Throwing Money at the Chicago Public Schools

Chicago public school teachers are on strike.  Issues include negotiations over possible pay increases, health care benefits, and job security over the next four years.  The negotiations in Chicago are important nationally because tough bargaining will be necessary for cities and states to gain control of the cost of compensation, health care and retirement benefits of public employees.  The bargaining between public administration officials and taxpayers on one side of the table and union leaders and public servants on the other will be instrumental in determining future tax rates, public debt and the quality and quantity of public services.  Moreover, because of the increase in Federal government funding of local governments, taxpayers in swing states such as Iowa, Wisconsin, Ohio and Virginia should be mindful of how their tax dollars have been spent in Chicago.  The funding of public elementary and secondary schools has become a Federal issue. The Chicago public school system is an excellent example of how education finance has changed over the past decade.

The Chicago public schools spent $12,193 per student in 2011.  This is a bit higher than the average for the state of Illinois and for the U.S. as a whole but is far less than the average in other large cities such as New York and Washington, DC.  In a series of tweets on Monday Josh Barro of Bloomberg View identified several reasons why teacher salaries are about the same in New York and Chicago but Chicago has lower expenditure per student: (1) class sizes are larger in Chicago, (2) a smaller fraction of students in Chicago are special needs students, (3) non-wage benefits are less expensive (and possibly less generous) in Chicago, and (4) the pension system for Chicago public school teachers is nut funded as well as the New York teacher pension system.

Federal funding of big city school districts is on the rise.  Nationwide about 12.5% of public school finances are provided by Federal aid.  Put differently for each $1 of local property taxes spent on schools the Federal government contributes 44 cents.  The Chicago public schools rely much more on Federal aid than the average district. About 23.3% of the finances of the Chicago schools are provided by Federal aid.  For each $1 in local property taxes in Chicago that are spent on schools, the Federal government contributes 59 cents.  These figures and the ones that follow are from Chicago public school budget documents.

The fact that the performance and efficiency of the Chicago public schools is now a Federal concern is a relatively recent phenomenon.  The following figure shows that, adjusting for inflation, Federal aid to the Chicago public schools increased by over 85% per student between 2002 and 2011.

Overall spending per student, after adjusting for inflation, has increased by 26.5% since 2002.  More than half of this additional funding has been paid for with Federal aid.  Moreover even though spending per student and Federal aid has fallen very slightly from 2009 to 2011 (adjusted for inflation) overall spending and Federal aid are much higher than just five years ago.

Where did the money go?  Enrollment in Chicago schools fell by 8% since 2002 so there is less reason to build new schools in Chicago than in cities with rapidly growing populations of school-age children.  Class sizes have not changed much in Chicago since 2002 despite the large increases in real spending per student.  The average class size increased from 22.6 to 23.2 for elementary students and fell from 20 to 19.8 in secondary schools.Everyone interested in the future fiscal health of our country should follow the Chicago negotiations between the teachers’ union and Mayor Emanuel.  Taxpayers throughout the country help finance schools in Chicago, New York and other large cities.  The administrators and teachers’ unions need to be responsive to their constituents, who now include taxpayers from across the country.  The Federal government provides more than $1.1 billion in aid to the Chicago schools per year.  This is not a large sum when one considers that the Federal government spends $1.1 billion every two and a half hours.  Nonetheless, quite the late great Illinois Senator Everett Dirksen “A billion here, a billion there, and pretty soon you’re talking real money.”

Vanishing Private Sector Unions

Yesterday Indiana Governor Mitch Daniels signed the law making Indiana the only right-to-work state in the Rust Belt.  Earlier this week pollster Scott Rasmussen reported that 74% of voters favor right-to-work laws that would eliminate mandatory dues and make it much more difficult for unions to organize.  Public employee unions are also being challenged.  In November Ohio voters rejected a law that restricted the collective bargaining rights of public sector unions, and Wisconsin Governor Scott Walker is facing a possible recall after signing a similar bill in Wisconsin.

Voters’ sentiments seem to reflect their labor market experiences.   Private sector unions are vanishing, which will erode support for laws and regulations that strengthen or preserve their bargaining power.  On the other hand membership has never been higher in public sector unions.  I expect well-organized opposition to bills such as the one introduced in Arizona, which limits the collective bargaining power of public sector unions.

The latest Labor Department data indicate that union members comprise only 6.9% of the private sector workforce.  Private sector union membership rates peaked in the 1940s and 1950s at about 1/3 of the workforce.  Unions were virtually nonexistent until the 1960s.  Today the situation has reversed and there are more union members in government than in the private sector.

Union members are older than non-union workers.  In the private sector there are about the same number of non-union workers under the age of 30 and age 55 and above.  Among union members there are 2.5 workers age 55 and above for each worker under 30.  The following figure illustrates private sector union membership rates for four different age cohorts.  The only age group that ever experienced membership rates in excess of 20% includes workers who are now age 55 and above.  Younger age cohorts have seen stable membership rates of 10% or less.  If these trends continue no more than 5% of the Millennial Generation will ever be (private sector) union members.

The aging of the private sector union workforce means that the issues that matter to Richard Trumka, and the AFL-CIO, are unlikely to energize younger voters.  Voters who never belonged to a union show little interest in recess appointments to the National Labor Relations Board, NLRB rules changes that give unions an organizing advantage, the NLRB’s opposition to Boeing’s plans to shift production from Washington to South Carolina, or Indiana’s right-to-work law.  In an earlier era when the AFL-CIO had more political clout, these issues would have been pivotal in an election year.

Local government employees, such as teachers, sanitation workers, police and firemen, have the highest union membership rates that we have ever seen in any sector of the economy in U.S. history (43%).  The battleground for the labor movement has shifted to laws that limit the collective bargaining rights of unions representing government workers, as in Arizona, Ohio and Wisconsin.  These laws have gained support as local governments have been squeezed by declining property values and tax bases and increasing costs of health care benefits and pensions.  The result of the efforts to recall Governor Scott Walker will foreshadow whether public sector unions can maintain their bargaining power and political clout.