In February 2008, Janet Harrah of the Center for Economic Development and Business Research at Wichita State University produced a report titled “Wichita Public Schools: Impact Analysis Operations Impact, Bond Impact and Success Measures.” This report painted a glowing picture of the USD 259 (Wichita, Kansas public school district) bond issue in 2000. The district uses it to promote the success of the 2000 issue, and to promote the proposed bond issue that may be voted on sometime in 2008. The study may be viewed at the CEDBR website here.
The author of the study told me that the Wichita school district paid $1,500 for this study. Usually, research such as this that is purchased by the customer is treated as just that: something bought because it suits the customer’s needs. Since the customer controls what is done with the product, it is certain that if this study had produced a result that didn’t show a fantastically positive benefit for Wichita school district spending, the school board would not have released it to the public. But as we shall see, the way this study is structured guarantees a positive result. Also, the price of $1,500 is astonishingly low for a study of some 28 pages with three authors.
Perhaps the primary problem with this study is that it treats the cost of the bond issue as though it doesn’t exist. The study presents evidence of the benefits of school district spending, but mentions only in passing school district taxation:
An opportunity cost exists for the use of public funds for education. If public funds were not used to provide public education, they would be available for alternative use. Estimating the potential economic impact of alternative uses of these opportunity costs was beyond the scope of this analysis. (Page 6)
It is the lack of analysis of these “alternative uses” that is most important. Actually, not much analysis is required. All that is needed is to recognize that when money is paid to the Wichita public schools, that money is not available for other spending. It means that when a construction worker is hired to build a Wichita school, that construction worker isn’t working on something else in Wichita. It cannot be any other way. As Henry Hazlitt explained in his classic work Economics in One Lesson:
Therefore for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $1,000,000 taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project.
The study also uses the technique of the “multiplier,” which is to say that spending by the school district causes other spending to happen, and other jobs are therefore created. But the construction worker, whether working on a school building or a shopping mall, is paid the same and spends his wages in the same way. The multiplier effect is the same.
This study also analyzes the impact of the bond issue (and ongoing operations) on local governments such as the City of Wichita and Sedgwick County. From page 6: “These measures view the taxing entities’ expenditures as a public investment. Public benefits are measured by tax collections. If public benefits exceed public costs then the rate of return is greater than 100 percent and the benefit-cost ratio is greater than 1.”
These rates of return can be fantastic. For Wichita and Sedgwick County, their rate of return for the 2000 bond issue is over 1,000%! By way of explanation the study states: “These ROI percentages for the city and county are relatively high since these jurisdictions derive significant benefits from increased sales tax collections as a result of the District’s payroll, while incurring very few costs.”
The problems with this analysis are these: First, the taxing entities’ investment is raised by taxing their residents. Second, the public benefits, as explained above, are the taxes that the government collects. It is as though we tax ourselves so that we can pay even more taxes, all this to feed the machinery of government. And if you believe in limited government and personal liberty, it is not a benefit to pay more taxes.
While it is true that the City of Wichita derives benefits from Wichita school district spending, the city’s benefits are funded by taxes paid to the school district. It is only by considering these local governmental entities to be separate from each other that this fantastic rate of return on “investment” is possible. If the total cost of government is considered, the picture is different.
These defects and omissions — not realizing that tax funds could be spent elsewhere if not sent to government, not realizing that benefits that government receives are the taxes that people pay, and separating government into compartments that play off each other to create artificial returns — need to recognized as we read this report.