Thursday, December 27, 2007

The cost of smaller class sizes

Since the Legislative Auditor General released his report on the funds the Legislature appropriated to reduce the average class size in Utah, the pundits have been wringing their hands. Apparently to everyone’s surprise and dismay, Utah class sizes are still the largest in the nation. For anyone even vaguely familiar with Utah, this audit only confirmed what we and many in the business community have said for years about Utah education: class size reduction is an unrealistic goal in Utah.

The educational merits or demerits of class size reduction have been debated for years. Parents intuitively prefer them, but the large scale tests of class size reduction show little improvement in student achievement unless average class size gets down to about 15. The cost of achieving that average class size would be monumental. And there are a host of other education proven reforms that would provide much larger gains in student achievement at a fraction of the cost.

Utah’s average elementary class size is 26. In addition, Utah classrooms will swell by more than 160,000 over the next decade. On top of that, published reports indicate that Utah began the current school year with hundreds of vacant teaching slots.

This teacher shortage means that Utah’s current average salary and benefits package of $55,034 per year is not attracting enough applicants to meet existing demand. Those vacant teaching positions, plus the others necessary to bring Utah’s average class size to 15, would be even more expensive. For illustration purposes, however, we’ll assume the cost only goes up to $60,000. That means Utah would have to spend another $516 million every year just to hire the 8,600 teachers necessary to get Utah class sizes down to 15.

That calculation ignores the on-going surge in Utah enrollment. When the 160,000 new students hit Utah schools over the next 10 years, Utah will need another 6,222 elementary teachers to maintain an average class size of 15. Assuming the same $60,000 total compensation package for these teachers means Utah would pay $373.3 million for these teachers. All told, Utah would need to hire nearly 15,000 more teachers, at a total ongoing cost of $889 million.

Add in the capital costs necessary for each of these teachers to have their own room, and the cost of reducing class size to 15 becomes staggering. As our October study, “Education Growth Projections in Utah: 2008-2022,” showed, Utah taxpayers will have to purchase $6.365 billion in land and buildings to house the surge of students entering Utah schools. If reducing average class size to 15 requires the same proportional increase in capital costs as this analysis projects in salaries and benefits, those capital costs could easily exceed $10 billion.

How much would meaningful class size reduction cost? This analysis shows we’d have to increase ongoing education spending by nearly $900 million per year. And our capital costs would dwarf that increase. Given class size reduction’s mixed record in raising student achievement and Utah’s unique demographics, class size reduction seems a fool’s errand.

Would it be possible, even laudable to instead increase average teacher pay, and thereby attract the best and the brightest into Utah’s classrooms? When smaller class sizes are what increase the number of teacher union dues payers, don’t expect the unions to make teacher pay a higher priority than class size.

Thursday, December 06, 2007

Why the Cottonwood Mall RDA is just plain wrong

In our last post, we noted why the Cottonwood Mall RDA is such a risky gamble. In this post, we’ll describe why the Cottonwood Mall RDA isn’t just risky—it’s just plain bad policy.

The proposed Cottonwood Mall RDA will not create one job, not one residence. Not one. Every square foot of retail and residential space General Growth Properties (GGP) plans on putting in this space will be built somewhere by someone without a subsidy. That’s because residential and retail development follows population and disposable income. Houses and retail developments will naturally go where people are and have money to spend. Subsidizing a developer to build residential or retail space in this place simply rearranges where this retail and residential space goes. In essence, GGP wants to take nearly $100 million—most of it from the Granite School District. In exchange, they’re not giving a single thing—because this retail and residential space will be done whether a subsidy is provided or not.

Holladay says the revenue stream they are projecting amounts to “found” money. That is simply not true. Holladay City and GGP didn’t discover hundreds of thousands of dollars just waiting for a right-thinking “investor” to pick up. They want to steal this retail and residential development from another city, perhaps Taylorsville, South Salt Lake, West Valley City or Magna, and put it on their land.

GGP says that this is the only project that will allow them to earn the kinds of returns on their investment that they expect, and even then they aren’t going to receive the double-digit return they typically aim for. That may be true—but should education taxes be used to subsidize GGP’s profits? We already spend less per student than any other state in the nation.

GGP and Holladay say that this site will remain vacant, or nearly so, without this RDA. GGP has even gone so far as to say that without it, they’ll tear down the buildings, challenge the property valuation, just to reduce their tax liability. To a certain degree, they’re being disingenuous on this point: GGP told the Taxing Entities Committee (TEC) that they wouldn’t sell this property for the approximately $30 million the site is currently valued at, even if the RDA doesn’t go through. (We’ll return to this point in a minute.)

We’re not engineers, so we’ll take their word when they say there are substantial infrastructure costs that have to be borne before that land can be built on. But to assume that no one will build on that site for the next 20 years is just absurd. As Holladay Mayor Dennis Webb noted at last Wednesday’s TEC meeting, the LDS Church is putting $1 billion into the City Center project without any taxpayer subsidies. GGP and Holladay city have noted that Larry Miller might be interested in building on that property. A big box retailer might go on that property. Both of these are plausible uses for that land, and neither of them would require an RDA.

Of course, GGP “doesn’t sell properties,” as they told the TEC last Wednesday. At least, not usually. However, they were quite clear that there are circumstances in which they have sold properties, and would sell this property. The fact that GGP has contemplated a price at which they wouldn’t sell the land means that there is a price at which GGP would sell the land. And for discussions of Larry Miller to mean anything, even as something Holladay would prefer to avoid, they have to mean that GGP would sell the land to Larry Miller, for the right price. In other words, GGP has no more interest in letting that land go undeveloped, giving them no return, than Holladay, Salt Lake County, or the Granite School District does.

Finally, let us point out that this RDA is just the first of 6 or 7 RDAs already in the pipeline that the Granite School Board will be asked to approve in the next several months. On Tuesday Taylorsville asked for another $15 million RDA. If the Granite School Board approves the Cottonwood Mall’s $100 million subsidy, how will they be able to oppose any of these other RDAs?

RDAs can be an appropriate economic development tool. When cities use them to steal residential and retail development from each other, as Holladay is trying to do with this one, they are nothing but a drain on taxpayer dollars. This RDA creates no economic benefit, and will cost taxpayers and school kids tens of millions of dollars. We encourage the Granite School Board to vote no on the proposed Cottonwood Mall RDA.