The Hyphen School District

I have covered high school sports, either full-time or on the side, for more than 20 years. Some years ago, I came up with, or swiped from someone else, the term “the hyphens” to describe consolidated school districts — in Marketplace’s circulation area, Beecher–Dunbar–Pembine, Cedar Grove–Belgium, Goodman–Armstrong Creek, Howard–Suamico, Iola–Scandinavia, Luxemburg–Casco, Rosendale–Brandon, Southern Door County, Tomorrow River, Tri-County, Weyauwega–Fremont and Wittenberg–Birnamwood.

Actually, that’s an incomplete list. In fact, almost every school district is a consolidated school district regardless of its name. The one-room schoolhouses that dotted the landscape were either closed or consolidated into other school districts through the 1960s. The buildings are still there in many cases, but they’ve been converted into houses or other uses. By state law, every piece of property must be part of a school district, and school districts only grow in size by annexation — which is difficult given that no school district wants to shrink and thus lose land value — or by merging with another school district. That’s how you get the odd cases of, for instance, my former house that was in the City of Appleton and the Menasha school district.

The consolidation question is coming up again given the pickle many school districts find themselves in with the state’s school district budget revenue caps. The Ripon Commonwealth Press reports that the Markesan School District is proposing joining with adjacent school districts to create a new seventh- through 12th-grade unified school district. Markesan is surrounded by nine other school districts — going around the compass, Green Lake, Ripon, Rosendale–Brandon, Waupun, Randolph, Cambria–Friesland, Pardeeville Area, Montello and Princeton — and though larger school districts such as Ripon or Waupun are not likely to be interested, school districts of Markesan's size, such as Green Lake or Princeton, might be.

This is a good time to open the school district consolidation discussion. Consolidating school districts does not have to mean closing the doors of school buildings, although the Markesan proposal would create one larger high school out of, optimally, three smaller high schools. (Combining Green Lake, Markesan and Princeton would create a high school of 541 students, about the same size as Ripon.) The number one reason to consolidate is administrative savings — one school district administrator, one bus company, one food service operation, one maintenance operation, and so on. The second reason is the opportunity to expand program choices to students, programs that one small district might not be able to afford, but a larger district could.

There are a number of places within Northeast Wisconsin where school district consolidation should have already taken place. Now that we have modern roads, bridges and communication methods, there is no earthly reason for the city of De Pere to have two school districts for the east and west sides of the city, particularly when the school districts have the state's 76th highest and 47th highest school mil rates, 16.1 percent and 20.6 percent higher than the state average, respectively, according to the Wisconsin Taxpayers Alliance. The Markesan (90th highest mil rate) and Green Lake (395th, thanks to all that expensive lakefront property) school districts have been jockeying around a property transfer, when what they should be discussing is merging the school districts, as they now may be discussing. (The Commonwealth Press story, which is not available online, contained no comments from Green Lake School Board members, who were at a joint meeting with their Markesan counterparts.)

Consolidation is the farthest step, but it's not the only option. Randolph and Cambria–Friesland have been near merged for years, with many shared programs, including athletic teams; the same is the case with three school districts in southwest Wisconsin, Cuba City, Southwestern and Benton. After the Bloomington and West Grant school districts merged and then demerged acrimoniously in the 1950s, cooler heads prevailed 40 years later, and the River Ridge School District was created. (It is not far from northwest Illinois' River Ridge School District, but given both districts' proximity to the Mississippi River, the names are appropriate. At some point, perhaps the two River Ridges will play each other in sports.)

One point of resistance to merger is the loss of civic identity that happens when a community loses its high school, which is a big deal in small-town Wisconsin. Even though school property tax rates aren't at the $30 per $1,000 assessed valuation level anymore, as they were in some rural school districts in the late 1980s, one wonders how long civic pride can hold off economic realities. It's better for school districts to arrange mergers on their own terms than to simply close, as the former Ondossagon school district in northern Wisconsin did earlier this decade and as the Florence School District almost did in 2005.

State law might have to be massaged to ease budget controls for merged districts for a set period of time to encourage mergers, as has happened in the past. (State aid already has hold-harmless provisions for merging districts, according to the state Department of Public Instruction.) And obviously there are geographic limits to which school districts can merge. But school districts having financial issues need to take the merger option more seriously today, if for no other reason than to ease the financial burdens of those paying for our state's schools.

The overtaxing deficit

Originally printed in Marketplace Aug. 5, 2008

What a year Wisconsin state government has had, and we’re just past the seven-month mark.

Just since New Year’s Day, the Legislature (1) dealt with a $652 million budget deficit by cutting just $69 million in spending, requiring Gov. James Doyle to cut an additional $201 million, while doing nothing about the (2) $2.15 billion deficit that exists when measuring state finances by Generally Accepted Accounting Principles or the (3) $1.7 billion structural deficit, the result of pushing state spending out of one budget cycle and into the next through accounting tricks. Those who win the legislative elections Nov. 4 could be said to be the real losers because they get to deal with all that.

State government’s bad year got even worse July 11 when the state Supreme Court ruled that the state Department of Revenue had overtaxed Menasha Corp. specifically, and other businesses generally, to the tune of $265 million in overpaid sales taxes and interest. Menasha Corp. had held that the software it purchased was not subject to the sales tax (custom software is not, but non-custom software is). In order, the Department of Revenue said the software was subject to the sales tax, the Tax Appeals Commission said it was not, a Dane County circuit judge said it was, the state Court of Appeals said it was not, and the Supreme Court agreed with the Court of Appeals.

Menasha Corp.’s part of the overpayment is $300,000, plus an additional $300,000 in interest. The Milwaukee Journal Sentinel reports that “dozens of other companies” believe they have overpaid software sales taxes as well. That $265 million figure may just be a starting point.

You could take all of the wages of every Department of Revenue employee (as reported in 2007), about $11 million, and that would cover all of 4 percent of the $265 million. Doyle, other state elected officials, and the Assembly and Senate total about $6.78 million in salaries. Combine the two groups, and if you didn’t pay any Department of Revenue employee, the governor, the attorney general, other statewide elected officials and any senator or representative, the state could have Menasha Corp.’s overpaid tax bill paid off in just 15 years.

Chief Justice Shirley Abrahamson, one of the three dissenting justices, said “Taxpayers will pick up the tab left by those who have escaped taxation as a result” of the decision. Apparently Chief Justice Abrahamson believes that no one should ever take advantage of a tax exemption or deduction because that would be “escap[ing] taxation.” That is also analogous to saying that an innocent person who is reprieved from a death sentence has escaped capital punishment.

The point is that Menasha Corp. should not have had to pay — was not legally obligated to pay — the additional sales tax. The Tax Appeals Commission made that exact ruling. (Isn’t it nice to know that the state Department of Revenue sees fit to ignore the law?) The fact that the state now owes Menasha Corp.$600,000, and may owe other similar companies more money, is the fault of the Department of Revenue, and thus state government.

This is the sort of the thing that, had a similar incident occurred in the private sector (say, a company the size of Menasha Corp. suddenly found itself owing $265 million in unpaid taxes, interest and penalties), would have resulted in firings, and probably not just one. I don’t think this is the result of some faceless bureaucrat misreading the law — this was probably a policy decision high up in the Department of Revenue to keep assessing tax on this particular variety of software until someone made them stop. It certainly makes one wonder how many other businesses — and, for that matter, individuals — are paying more taxes than they are legally required to merely because some DOR bureaucrat told them they had to.

This is also a perfect example of the kind of messing around that occurs in taxing entities or activities that should not be taxed — for instance, corporate income and personal property. The property tax is supposed to pay for government activities tied to property — for instance, police and fire protection. (Schools too, although the School Taxes Off Property organization wants schools funded by something other than the property tax — namely, ending all exemptions from taxes, which means STOP advocates reducing taxes by increasing other taxes.) It’s not clear to me, for instance, why Menasha Corp. has to pay sales tax at all for something that is required for them to conduct business.

For that matter, as I’ve argued in this space before, it’s not clear to me why businesses should have to pay taxes other than what funds strictly property-based services. In addition to the savings for companies in the cost of complying with our tax system, the savings from not paying corporate income or personal property taxes could go in one or more of three directions — more investment in the company, more pay for employees, or more dividends for shareholders. Any combination of those three is preferable to giving state government and our elected officials more money to waste. The benefits any business provides the areas they’re in, beginning with providing jobs — in addition to the 1,200 jobs it provides, Menasha Corp. has donated more than $1 million to Fox Cities-area charities in the past year — far exceeds whatever taxes a company pays.

Ending corporate taxes would have the additional advantage of ferreting out hidden taxes, because, as we all know, businesses don’t pay taxes, they pass them on to customers or their shareholders. Every dollar a business is taxed — whether legally or, in the case of Menasha Corp.’s overpayment, not — is one more dollar in the price of a product, one less dollar that can be spent on the company (including employee pay), or one less dollar that can be passed on to shareholders. It’s amazing how many people don’t understand that, and yet that is an incontrovertible fact.

Correction and clarification: The original version of this commentary, printed in the Aug. 5 Marketplace, incorrectly reported that Menasha Corp. was overtaxed $265 million; corrections have been made in the online version of this commentary. The state Department of Revenue now estimates that the overtaxed amount to Menasha Corp. and other companies totals $277.6 million.

We’re number 43!

Three weeks ago, CNBC.com released its survey on states as places to do business, in which Wisconsin ranked 37th.

Forbes magazine has now issued its ranking of states as places to do business. And Wisconsin doesn't rank 37th. Wisconsin ranks 43rd, behind, in the Midwest, Minnesota (11th), Iowa (22nd), Indiana (25th), Missouri (30th), Illinois (35th) and Ohio (39th) and ahead of only Michigan (47th). Virginia ranked first, followed by Utah and Washington; West Virginia ranked last.

Forbes' rankings are based on business costs, as in costs of labor, energy and taxes; labor, including educational attainment, net migration and projected population growth; the regulatory environment, including the regulatory and tort climate, incentives, transportation and bond ratings; the economic climate, based on growth in jobs, income and gross state product, unemployment rates and the presence of large companies in the state; growth prospects, forecasts of the future economic climate (in Wisconsin's case, gross state product growth of 2.1 percent is predicted, which ranks Wisconsin 41st); and quality of life, an index based on schools, health, crime, the cost of living and poverty rates.

Wisconsin got to 43rd by ranking 37th in business costs, labor and regulatory environment, 26th in economic climate, 46th in growth prospects, and 16th in quality of life. (Note, under regulatory environment, the words "bond ratings," of which Wisconsin's has been steadily falling due to our budget messes.)

The CNBC.com and the Forbes rankings are consistent in cost of doing business (37th from Forbes, 36th from CNBC.com). Wisconsin ranks better in Forbes' eyes in our economic climate (26th) and in quality of life (16th) than in CNBC.com's eyes (36th and 25th, respectively); even though the economic climate measure isn't an apples-to-apples comparison, the comparative rankings to other states are instructive. When you rank 46th in growth prospects, it's clear Forbes isn't bullish about your state.

One significant part of Forbes' ranking has to do with a Pollina Corporate Real Estate ranking of "states’ efforts to be pro-business ... limited to factors over which state government has control." The list shows only the top 10 (North Carolina is number one; no Midwest state is on the list), so we can't tell where Wisconsin fits on this list, but you can draw your conclusions from Wisconsin's lack of executive summary mention and from this:

The list reflects state leadership that truly understands the importance of producing the best job opportunities available for their constituents. The state governments at the top of the list understand that they must be very pro-active in the international battle to keep and attract jobs.

The way that business is conducted in this century is significantly different than it has been in the past. The question is: How is American business and government adapting to these economic realities?

"Our clients are under constant pressure from national and international competitors to be as economical and efficient as possible and often post the question to us: If we are to keep our operations in the U.S., which states have the most pro-business climates?" said Brent Pollina Esq.

The Pollina Corporate Top 10 Pro-Business States were selected based on those factors that are most important to corporate executives and can be controlled by a state's political leaders.

"Each of the Top 10 Pro-Business States has something to learn from the others and all 10 should be held up as models for the other 40 states and the federal government," said Mr. Pollina.

Wisconsin's leaders may understand "the importance of producing the best job opportunities available for their constituents," but it's not clear they know how to produce the best job opportunities available for their constituents. Wisconsin has a number of tax credits (Assembly candidate Jo Egelhoff lists "higher education tax credit, early stage investment credits, research and development credits and investment tax credits"), but we still have one of the highest corporate income tax rates in the nation, high property taxes, and a state Department of Revenue that likes to assess sales taxes on corporations that legally don't have to pay them. (More on that Tuesday in this space.) Wisconsin's low ranking also shows that other states are more aggressive in tax and other incentives, which Pollina identifies as "tax breaks, job training, free land, subsidized rent, free infrastructure, forgivable loans and numerous other creative forms of assistance."

Moreover, Pollina points out, "State financial incentives are often confusing and difficult for most companies to access. Most industry experts agree that most companies, when relocating, expanding or consolidating facilities in the U.S., receive only 10 to 15 percent of the incentives that are potentially available to them. This is the case even among the largest corporations. Companies must know what to ask for, whether they will qualify for programs and what the true value of programs are. It is a negotiation process, and those who know the programs, the states and how to extract the assistance receive the most benefits."

It would be easier to attract businesses here if we could tell prospective businesses that a business doesn't have to worry about compliance with corporate taxes, because we have none, instead of sticking them with a big tax bill and then advice on applying for this or that tax credit. Instead, our elected officials are more afraid of what the teacher's union or the public employee unions would say at the thought that businesses and their employees do a whole lot more good in this state than public employees do. It also appears, based on the way these rankings were compiled, that touting our (supposedly) great schools and quality of life matters much less to businesses not in this state than how much doing business in Wisconsin will cost them.

I'll repeat what I said in this space three weeks ago: Someone must point out that, compared with the states with which we are competing for business — including keeping the businesses we have here from leaving — Wisconsin has barriers to business vitality, economic prosperity and wealth creation, and if we ever expect sustained and sustainable improvement in our state's economy, we need to eliminate those barriers, particularly on Election Day.

Taxes, businesses, taxes, government and taxes

Time was when political campaigns wouldn’t start in earnest until Labor Day, when the attention of the electorate was assumed to have diverted from vacation to more serious subjects.

Campaigns started earlier in Wisconsin because we have a primary election shortly after Labor Day. But thanks to the 24/7 news cycle and the Internet, any campaign can start as soon as the filing deadline.

Jo Egelhoff, former Appleton alderman who is running for the 57th Assembly District seat being vacated by Rep. Steve Wieckert (R–Appleton), talked in The Post~Crescent about what the state needs to do to attract more jobs, essentially: “1) reducing our horrific budget deficit and 2) creating a positive tax climate for employers and employees alike.”

Egelhoff pointed out, correctly, that the fact that Wisconsin has slipped out of the top 10 taxed states list is not because of any focus on governmental economy in Madison, but because some states raised their taxes beyond Wisconsin’s, and others have collected more tax revenues because of oil price increases. Egelhoff favors creating a small business tax credit program “to encourage risk-taking and growth” for companies in their first two years of operation.

Reading the online responses to Egelhoff’s commentary proves that there is a great deal of misunderstanding about how business and taxes work among the electorate. Cutting “wasteful spending” is assumed to mean “spending towards helping people, and not corporations.” At least one person does grasp what we all know, that “consumers should understand that taxes to corporations are simply added to their product price and we reimburse them at the cash register.” (The complete answer, of course, is that every dollar a business is taxed is a dollar that won’t go to the business’ owners or to the business’ employees or back into the business.)

There was a longer assertion about how Egelhoff “utterly fails to see the connection between education and taxes. Folks, if we want to have a first-rate educational system, we have to pay for it. … We don't want to cut their funding because they produce the educated workforce that Ms. Egelhoff touts in her article. In fact, we need to increase their funding just to keep up with inflation. If we make low taxes an important part of our program to attract business, we will join a race to the bottom. We will cut and cut and cut our public services until we become just another Third World country, and we will still fail because, on that basis, we cannot compete with China, Brazil or Thailand.”

“Race to the bottom” is a favorite phrase of those who believe we don’t spend enough money on government now, and, by extension, that we are insufficiently taxed. My first suggestion is that those people who really believe we should be taxed higher should in fact send more money to the government.

But what exactly is enough in taxes and spending? Wisconsin is in the top fourth of states in education spending and, at $6,157 per student, we spend 5 percent more per student than the next-highest-spending state in the Midwest, Minnesota, and 8½ percent more than the national average. In this past school year, per-pupil spending increased 4.2 percent, and total school costs increased 3 percent, according to the Wisconsin Taxpayers Alliance. This is, incidentally, despite the fact that enrollment has dropped in Wisconsin for the past four consecutive school years. (Perhaps the fact that teacher and administrator employee benefits are 52.5 percent more than the national average has something to do with it.)

Moreover (and, as a reminder, none of this necessarily represents or reflects Egelhoff’s positions) is our educational system really first-rate? When teachers are paid according to years of experience and educational level instead of quality, the answer is clearly no. When the only way to get rid of a teacher is either for that teacher to commit gross misconduct, or for the school district to engage in job-cut maneuvering or wait out that teacher’s retirement, none of those are signs of a first-rate educational system. When the only way to reward a teacher for superior performance is to raise the pay of all teachers of similar experience and educational level — that is, when individual teachers are not able to negotiate their own salaries — that is not a sign of a first-rate educational system either.

(For those who think the previous paragraph is an exercise in teacher-bashing, it is not, but consider: Reality says that 75 to 80 percent of school district budgets are for personnel costs. Reality also says that schools are the largest part of your property tax bill. Do the math.)

The assertion a few paragraphs ago refers to the importance of our “educated workforce.” The importance of an educated population, not just workforce, is self-evident. However, note the CNBC.com survey of state business climates I wrote about earlier this month, which (A) places Wisconsin at 37th overall, (B) ranks Wisconsin 47th in “workforce” (defined as the numbers of available workers and their average education level, unionization level, and the job placement success rates of state worker training programs), and (C) ranks education as fourth most important for businesses, with “cost of doing business” number one.

Profitable businesses (1) provide their customers with useful products and services, (2) pay employees and (3) pay their owners. Many businesses also make contributions out of their profits, at the discretion of management, to their communities that go beyond those three points. That is how “private enterprise” contributes to the “public welfare.” (And besides that, every corporate employee who earns a salary, including that high-paid management, pays taxes anyway. Corporate income taxation is really triple taxation — employees pay taxes on their income, shareholders pay taxes on their dividends and their capital gains, and the corporation pays income taxes — except that the corporate tax is hidden in the prices of products and services.)

If corporate taxes were reduced to zero, there would be no need for Egelhoff’s proposed small business tax credit, or any other business-oriented tax credits, and no lobbying legislators for tax breaks. There would also be no need for the accountants larger businesses use to avoid taxes. (Appropriately, I might add; a corporation's fiduciary responsibility to its shareholders is to maximize profits, and taxes eat profits.) Corporate revenues and profits would then go to the proper places, which, once again, are (1) the business, (2) employee pay, and (3) shareholders.

Based on how too many people in Wisconsin vote, there is one place schools seem to be particularly deficient — economic education.

The (third) party pooper

About this time in a race for high office, it is commonplace to rue the dearth of “quality” candidates, and to pine for an alternative for each party’s final candidates.

Some pine for an alternative to the Democratic Party and the Republican Party. We have, of course, a lot more than two parties; officially the Democratic and Republican parties are joined by the Wisconsin Green Party, the Libertarian Party and the Constitution Party.

Our Founding Fathers — and, for that matter, the founders of Wisconsin — did not intend for our country or our state to be a two-party system. (In fact, political parties aren’t mentioned at all in the U.S. Constitution.) The Democratic Party dates back to Thomas Jefferson, and it was in existence when Wisconsin joined the Union in 1848. The Republican Party was formed in Ripon six years later from, in part, the old Whig Party.

Third parties (the catchall name for parties not named Democratic or Republican) are prominent in our state’s political history, as entertainingly chronicled by the Wisconsin Policy Research Institute's Christian Schneider. Everyone who graduated from a Wisconsin high school knows about Wisconsin's Progressive Party (as opposed to Theodore Roosevelt's Progressive Party), first a part of the Republican Party, then a separate party that essentially supplanted the Democratic Party for much of the first half of the 20th century, and then part of the Democratic Party. Milwaukee has had three Socialist Party mayors.

Schneider notes that George W. Bush could have won Wisconsin in both 2000 and 2004 given that his margin of defeat to Al Gore was much smaller in both elections than the total number of third-party presidential votes. (In 2000, Gore won by 5,708 votes, which is less than 5 percent of the total of votes cast for third-party or independent candidates, including Libertarian Harry Browne, Reform candidate Pat Buchanan, Natural Law Party candidate John Hagelin, Socialist Workers Party candidate James E. Harris, Workers World Party candidate Monica Moorehead, Ralph Nader, Constitution Party candidate Howard Phillips, and write-ins.) As for 2008, the New Republic’s Tucker Carlson wrote a frequently amusing account of following around Republican presidential candidate Ron Paul, who served as a third-party candidate during the Republican primary.

(Trivia question: Who is Albert Schmedeman? Trivia answer: Between 1900 and 1958, he was the only Democratic governor of Wisconsin, serving one two-year term from 1933 to 1935. “Fighting Bob” La Follette’s sons, Robert Jr. and Phil, were Republican, respectively, U.S. senator and governor, switching to the Progressive Party in the 1934 election.)

Minnesota had its own experience with a third party governor when professional wrestler-turned-suburban mayor Jesse Ventura was elected governor in 1998, running on the Reform Party ticket, before affiliating himself with the Independence Party of Minnesota. (You may recall that the Reform Party was created by H. Ross Perot so he could run for president in 1992. Apparently, Ventura never received the Reform Party’s imprimatur, and after 2000, when archconservative Buchanan got the Reform Party’s presidential nomination, Ventura didn’t want it.)

Ventura was almost completely useless in office for the obvious reason that beleaguers all third-party candidates: He had no base of support in the Minnesota Legislature. Having to cobble together coalitions on every issue when there is no one else with your own party label requires political savvy at the bare minimum. This is the most convincing evidence of those who claim that third-party votes are wasted. To get elected is not enough, something that Ventura learned.

As has been pointed out before, third parties usually serve to hurt incumbents; Perot helped Bill Clinton get elected in 1992 (and then prevented Clinton from getting to 50 percent of the vote in 1996), Nader helped George W. Bush get elected in 2000, and Republicans are concerned that Libertarian Bob Barr will siphon off votes that otherwise would go to John McCain this fall. In Wisconsin, Libertarian Ed Thompson managed to pull enough votes away from Republican Gov. Scott McCallum to put Democrat Doyle in the Executive Residence. (Schneider isn’t sure of that conclusion, but I am; there isn’t another persuasive explanation as to how Doyle could be elected governor with just 45 percent of the vote, in the same way that Clinton was elected president with 43 percent of the vote.)

Third parties obviously have the right to exist, but, as Democrats will tell you, not only do they usually fail in their electoral goals, but their presence often backfires on their political goals. Only rabid left-wingers and Nader could claim that there were no significant differences between Gore and Bush in 2000, and the word "traitor" was one of the nicer words Democrats used to describe Nader after 2000. Few political observers think Nader, who is running this year, will have much effect on this year's race, which could be a sign that Barack Obama is sufficiently left-wing to appease most Democrats. More people think Barr, formerly a Republican congressman, will affect McCain's vote totals, given the (inaccurate) perception that McCain's not really a conservative.

In 2010, Wisconsin could have, besides Democratic and Republican candidates for governor, a Wisconsin Greens candidate to the left of the Democrat, a Constitution Party candidate to the right of the Republican, and a Libertarian who's not really a moderate but whose views could fall on the left (social issues) or right (economic issues) of the political spectrum. In an election for governor, the other three's presence wouldn't have much impact on the race, which makes you wonder what the point of a third-party candidacy is. Ed Thompson might have believed there was little difference between Doyle and McCallum, but no one who pays attention to politics argued that in 2002.

The point of a third-party candidacy, of course, is to assert that the big two parties are inadequate — too conservative or too liberal, or whatever it was Perot was arguing in the 1990s. (The point can also be to stick it to your former party, as U.S. Sen. James Jeffords of New Hampshire did by resigning from the GOP, or as U.S. Sen. Joe Lieberman did by bolting the Democrats and then getting the ultimate revenge by getting reelected anyway. Jeffords, Lieberman and socialist "independent" Bernie Sanders of Vermont caucus with the Senate Democrats anyway.) Third-party activists seem to argue that it's too much work to make the Republican Party more conservative and less of a me-too party, as supporters of Barry Goldwater did to Ronald Reagan's benefit, or to make the Democratic Party more centrist and electable, as the Democratic Leadership Council did to Clinton's benefit.

I'll believe the Wisconsin Green, Libertarian or Constitution parties are viable political parties when one of their number has an office in the State Capitol.