Will an expanded voucher program cost more or less?

Gov. Walker’s proposed 2011-2013 biennial budget calls for an expansion of the Milwaukee Parental Choice Program by repealing the enrollment cap, allowing private schools anywhere within Milwaukee County to participate, and expanding eligibility to all City of Milwaukee families by eliminating income limits.

During tough budget deliberations, it would be good to know whether the expanded choice program is likely to save or cost state taxpayers over the long run. Either is possible—taxpayers save if the students who join the expanded program otherwise would have been students at more costly public or charter schools and taxpayers lose if the new voucher users would have otherwise been free to the state as tuition-paying private school students.

There is a debate over the likelihood that the program will be able expand considerably, as capacity for new students in the county’s existing private schools appears constrained at this time. However, the debate so far has overlooked the fact that the proposed budget would allow new voucher users to be existing private school students starting in the 2012-13 school year. There is a real concern that the expanded program may, in fact, increase costs for the state over the long run by increasing the total number of Wisconsin K-12 students who receive state support for their education.

Analyzing data from other years in which the legislature expanded the program can give a sense of how likely it is that significant growth in the program will come from existing private school students. When the choice program expanded to include religious schools in 1998, the state Department of Public Instruction (DPI) collected information regarding the type of school each voucher user had attended the previous school year. From that data, we know that 50% of the new voucher users in 1998-99 were already enrolled in private schools—2,512 of the 4,995 new voucher users.

We can also look at growth in voucher use compared to total growth in private school enrollment. In 2006, when the enrollment cap was raised, more private school students took advantage of the opportunity to use vouchers than public school students. In fact, 60% of new voucher users were existing private school students in 2006—1,408 of the 2,355 new voucher users. In the Catholic and Lutheran schools in particular, new voucher users tended to be students that were already attending these schools. The Lutheran schools, for example, had 467 more students using vouchers in 2006-07 than the previous year, but total enrollment in Lutheran schools grew by only one student during that time.

If these previous experiences are a guide, it is not unreasonable to expect that about half of the new voucher users in 2012-2013 will come from within the private schools joining the program. A quick analysis of private schools located outside the city limits that may be enrolling significant numbers of Milwaukee residents indicates at least six such schools: Indian Community School, St. Thomas More High School, Dominican High School, Milwaukee Jewish Day School, St. Bernard School, and St. Robert School. The likelihood that the student populations of these private schools could generate significant demand for new vouchers is quite high; these six schools enrolled a total of 1,729 students in 2009-10.

It is clear that assuming all, or even most, new voucher users in the coming years will save taxpayers money by switching from public or charter schools is not realistic. There will certainly be growth in the total number of elementary and secondary students receiving state taxpayer support. The debate should be about the affordability of these extra costs in the short- and long-term, whether these higher costs can/should be considered an investment in a better future, and what the effects of a more costly choice program might be on the public and private schools.

UPDATE: To clarify, low-income private school students who reside in Milwaukee and attend a participating private school in Milwaukee are currently eligible to use vouchers. The budget bill does not change the income limits for these students. However, it does expand their schooling choices to include participating schools throughout Milwaukee County.

Mixing it up: Exploring hybrid pension systems

The economic downturn has thrown even the most fiscally prudent governments for a loop. Dollars are stretching thin and new approaches to employee compensation are spreading across the nation. In light of the effects of the economic downturn, and as a measure to prevent similar fiscal vulnerability in the future, governments are particularly honing in on the manner in which they provide pension benefits. Everything from employee contributions, to retirement ages, to benefit levels are being reconsidered.

One concept receiving new attention is the use of hybrid pension systems. Hybrid pension systems are not new, but a lack of regulatory guidelines and several legal ambiguities suspended interest. In the last few months, greater clarification of federal guidelines for establishing hybrid plans has taken place. This may be what is needed to reinvigorate the hybrid conversation. Just this week, California’s Little Hoover Commission has suggested such a shift for California’s pension system.

Unlike private sector employers, most governments have stayed loyal to "defined benefit" pension systems. In such a system, regardless of the pension fund’s investment earnings, an employee can have confidence in receiving a certain pension payment upon retirement. This approach shelters government employees from unfavorable economic realities and requires the government to shoulder all the risk. When exposed to the downside of the risk, governments typically reallocate money away from other public service areas to appropriately fund their pension systems.

Most employers in the private sector have responded to market declines by switching to "defined contribution" (usually 401(k)) plans, which put the risk on the employee with benefit levels dependent on investment results. Many governments have contemplated similar moves, yet wrestle with whether or not switching to defined contribution plans will eliminate one of the key attractions to government employment and whether those plans provide for appropriate retirement security for their employees.

With federal regulations now better established for hybrid systems, pension options could be less polarized, a sentiment echoed in this Wall Street Journal article. Hybrid pension systems have gained traction because they remove some of the risk from governments, providing them with more shelter from poor stock market returns. However, unlike 401(k)-style systems, hybrid systems do not transfer the entire burden to employees. The risk is spread, instead, between both the government and its employees. This compromise could serve as a tool to both lessen the impact of market decline and protect an attractive benefit of public sector jobs.

There are various forms, but hybrid systems have the same basic composition – part defined benefit (usually a lower fixed benefit than the prior defined benefit plan) and part defined contribution. Benefits are viewed as hypothetical account balances and the accrued balance is portable, meaning it can be moved when an employee leaves government service to 401(k)s of his/her subsequent employers.

Hybrid plans often differ in the defined benefit formula, employer and employee contributions, and participation (voluntary or mandatory). The degree of shared burden, savings, and appeal depends on plan characteristics in addition to how those components differ from the current or proposed alternative and the subset of employees to which the change will apply. The Little Hoover Commission provided several examples of hybrid plans currently in place at the federal, state and local government levels, including Washington, Utah, and Orange County, California, shown in the table below:

Given that market uncertainty has caused defined benefit pension systems to significantly strain public services, as well as fierce public pressure to put public sector compensation in line with that of the private sector, hybrid plans are likely to continue to attract the attention of policy makers across the country. That attention has not taken shape in Wisconsin, however, with hybrid plans having yet to be picked up in the swirl of discussion surrounding local pension reform.

Federal revenues and the state budget: What happens when the gravy train goes off the rails?

Wisconsin annually ranks below average when it comes to recouping our share of federal aid. In 2008, for example, the state was 38th in percentage of revenue received from the federal government.

But in 2009, the amount of federal aid available to states increased dramatically due to the passage of the American Recovery and Reinvestment Act (ARRA), and the amount of federal revenue received by Wisconsin increased 26%. Wisconsin did relatively well in garnering our share of the ARRA gravy train--in total, federal aid to the states increased 16%.

While most of the federal aid Wisconsin receives continues to be categorical aid in the form of public welfare assistance, such as Medicaid and Temporary Assistance to Needy Families (TANF), we appear to have gained some ground in terms of discretionary, competitive federal grants. The increase in our public welfare grants from 2008 to 2009 was proportionately less than our overall federal revenue increase, at 20.5%.

Nationally, the total amount of federal categorical and competitive grants to states increased 13% from 2008 to 2009, much of which was attributed to $82 billion in education stimulus aids. The latest issue of Education Week has a great graphic ranking the states by receipt of federal education stimulus funds. Since the passage of the ARRA, $100 billion in federal economic stimulus funds have aided education, including $5.3 billion awarded through six competitive grants, the most noteworthy being the Race to the Top initiative.

Of the 40 states receiving competitive education stimulus funds, Wisconsin ranks 28th in total grants awarded. Our state received $4.1 million in the Investing in Innovation program, to be used to scale-up promising educational programs, and $13.8 million to implement a statewide longitudinal student data system. When our total competitive stimulus winnings are analyzed per-pupil, however, our ranking drops to 30th. The competitive stimulus aid amounts to $20.55 per Wisconsin public school student.


The education stimulus funds are arguably more impactful than the other types of stimulus monies, because over a third of Wisconsin's state budget is spent on education. Our below-average showing in the education stimulus competition means more budget pressure for us than for most other states. On the bright side, when these stimulus funds dry up, Wisconsin will feel the pinch while big winners like Florida and New York may feel a vise grip.

No growth in school choice program this year

Milwaukee's private school voucher program, known as the Milwaukee Parental Choice Program (MPCP), enrolled slightly fewer students this fall than in the previous year. That makes 2010-2011 the first school year without growth in the program since its expansion to include religious schools in 1998-1999. The Forum analyzes 13 years of school choice data in our newest report on the program, released today.

The loss of 66 students this year was minor compared to the number of schools leaving the program. Twelve schools did not return to the program this year. Combined with the 17 schools that were lost in 2009-2010, this factor had a direct impact on the decline in enrollment. Just three schools joined the program in 2009-2010 and four schools joined this year, all of them much smaller than the schools that closed or withdrew.


Thus, at 103 schools in 2010-2011 compared to 114 in 2009-2010, it shouldn't be surprising that fewer students receive vouchers this year. Total enrollment also declined this year among the schools participating in the MPCP.

The reduction in the number of participating schools is the result of new state regulations requiring MPCP schools to be accredited. Most of the schools leaving the program over the past two years did so because they lacked accreditation. In addition, two schools left the program this year in order to convert to charter schools, which earn more per pupil than voucher schools.

For more on the impact of state regulations on the program, including newregulations requiring all schools to administer the state standardized tests, see the full report. A directory of schools participating in the program, with information useful to parents making schooling decisions, also is available on the Forum's Web site.

Framing the issues for the county executive candidates

During the past three years, the Public Policy Forum has churned out more than a half-dozen reports on issues pertaining to Milwaukee County government as part of our mission to educate the public about key policy issues impacting the region's economy and quality of life.

Those include an award-winning report on the county's transit funding crisis; a comprehensive review of the fiscal condition of its parks system and cultural facilities; another award-winning assessment of its overall fiscal condition; a redesign plan for its adult mental health system; and a carefully-researched analysis of potential substantive changes to its governance structure.

Today, we release a 2011 Milwaukee County Executive Election Brief that describes and frames those issues in a manner designed to be comprehensible to voters and helpful to the candidates themselves. The report begins with an overview of Milwaukee County’s budget and finances that provides a broad sense of the county’s budgetary structure and its longstanding fiscal challenges. Then, it summarizes and updates our recent research on the structural deficit, mass transit, mental health, and parks/recreation/culture. Each section concludes with a set of questions and policy considerations that should be foremost in the minds of candidates and voters.

Our goal, as always, is to cut through the politics and boil down these controversial issues to their basics. Doing so shows that in many respects, the issues and problems facing Milwaukee County government are elementary in nature and demand equally elementary, yet politically difficult, responses. Our hope is that the candidates will acknowledge the relatively uncomplicated roots of the county's challenges and candidly discuss their proposed solutions.

The full report can be accessed here. Also, tomorrow's the last day to sign up here for our February 4 county executive candidates forum, at which the report will be discussed.

New survey shows mixed feelings on water issues

A new survey of nearly 400 residents of the Milwaukee, Kinnickinnic, and Menomonee River watersheds shows opinions are mixed on the role of government and the impacts of individual actions on protecting the region’s water resources.

The survey, designed and analyzed by the Public Policy Forum and commissioned by 1000 Friends of Wisconsin, also shows that citizens rank “the quality of water in the inland lakes, rivers, and streams in southeastern Wisconsin” an average of 3.3 on a scale of 1 to 5 (with 1 representing “extremely poor” and 5 representing “excellent”), and that sewer overflows and flooding are considered to be the top two water problems for the region during the next decade.

Respondents also view many government actions to protect water resources as at least somewhat effective, but split on whether the best governing body for water resource management is the state or a regional water district.

The most striking finding is that, in general, most respondents feel that the actions of individuals are not likely to have a big impact on water conservation or water quality. Yet, when asked about specific actions individuals might take in these areas, most are seen as being at least somewhat effective. In addition, when asked about their own actions, most respondents indicate they have taken action, or would be willing to do so, to protect the region's water resources.

A complete analysis of the survey can be found on the Forum's website.

The survey was funded by the Wisconsin Coastal Management Program and The Joyce Foundation of Chicago, with additional support from the Southeastern Wisconsin Watersheds Trust, Inc. and American Rivers. The Research Brief was underwritten by Badger Meter.

Wither Madison, wither Milwaukee?

As the Public Policy Forum’s 2010-2011 Norman N. Gill Civic Engagement Fellow, I am honored to be working on a year-long project that will examine how municipal governments in Wisconsin raise and spend their tax dollars. Over the next five months, I will be sharing some of my research with the blog. Ultimately, my research will lead to a paper that will discuss alternatives to financing municipal governments.

The Forum previously documented the fiscal problems that arise from the City of Milwaukee’s reliance on shared revenue from the state to fund its general purpose budget. Indeed, intergovernmental revenue represents about 45% of Milwaukee’s general purpose budget, which makes it the largest source of revenue.

The early stages of my research indicate that it is rare for a city to depend so much on intergovernmental revenue. Columbus, Oklahoma City, and Boston, for example, all offer different models that cities use to fund their general budgets without as much dependence on external revenue sources.

Columbus funds its general budget primarily through a city income tax. In Ohio, state law requires all municipalities to impose a flat individual income tax, and the maximum rate that a municipality can impose without voter approval is 1%. Columbus, through voter approval, imposes a 2.5% tax on earned income such as wages, salaries, and net business proceeds generated in the city. As a result, more than 70% of the general budget’s funding comes from the municipal income tax. Milwaukee, of course, has no city income tax.

Oklahoma City, meanwhile, funds its general budget mostly with a sales tax. It levies a tax of 3.87% on sales in the city, and about half of that revenue goes directly into the general budget. In fact, Oklahoma City uses property tax revenue only for capital projects (such as roads) and not for operating expenses. Milwaukee has no city sales tax.

Boston, meanwhile, funds more than 60% of its general budget through the property tax. The property tax rate in Boston is $11.48 per $1,000 of housing value, which is considerably less than Milwaukee’s $27.70. Boston benefits from having more expensive property; in 2010, the total assessed value of Boston’s property was $87.3 billion, compared to $28.9 billion in Milwaukee. This enables Boston to raise more money at a lower rate. Regardless, Boston has at least identified a main, locally-controlled tax base (property) to fund its operating expenses. Milwaukee, where property tax revenue is about 21% of the general budget, has not.

To be sure, these three distinct models to fund municipal budgets each have their own costs and benefits, which will be analyzed and discussed in my report. Yet, it is clear that Columbus, Oklahoma City, and Boston are relatively self-sustaining, while Milwaukee is enormously dependent on Madison for its survival.

The Forum is now accepting applications for the 2011-2012 fellowship year. For more information, go to the Norman N. Gill Civic Engagement Fellowship website. Applications are due April 30, 2011.