Study targets state spending

Legislators give mixed reaction to economic study recommendations

Jill Schramm/MDN A “Prairie Prosperity” report recommends rethinking public education spending. Central Campus in downtown Minot is part of the city’s education system.

School choice options and a defined purpose for the Legacy Fund should be among policy discussions of North Dakota decision makers, according to recently released findings of a new economics study.

The Center for the Study of Public Choice and Private Enterprise at North Dakota State University produced the report, “Prairie Prosperity: An Economic Guide for the State of North Dakota,” with a grant from the Mercatus Center at George Mason University. The mission of the NDSU research center includes the exploration of issues relevant to North Dakota and the Upper Great Plains to enhance public discourse and knowledge.

Jeremy Jackson, founding director of the center and associate professor in agribusiness and applied economics at NDSU, said the purpose of the report is to help guide policy makers.

“We would love it if some of the policy proposals we made get to be part of the debate. That’s really our goal. We want to advocate for sound economic policies in the public policy debate,” he said. “We just want to see good economics making it into the discussion.”

The report makes several recommendations, including re-thinking property-tax relief programs, measuring public education spending against student outcomes and avoiding use of the Legacy Fund as a budget-stabilizing device.

Jackson said voters who approved placing 30 percent of the state’s oil and gas taxes into the Legacy Fund in 2010 wanted the fund to have a game-changing impact. He said legislators should define the fund’s uses to avoid the spending arguments that swirl around a fund with a vague purpose.

Not all legislators agree.

“One of the key features of the Legacy Fund is that it does not contain a specific purpose and that omission was deliberate,” responded Sen David Hogue, R-Minot, who was Senate chairman of the conference committee that adopted the version of the constitutional amendment that went on the ballot.

“I reject the notion that the Legacy Fund’s purpose must be clearly stated and adhered to. Each generation of North Dakotans should have the prerogative to specify its uses. That is one part of the Legacy principle. While I would not vote to appropriate Legacy Fund earnings for balancing the state budget to fund operations, a future legislative assembly may do so without offending my beliefs about the purpose of the fund,” he said.

Hogue is introducing a constitutional measure in the 2019 session to set aside 15 percent of the Legacy Fund principal for infrastructure projects, which he said saves tax dollars by accelerating local projects and benefits multiple generations.

The economic report recalled that, in 2013, the Great Plains Institute assembled community stakeholders to set goals for the fund. Residents supported a goal to use the fund as a resource of last resort in times of exceptional need, basically backing up the Budget Stabilization Fund. They also supported using the fund to compensate for reduced revenues when oil and gas production begin to decline. A final goal directs earnings to be spent on visionary actions that build assets and enhance quality of life.

The report’s authors say if the state fails to control spending, it won’t get past the first goal.

“The state already has a budget stabilization fund and does not need a second one,” they wrote. “The purpose of the Legacy Fund needs to be clearly stated and codified; its use should not be targeted for budget stabilization.”

Rep. Dan Ruby, R-Minot, said the purpose of the Legacy Fund should be to reduce the burden on the taxpayers of the state.

“South Dakota doesn’t have an income tax. I think it would be good for us to attract business if we didn’t have an income tax so we can compete with states like South Dakota,” he said.

Rep. Jeff Hoverson, R-Minot, said the report’s recommendations are solid. He also wants to see the fund build, using the interest for infrastructure loans and lowering taxes.

“We should have a long range goal of eliminating most all property tax with these type of gains. That would be a great way to see our economy boom and bring in new business,” he said.

Regarding existing property tax relief, the economic report advised against expansion of the programs until further research can be conducted to understand their impact.

“There is evidence that artificially lowering the cost of local government services, as has been done with state property tax relief, reduced efficiency by encouraging higher levels of local spending. Additionally these programs may raise costs in the long term. Given the current fiscal condition of the state, efforts should be made to reduce local reliance on state funds,” authors stated.

“It should be the local government that’s giving us the property tax relief because it’s the local citizens who are making sure the services are of high quality,” Jackson said. “When we start to remove who is paying the bill from the people receiving the services, there’s not as much of an accountability connection.”

Ruby said he agrees tax relief proposals have disguised higher local property taxes, but there is something the state can do.

“Making sure we aren’t putting mandates on the local governments is the best way the state can make sure that we are not contributing to higher property taxes. Then the local taxpayers can engage with their local officials to determine the acceptable level of taxes for their city or county,” he said.

The report cites the funding changes in K-12 education as an example of where tax relief has taken North Dakota. Spending was fairly stable from 2002 to 2009 until increased in state aid from 2010 to 2015. During those years, local education spending decreased from $536.4 million to $457.3 million, but overall education spending increased by 46.7 percent from 2009 to 2015, a period that saw a 12.1 percent enrollment increase, according to the report. Authors point out South Dakota, with substantially lower per pupil spending than neighboring states, has seen fairly stable high school ACT scores, while North Dakota’s scores took a noticeable drop in 2011, dipping below the national average.

“Lawmakers should evaluate whether the extra education spending is worthwhile given the negligible improvements in education quality,” the report states. “Policy issues should focus less on whether the state is spending too much or too little and focus more on whether spending levels are justified by education outcomes. In other words, policymakers should focus on increasing education efficiency.”

The report promotes vouchers and charter schools as a way to improve the efficiency of the K-12 education system. When schools compete for students and public dollars, lawmakers can encourage innovation, improvement and efficiency gains, authors wrote.

Jackson said current opportunities for open enrollment provide only a limited option because a request to transfer can be refused. Vouchers give parents more choice, although states can limit who gets vouchers or how they are used. In some states, vouchers are reserved for low-income students, children with disabilities or families in a failing public school.

Charter schools are public schools operated under charters rather than by school districts. More common in urban areas, Jeremy said charter schools could serve a role in rural areas by enabling families to organize a local school if their school district dissolves.

Hoverson, who will be serving on the House Education Committee in the 2019 session, said school choice definitely could be part of the solution.

“Right now, families that send their kids to private schools or home school save the state thousands of dollars. I would support giving those funds back to the people to be used for sending their kids where the parents see best,” he said. “I also think the more we gradually move control and responsibilities from the state toward local school boards, the better of K-12 education will be.

“I have taught in both the East and West of North Dakota. I have subbed in many schools in every grade. The teachers are in a tough spot. So much has been dropped off at the school doors that should not be. Until we compel parents back into the equation, we will simply trade in one new idea for another,” Hoverson added.

Ruby questioned how schools are using state payments of $10,000 per student.

“I think we should be looking into where all the money is going. If it is things like special education and other services, we need to look for better alternatives to contain costs. It frustrates me when I keep hearing that if we would only fund K-12 more we would see better results, and time has proven that not to be true,” he said.

Hoverson has been impressed with the Finland’s education model, which features no standardized testing or homework yet ranks among the best in the world. Similar in demographics to North Dakota, Finland does a number of things that North Dakota should investigate, he said.

“These sort of changes lead to advancing lower costs and better outcomes by leaps and bounds,” he said.