Limitations of the Nesi’s Notes Analysis and Some Additional Questions

2012-07-12

There are several questions that come to mind when looking over my analysis on Nesi’s Notes. The first thing I wondered was whether or not Woonsocket had raised local revenues by similar amounts to other communities but had chosen to spend this money on other municipal services. Ideally, I would use a chart that showed local education revenues compared to all other local revenues over the last 15 years by city in Rhode Island. Unfortunately, Municipal Finance does not separate local, state, and federal revenue sources in the Municipal Budget Survey so it is hard to knowhow communities have funded different services. I am sure with a bit of finagling, I could come up with a fairly good guess as to whether or not Woonsocket has simply chosen to fund other municipal services with its taxes, but quite frankly it is not precise enough to make me feel like its worth the exercise of extracting data from PDF tables. I hope someone else will take up some form of this analysis, possibly by requesting the breakdowns from Municipal Finance.

Another consideration is whether there is any truth to Woonsocket’s claims that it simply does not have the ability to generate enough local revenue for their schools. I am skeptical on this claim. Three pieces of evidence suggest to me that this may not be true.

The magnitude of the shortfall between the rest of the state and Woonsocket over the last 15 years when it comes to local education revenue. On its face, I don’t find it credible that Woonsocket’s tax base is so weak that it could not increase local revenues for schools even at the rate of inflation. Not increasing local revenue for schools seems to leave only two possibilities: 1) local revenues in general were not increased, meaning Woonsocket would have to argue that its taxation in FY95 was so high relative to everyone else that it took nearly 15 years for the rest of the state to catch up, hence no additional revenues; or 2) Woonsocket did raise local revenues, and chose to spend the money elsewhere. Had Woonsocket’s local education aid risen 65-75% versus a state average of around 100%, I probably would not have even written my post on Nesi’s Notes.
Andrew Morse‘s analysis presented on Anchor Rising.¹ Woonsocket appears to be on the low to typical end of revenues as a proportion of non-poverty income. It does not seem that they are anywhere near the “most” taxed city or town by this measure. I am not an expert on tax policy, but this measure seems fairly straightforward, fair, and informative.
The mammoth proportions of Woonsocket’s budget being spent on pensions (through debt service) and other post-employment benefits. [A full 15% or so of Woonsocket’s local revenues are being spent in these areas][]. This suggests to me misappropriation and poor planning has led to the erosion of local support for schools, not a lack of revenue generating capacity. If this truly is the case, then Woonsocket residents are really in trouble. Their leaders have managed to generate all of the high costs and high taxes experienced in Rhode Island without providing the quality of service that should be expected given those investments.

Of course, I failed to offer any recommendation for remedy in the Nesi’s Note post. How should Woonsocket schools become “whole” again? How can this possibly be accomplished in the context of a city on the brink of financial failure? Who has the legal responsibility to ensure that Woonsocket’s children get the education they deserve? I have no answers on the first two points. However, in the next section of this post I hope answer the last question, which is also the subject of a law suit filed by Pawtucket and Woonsocket against the state of Rhode Island.

Who is responsible for ensuring students are receiving a certain minimum quality education?

This post is the first of a three-part follow up on my guest post for Nesi’s Notes. Parts II and III can be found here.

[fourth lowest revenues from residential taxes as a proportion of community wealth]: http://www.anchorrising.com/barnacles/014501.html [A full 15% or so of Woonsocket’s local revenues are being spent in these areas]: http://blogs.reuters.com/muniland/2012/06/20/conservative-ideologues-arent-bankrupting-rhode-island/

Andrew has been writing quite a bit about Woonsocket. For his most recent post, Andrew demonstrates Woonsocket has the [fourth lowest revenues from residential taxes as a proportion of community wealth][]. A few things I’d like to point out on that post. First, I think Andrew was right to adjust for poverty in previous posts in a way he was unable to due to the structure of the new data. I support progressive taxation, so I don’t believe that it is fair to say that we should expect the same percentage of income tax from poorer communities that we do from wealthier ones. I also think that commercial taxes are very important revenue sources. I don’t think they should be universally dismissed when used as a substitute from residential revenues. There are times where marginally the greatest benefit can be had by lowering residents’ taxes. However, I do think that commercial tax should not be used as a substitute when there isn’t enough revenue in the pie. In Woonsocket’s case, it seems pretty clear they needed both the residential and commercial taxes to have sufficient revenues. ↩

This entry was tagged as education nesi's notes poverty rhode island ri tax policy woonsocket