Thought experiment: Financing public education

The overall quality of a public school is largely derived from two characteristics: the quality of the education provided (which depends in large part on teachers and facilities) and the quality of the learning (which depends on students). Hedonic models of house price indicate that the quality of public schools is capitalized in the value of land. Such matters are important. First, schools are a major determinant of property values and thus residential sorting by income, where the rich can isolate themselves from the poor. This introduces inequity into the system. Second, an analogy can be drawn to how roads should be paid for and whether users should pay or they should be capitalized into property taxes.

Given that the school quality is capitalized into the value of land, it may appear logical that a property tax is an appropriate means to finance schools—a tax collected at the local school district jurisdiction. The people who benefit from schools however are not the landowners but the students themselves. Sure, society benefits from “good citizensâ€?, but it is the students themselves who take advantage of their education and those who best take advantage of their education are most likely receive admittance into more selective colleges and eventually, receive a higher income. Moreover, they are unlikely to stay in the school district where they were educated after they leave high school. It is well known that property tax financing creates disparities: wealthy school districts can afford to provide a much better education than poor districts. Suppose instead of trying to capitalize the value in land (real estate), that we capitalize the value in people. This would replace land capital financing with human capital financing. We could then eliminate the notion that society is subsidizing large families with many children. We could avoid having weak schools in areas with a low school-age population, like retirement areas unwilling to pass tax hikes for schools. Instead, we could finance all schools equally per child (say, at the state level), and expect the children to pay back the state later with their higher incomes that result from being educated. In a sense, children would be loaned the funds to purchase education (though we have said nothing about whether schools are public are private, that is a separate debate), which would be paid in tuition to chosen schools … though this transaction need not actually require a check to pass through the hands of parents, it could take place behind the scenes. In other words, the proposal is to finance K-12 education in a similar manner to the way publicly funded colleges operate, and allowing students a similar choice in schools rather than tying them to their neighborhood. There are, of course, difficulties with the system: some children would eventually leave state, other adults would move in without having been educated there. However, it is likely to be a fairer system than is currently in operation. Whether states actually issue education bonds to be paid off with future income taxes is a financing question that could also be resolved later. I have no illustions that this is politically easy. It is hard (and probably wrong) to tell parents or local schools that they can’t supplement the education of their children with local tax dollars. However if state funding were near the level of the best funded, rather than the worst funded schools now, disparities would decrease. If students had choice which schools to attend (not just in district but between district), local schools would lose their claims on local taxes, and instead would be paid for by the students (or the state on a per student basis). -- dml