. For example, children who receive Medicaid are healthier than those who remain uninsured, and healthier children often perform better in school.

Children in Virginia are eligible for Medicaid if their household income is up to about $47,700 for a family of four. But for their parents it’s another story. Virginia’s income eligibility rules for parents are among the most restrictive in the country. And that hurts kids because parents who don’t qualify often assume their kids don’t qualify either and do not sign them up. Allowing more parents to qualify would mean health care for more children who already are eligible but not enrolled.

There are other benefits to ending the coverage gap. For example, families with Medicaid are less likely to declare bankruptcy and having health insurance decreases out-of-pocket medical spending and debt, freeing resources that could be used for school supplies, tutors, and other education-related items.

State budget savings, a healthier economy, a healthier workforce, healthier kids, and now healthier educational attainment. The reasons to close the coverage gap in Virginia keep growing.

—Asasi Francois, Research Intern