The Price of Better Schools: But Who Pays The Piper?

HOW many billions of dollars more in state spending will it take to satisfy the constitutional mandate of a "sound basic education" for all public school students in New York?

With yesterday's report by Gov. Pataki's Commission on Education Reform (chaired by financier Frank Zarb), we now have at least three sets of answers to that question:

* The Zarb Commission said a range of $2.5 billion to $5.6 billion per year ought to suffice.

* The Campaign for Fiscal Equity (CFE), whose successful court challenge to the school aid formula for New York City brought this issue to a head, claims the increase should be more like $10 billion.

* The Board of Regents, the state's educational policymaking body, has proposed a $6 billion hike in state school aid.

The average of all these figures is roughly $6.2 billion a year - with only the Zarb report attempting to tie more money to improved results. All of this begs another big question that the victorious CFE plaintiffs and their cheerleaders in the state Legislature have so far refused to face:

Where in the world is the money supposed to come from?

It's not as if New Yorkers aren't already digging deep for their schools. We spent $11,515 per public-school pupil in 2002-03 - tops in the nation and 47 percent above the U.S. average. Moreover, state school aid has risen at twice the rate of inflation over the past decade. This is a big reason why New York's combined state and local tax burden is second highest in America.

Yet even with last year's record (and supposedly temporary) tax increase, Albany is barely making ends meet. The governor projects a budget gap of $2.9 billion for fiscal 2005-06, growing to $4.3 billion for 2006-07. And once the Legislature gets done adding more spending to Pataki's proposals for next year, these future gaps will only grow larger.

The various school-spending recommendations come with different phase-in periods - four years for CFE, five for Zarb, seven for the Regents. But since the state budget is a constantly growing mass of expenditures, something's ultimately got to give.

There are three ways to come up with the sort of money being sought by CFE:

Shift funds from other areas: In the context of a $100 billion "all funds" budget in fiscal 2004-05, that may seem feasible. But once you exclude federal grants, debt service, appropriations statutorily earmarked for non-education purposes, and the huge sums the state already devotes to schools, you're left with barely $40 billion in discretionary funding. And the largest single portion of that is Medicaid, which the Legislature has consistently refused to touch. In short, the likelihood that the CFE ruling will be funded with any significant reductions in other budget areas is essentially nil.

Find a new revenue source: The only alternative revenue on the horizon so far is Pataki's proposal for a vast expansion of video lottery terminals, which he estimates would ultimately raise $2 billion a year. But for good reason, that plan faces a number of substantial political and legal hurdles.

Raise state taxes: If financed solely through an increase in the personal income tax (which now accounts for over half of all New York's revenues), the CFE's spending target would require double-digit marginal income-tax rates - easily New York's highest in a quarter century. Financing even the bottom end of the Zarb Commission's recommendation could require a top personal-income-tax rate of well above 8 percent.

In any case, a multibillion-dollar hike in the state income tax can also be expected to trigger the loss of tens of thousands of jobs, based on research into the relationship between tax rates and employment. Spreading the cost evenly among all taxes would merely spread this economic misery.

But that's just the start. Under every CFE response scenario now on the table in the state Capitol, any increase in education funding will also require some increase in local school taxes, too. That means higher property taxes in most of the state - or a higher income tax for New York City residents. Ironically, this will put even more financial strain on the city, which faces its own multibillion-dollar-budget gaps.

How soon will the fiscal hammer fall? Under the Court of Appeals ruling, the state has until July 30 to "implement the necessary measures" by enacting a new school-funding formula.

In her scathing dissent, Judge Susan Read predicted what might happen next: "[A]s soon as the trial court is called upon to evaluate the cost and educational effectiveness of whatever new programs are devised and funded to meet the needs of New York City's school children, the education policy debate will begin anew in another long trial followed by lengthy appeals."

Given the alternatives, that might seem like the best New York's taxpayers can hope for. But a judge-run school system would ultimately be the worst of all worlds for everyone.