Feed the Beast

Schools get billions from the state every year. That number is growing fast. Here's why it's never enough.

It's enough to buy every Oregonian a new MacBook Pro, iPad and iPhone 6. Or enough to buy every school district in Oregon a $36 million, gently used Gulfstream jet.

It's also the amount state lawmakers have committed to spend on Oregon's public schools over the next two years. It's a staggering number, vastly more than the state has ever spent to finance schools from kindergarten through 12th grade.

But it's not enough.

Who says so? Virtually every parent, teacher, school board member and lawmaker in the state.

"We're not where we need to be," says Sen. Elizabeth Steiner Hayward (D-Beaverton). "We just held budget meetings around the state, and that's what we heard."

It's a rare consensus that crosses party lines. Even tightfisted Republicans are calling for more money—nearly a $1 billion more—for education. "If we are going to ask for better results for our schools," says Sen. Tim Knopp (R-Bend), "we need to fund those schools."

Oregon students already face among the nation's worst student-teacher ratios. They have the shortest school year. And they're less likely to graduate from high school than students in almost any other state.

For many of Oregon's 571,000 public school students, things are about to get worse. Despite this year's big funding increase—9 percent more money than two years ago—districts around the state say they will have to lay off teachers and cut instructional days. Again.

That's because the cost of running schools is increasing faster than tax revenues.

Today, on an inflation-adjusted basis, Oregon spends less per student than it did in 1990. We spend less per student than the national average but pay teachers more (see charts, below).

"Year to year, there's never enough," says Sue Levin, board chairwoman of Stand for Children Oregon, an education advocacy group. "People adjust their budgets to match their resources so they don't have a big shortfall every month. Oregon hasn't figured out how to do that."

It's a maddening situation for parents. Last month, Sen. Mark Hass (D-Beaverton) held a meeting with constituents, who feared their schools faced more cuts.

"Parents just pounded us," Hass says.

Of course, cynics might say, school supporters will always want more money. No number will ever be enough to satisfy them.

But the throngs of parents, teachers and school district officials who descend on the Capitol every two years—marching, demonstrating and raising hell for money—are not wrong.

The Oregon system of paying for schools has become an insatiable beast—by design, accident and neglect. The disconnect between the way we raise money for schools and the cost of running them ensures there will always be a gap between what schools need to succeed and what they get.

This year the beast looks even uglier. The Oregon economy is booming, and yet school districts are holding budget meetings and trying to explain why they will need to make more cuts. And last week, the Oregon Supreme Court gutted reforms to the state's pension system that would have slashed one of public education's biggest costs.

There was one person who had the willingness, the power and a battle plan to tangle with this beast. That was former Gov. John Kitzhaber. Now he's gone—and the education system is in crisis once more.

This story is going to tell you why.

Where the Money Comes From

The creature that is Oregon public school funding is like the spawn of a genetics experiment run amok.

In most states, local and state taxes provide about equal shares of education funding. That's not true in Oregon.

Before 1990, about two-thirds of the money that paid for schools came from local property taxes. The rest came from the state budget. But in 1990, voters capped property taxes, and later constricted money to schools even more by limiting property tax growth to 3 percent a year.

Without property taxes to fund schools, the burden shifted to Salem. Today, the state's general fund provides more than two-thirds of the money for schools. (The K-12 budget for 2015-17, including property taxes, is $10.7 billion. Federal funding will add about another 10 percent.)

The old property tax-based system gave schools a predictable flow of cash. District to district, some local voters were generous to schools, and others barely let schools keep the lights on. But property tax was a steady source, increasing every year. Local schools stood first in line for the money.

Today, schools are largely funded through the state budget by income taxes, which go up and down with the economy like a roller coaster. Since 2000, Oregon income tax receipts have declined three times—in 2001-02, for instance, personal income tax receipts plunged 19 percent.

That has whipsawed schools. Don Grotting, superintendent of the David Douglas School District, learned that the hard way five years ago, when he laid off 140 teachers.

"With an income tax system, you're just riding the economy," Grotting says. "It's like going to Vegas."

In the state's general fund, schools also must compete for money with health care, social services and prisons.

Senate education committee chairman Arnie Roblan (D-Coos Bay), a former school principal, says ballot measures, mandates and social issues have shrunk education's share. "It makes you want to cry sometimes, the decisions we have to make," Roblan says. "What we're doing for K-12 is not adequate, but it is the fairest we can do, given the other needs."

Schools haven't fared well in that competition. Even when the economy is strong, says John Tapogna, president of consulting firm ECONorthwest, schools get a significantly smaller share of Oregonians' total income than they did in the 1980s.

And over the past decade, the public schools' share of the state general fund has shrunk (see chart, this page). That shift alone has cut the allocation for schools by $1 billion.

That's $1 billion more today than schools would have otherwise had, even after lawmakers gave them a big boost this year.

"We're underfunding education," says Otto Schell of the Oregon PTA, "and we're falling further behind."


Where the Money Goes

You'd think big increases in funding for schools would buy big improvements: more teachers, new textbooks, and a longer school year.

Very little of the funding increase is attributable to enrollment growth. There are only about 20,000 more students in Oregon schools today than there were a decade ago.

Tim Nesbitt, a former adviser to Govs. Ted Kulongoski and John Kitzhaber, recalls how two years ago lawmakers tried catching schools up by increasing the state's education funding by an unprecedented $1 billion—and it still didn't seem to make a difference.

"With $1 billion of new money, you had some districts saying it was a 'cuts' budget," Nesbitt says. "That's frustrating to me. You should be doing more with more."

Operating schools is a labor-intensive operation: Teachers, support staff and administration account for nearly all the money that goes into K-12.

Teacher contracts are the biggest share. Those contracts typically include cost-of-living increases. But they also include an automatic annual increase—called a "step" increase. In the current Portland Public Schools contract, for instance, the annual step increase is 3.4 percent, on top of a cost-of-living increase of 2.3 percent. That means many teachers get a 5.7 percent pay increase regardless of whether state revenues rise or not.

In many years, personnel costs for public employees have risen faster than state revenues. In 2013, Kitzhaber persuaded lawmakers to slow that trend by cutting retiree benefits. Last week, however, the Oregon Supreme Court ruled a substantial portion of those reforms unconstitutional, blowing nearly a $1 billion hole in the state's 2015-17 general fund.

EcoNorthwest's Tapogna has studied school finance for the past decade. He calls the generosity of Oregon's public pension system a "generational mistake" and says last week's decision cements a K-12 cost problem.

"It is like an underground water-pipe leak you don't see," Tapogna says. "We're going to spend 10 percentage points more of payroll than Washington [state] is for the next 15 years. Each one of those percentage points is roughly a day of school."

Meanwhile, even with the state's robust economic growth, health care costs are still rising faster than tax revenues: In Portland Public Schools, such costs for some employees will rise 8 percent this year—faster than state tax revenues are going up.

"I am definitely frustrated that resources are always being reduced and days being cut from the schedule," says Gerene Daugherty, head of the parent-teacher club at Hall Elementary in Gresham. "That creates less time learning and less attention from the teachers."


The Mismatch—Unions vs. School Boards 

Oregon has 197 school districts. That's 197 school boards made up of part-time volunteers who take time away from their families and careers to make children's lives better and their communities stronger.

Oregon Education Association

It's usually no contest, like pitting a third-grade kick-and-chase soccer team against the Portland Thorns.

The union's job is to get as much as it can get for members. School boards must keep an eye on costs. And in some cases, those conflicting imperatives lead to true fights over contracts.

But often, school board members and the union compete to show parents who values teachers more—and that tends to make the deal teachers get expensive.

"Usually in a contract negotiation, there's a rock and a hard place," says Levin of Stand for Children Oregon. "In teacher contract negotiations, there's a rock, which is the union, but there's no hard place."

That can lead local boards to be generous and commit to contracts they later can't pay for.

Richard Sanders, executive director of the Oregon Education Association, says the lack of coordination between Salem and school boards is not the problem.

"If there's one overwhelming disconnect," Sanders says, "it's the disconnect between the rhetoric about how important education is and lawmakers to do the hard work of investing in education."

This disconnect between what their local district pays teachers and staff, and the money districts get from the state is often invisible to parents, who grow frustrated when they perceive the state failing to fully support their local district.

Chronic shortfalls leave many parents feeling like they are engaged in a never-ending bake sale.

Lisa Zuniga, a Franklin High parent, has been involved in her kids' schools for 13 years. She says that each of those years has presented some sort of a crisis.

"Part of the reason we moved here from the Bay Area was for the public schools," Zuniga says. "But more than half the high-school students in Portland are on part-time schedules. I wonder sometimes if we did our kids a disservice by moving here."

And that sends busloads of kids, parents and teachers to Salem—and puts more pressure on state lawmakers to shovel in more money.

"It's really demoralizing," says David Douglas' Grotting, "when you are constantly begging the Legislature to help our kids."


The Result—Low Grad Rates, Short School Year, Constant Crisis 

The beast eating away at school budgets has eroded the quality of education in Oregon.

The state has never lacked ambitious goals for its schools. In 1991, lawmakers approved the Oregon Educational Act for the 21st Century, to help schools prepare children in a natural resources-based state for a high-tech world.

Since then, Oregon has cycled through a series of educational reforms. And yet student achievement has declined. In 1990, the year voters approved property tax limits, the number of Oregon eighth-graders meeting National Assessment of Educational Progress standards was 20 percent above the national average.

Today, Oregon eighth-graders are merely average.

Sanders, the OEA boss, came to Oregon from Massachusetts, whose schools lead the nation. He says there's a spirit of innovation and cooperation in Oregon that he's seen nowhere else.

"In this state, educators know what works," Sanders says. "We just don't have the money to do it."

Oregon sends money to local districts based almost exclusively on enrollment. Improvements in standardized test scores, graduation rates and other metrics play no role in school funding.

EcoNorthwest's Tapogna says school funding is inadequate, but Oregon could get more for the money it spends.

"The state ought to pay for the outcomes it wants schools to deliver," Tapogna says. He notes that school funding in California is tied to attendance, not merely enrollment, as it is in Oregon.

When lawmakers do impose their wills on districts, they often create new costs without seeking to measure outcomes. One example is a new law requiring full-day kindergarten. That step—which experts say is an important educational building block—will cost about $220 million next year. That expense will take up most of the increase the state is sending to schools.

"It just seems like we get a lot more mandates," says Grotting, "without the money to fund them."



John Kitzhaber resigned as governor in February amid allegations of influence peddling. That cost him—and the state—the opportunity to tackle the school-funding disconnect he'd diagnosed and begun to address.

Oregon Education Investment Board

His initiatives met with suspicion and hostility from the entrenched educational establishment, and real improvements have been slow.

But Kitzhaber hoped to do much more in his final term, and his plan was spelled out in emails he exchanged with his staff. The emails were among thousands of messages Kitzhaber's office sought to have deleted from state servers just before he resigned.

The emails include a Sept. 3, 2014, note to Kitzhaber from his labor adviser, Duke Shepard.

At the time, Kitzhaber was running for re-election to a fourth term. Shepard asked the governor for a gut check: Was Kitzhaber really willing to take on the intractable gap between education funding and expenditures—and the OEA—if he won another four years in office?

"This is a TOP priority and intimately related to our whole education agenda," Kitzhaber wrote back on Sept. 7, 2014. "It is the Tyrannosaurus Rex in the living room (I like this analogy much more than the elephant and all its Republican associations and—once your get past the tusks—have much more formidable teeth)."

Kitzhaber told Shepard he had already begun explaining to legislative leaders how he would propose to end the constant state of education-funding crisis.

"There is no fiscal discipline involved here," Kitzhaber wrote to Shepard.

He ordered Shepard to move ahead aggressively, even before voters chose between him and his Republican opponent, Dennis Richardson.

Kitzhaber directed Shepard to prepare a memo outlining the problem. "This cannot wait until after November 4," Kitzhaber wrote. "It has budget and political implications for 2015 and beyond."

Shepard responded to his boss in mid-September. 

"Every new dollar added to schools loses value the very next year," he wrote. "These deficits lead to shorter school years, layoffs, and the ongoing funding 'crisis.'"

Now Kitzhaber is gone. His successor, Gov. Kate Brown, built her political career as a prolific fundraiser, leaning heavily on campaign contributions from the OEA to win a Senate leadership position and two terms as secretary of state.

It's too soon to know whether Brown wants to tackle the beast that is Oregon's school-funding dilemma.

Nor is it clear how far legislative leaders—including the Democrats of Brown's own party, who control both chambers—are willing to go.

Brown's spokeswoman, Kristen Grainger, says the governor believes the budget that lawmakers passed is "insufficient," and she's anxious to address graduation rates, class sizes and poor achievement.

"If the data show that a particular model can move the ball forward on these goals,” Grainger says “it should be on the table for discussion.” 

Oregon schools—perennially running $1 billion behind where they once were—won't catch up until the Legislature or taxpayers commit more money.

But lawmakers and districts would have to figure out how to get ahead of escalating costs—or watch new revenue simply feed the current system rather than adding teachers and instructional days.

One idea Kitzhaber wanted to pursue was statewide collective bargaining with teachers, the practice in Washington and Hawaii. Under that approach, the people who control the budget would have more control over how money is spent. It could also remove the bargaining advantage the OEA enjoys over school districts.

Kitzhaber wanted to connect school funding to outcomes. And he wanted to revisit a 2011 proposal by Rep. Mark Johnson (R-Hood River) that would tie local district contract increases to the amount of money actually available from the Legislature. That would stop districts from making promises when the money's not there to keep them.

As a lawmaker and member of the Hood River School Board, Johnson sees both sides of the funding problem.

His Hood River district embodies Oregon's promise. The snow-capped Cascades towering over the orchards and windsurfers embody the state's rugged beauty.

Highly paid telecommuters and the Columbia Gorge's tech boomlet have driven Hood River County's unemployment rate to the lowest in the state.

Yet as a school board member, Johnson has stood up in recent weeks in front of his friends and neighbors and explained that despite the soaring property values and a strong job market around them, Hood River schools will have to make cuts for next year.

He says the disconnect between how the state provides school funding and how local districts spend it is crippling Oregon.

“It doesn’t matter who is governor,” Johnson says. “We have got to take this on.” 

WWeek 2015

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