Comments on Michigan’s just enacted budget

Posted on May 31, 2011 by timbartik

The State of Michigan has just passed its 2011-2012 budget.  The Early Childhood Investment Corporation of Michigan has provided some news coverage of the implications of this budget for early childhood program.

As the article’s lead says, the budget is a “mixed bag”. On the one hand, the budget modestly expands funding for pre-k slots, even while many other educational programs have been cut.  On the other hand, the budget cuts various child care subsidies. In addition, the cuts in K-12 funding may make it difficult for local school districts to provide a sufficient number and quality of pre-k slots despite the state support for funding more slots. Furthermore, Michigan is below the national average both in the percentage of four-year-olds in state funded pre-k slots, and in state funding per pre-k slot. The article provides more extensive quotations of my comments on these topics.

From a political standpoint, the budget is on balance a success for early childhood programs. These programs did better than might be expected given the state’s fiscal challenges and the state’s current political balance of power. But, from an economic standpoint, the budget is a disappointment.  Greater long-run economic impact of early childhood programs requires significant expansion of slots in high-quality programs. The 2011-2012 Michigan budget does not significantly move the state forward in early childhood’s contribution to state economic development.

What are we aiming for in early childhood programs? I think we should be aiming for large-scale impact. This is the standard by which we should be judging success in budget battles: are we increasing the number of children with access to high-quality early childhood education by a sufficient amount to substantially affect overall economic and social outcomes?

Posted in Early childhood program design issues, Early childhood programs, Economic development | Comments Off on Comments on Michigan’s just enacted budget

More on Race to the Top – Early Learning Challenge

Posted on May 27, 2011 by timbartik

Sara Mead, in her blog at Education Week, has some additional useful comments on the $500 million early learning competitive grant program announced by the federal government yesterday.

To elaborate on my comments yesterday, $500 million is a great deal of money in some respects. On the other hand, it only offers limited funding for directly increasing access to high-quality preschool or child care.

For example, if all of the $500 million were used to expand high-quality preschool slots, and such slots cost $5,000 each, then the number of additional slots to be funded would be 100,000. The U.S. has about 4.3 million 4 year olds. So even if all these funds were devoted to preschool for four-year olds, the slots funded would be about 2% of the four-year-old population. Of course, as these funds are intended to enhance a wide variety of child care and preschool services from birth to age 5, the number of additional slots that could be offered via this funding would be an even smaller percentage of each age’s population.

These funds would have a bigger percentage impact in the few states that are funded. But the goal presumably is to have national impact by these few states leading the way.  If all these few states do is use funds to expand slots, all that this demonstrates is that more funding allows for more slots. We already know this to be true.

Therefore, to have a large national impact, these funds will largely have to be used to demonstrate how to improve the quality of services offered by existing funding streams for child care and preschool. The question is, what types of activities would have the most “leverage” in doing so, that is would increase quality the most per dollar spent? How can evaluation of child care and preschool quality best be improved so that we know which programs are working and which programs are not working? How can we set up systems to respond to these evaluations of quality, and intervene to improve quality? What training/professional development activities would truly improve quality? These are some of the questions that need to be explored.

Posted in Early childhood program design issues, Early childhood programs, National vs. state vs. local | Comments Off on More on Race to the Top – Early Learning Challenge

Race to the Top – Early Learning Challenge

Posted on May 26, 2011 by timbartik

The U.S. Department of Education and Department of Health and Human Services announced yesterday a $500 million competitive grant program for state plans for early learning.  The details will be released later this summer, with states then having 6 to 8 weeks to submit grants, and grants being awarded by the end of 2011.

The intent of these grants, according to the U.S. Department of Education website, is to reward “states that create comprehensive plans to transform early learning systems with better coordination and assessment mechanisms, clearer learning standards, and meaningful workforce development and family engagement initiatives.”

Useful coverage of the announcement and what it means has so far been provided by Early Ed Watch, and the National Institute for Early Education Research.

As part of the competition, rather than the traditional approach of first putting out a draft proposal and then requesting comments, federal officials are instead requesting pre-proposal comments via a moderated blog.

My own quick reaction is that these funds are quite limited. Therefore, it is important to maximize impact. To do so, the federal government should consider:

  • Funding only a few states (in conference calls, so far federal officials have not said anything specific about number of states funded);
  • Focus on leveraging funds via developing much better assessment of quality of existing early childhood programs in the state, with interventions that respond to those assessments in a manner that will improve quality;
  • Some federal commitment to including assessment and improvement of Head Start quality in the state in this discussion;
  • Putting considerable weight on states that propose highly innovative pilot programs with rigorous evaluation design – this extra funding should support some significant new programs, not just one federal idea of an ideal system.

What do you think should be done to maximize the national impact of this competitive grant program for early learning?

Posted in Early childhood program design issues, Early childhood programs, National vs. state vs. local | 1 Comment

Good policy analysis requires thinking about overall effects of feasible policy options

Posted on May 25, 2011 by timbartik

A recent conversation with a reporter involved some discussion of how individuals frequently analyze the effects of public policies from a perspective that is too narrow. Good policy analysis requires looking at ALL the effects of a feasible policy package.

Here is what I mean. All too frequently, individuals want to generalize from how a policy affects them personally to how it affects the overall economy. But policy effects don’t work that way.

For example, consider my previous post on the effects of business tax cuts. A businessperson might understandably analyze the effects of general business tax cuts by generalizing from how the tax cut affects his or her individual business.  The logic might be: “A business tax cut for my business would encourage me to expand. Therefore, a general business tax cut will encourage all businesses to expand.” This seems like a simple use of common sense.

However, such a generalization is frequently invalid. For example, if I own a restaurant, and only MY restaurant’s taxes are cut, this gives me a competitive advantage in pricing, and allows me to gain market share. But if ALL restaurants’ taxes are cut, then total restaurant employment will only go up if total demand for restaurants goes up. This may happen to some extent if the general business tax cut leads to lower restaurant prices, and those lower restaurant prices cause consumers to substitute purchases at local restaurants for some other goods and services. But the empirical data suggest that this consumer demand response will be modest.

Furthermore, the tax cut will be financed in some way. If it is financed by reduced employment or take-home pay of K-12 teachers, then this may reduce demand for local restaurants. This indirect effect of the business tax cut on local restaurants must also be considered in a good policy analysis.

The above example is of this “individualistic” perspective leading to exaggerated ideas about the effects of business tax cuts. But this same individualistic perspective can lead to exaggerated ideas about the effects of public spending increases.

For example, some analyses of K-12 education spending or early childhood spending argue that this spending will provide large stimulus for the economy.  The thinking again generalizes from what happens if we provide funding to expand an individual preschool to expand.  The thinking is: “This preschool will order supplies from local stores. The additional preschool teachers will go out and buy goods and services locally. All of this stimulates the economy.”

However, we must also consider that any expansion of education spending requires increased taxes that will to some extent reduce consumer demand. It turns out that realistic analyses suggest that the net effects of the taxes and spending on local consumer demand will be positive. But the net positive effect is considerably smaller than would be predicted by only looking at the spending side.

Either state tax cuts or spending increases would have considerably larger economic impacts if these policy changes were magically financed by an obligation-free contribution from someone from outside the state. If Bill Gates for some odd reason decided to pay for your state’s tax cuts or increased spending, such a policy change would always be 100% an economic stimulus.  But in the real world, policy impacts depend upon tax cuts or spending increases have productive effects on the economy that exceed the NEGATIVE effects of financing those tax cuts or spending increases. This is a higher hurdle for public policy to clear, and one that many proposed policies cannot clear.

Early childhood programs happen to be one of those policy areas in which public spending on high-quality programs is unusually productive. That is why early childhood programs can have large positive economic effects even once we allow for the negative economic effects of the increased taxes needed to finance early childhood programs.

Posted in Business incentives, Early childhood programs, Economic development | Comments Off on Good policy analysis requires thinking about overall effects of feasible policy options

The potential for “peeksee” financing of pre-k programs

Posted on May 24, 2011 by timbartik

I have been involved with some discussions of potential new sources of financing early childhood programs. These discussions have been coordinated by the aptly-named “Early Childhood Finance Innovations” Working Group. This Working Group has been convened by the Kauffman Foundation, and the Partnership for America’s Economic Success.

One important idea being explored is what is currently being labeled PKSE (“peeksee”) financing of pre-k programs. This PKSE financing is a particular way of trying to use special education cost savings to finance pre-k.

Here’s the idea. Suppose some private individuals or foundations want to contribute some charitable donations to expand pre-k programs. But they want their donations to lead to a sustainable program that can generate its own financing.

To do so, these private charitable donations would be committed upfront to provide full financing of expanded pre-k for at least 10 years. These donations would go into a dedicated fund to support an expanded number of slots in high-quality pre-k in a certain geographic area. In return, local school systems would agree to pay into the dedicated fund the identified savings in special education costs from the expanded pre-k slots. At the end of 10 years, the private charitable donations would begin to phase out. But the PKSE concept is that the school system payments would at that point be sufficient to sustain the pre-k program at that same expanded level, or even to further expand pre-k slots.

If such a system works, it has the advantage for local school systems of expanding pre-k without any requirement for the school districts to make up-front investments. In the long-run, school districts would not lose any funds from PKSE financing.

PKSE financing has the advantage for local charitable interests of answering the question of sustainability. If the model works, then temporary private charitable donations will have led to a permanent improvement in early childhood development systems.

This possible model raises a number of questions. Probably the most crucial questions are the following:

(1)    Are the special education cost savings sufficient to make the system be sustainable? This requires that the full K-12 savings in special education costs exceed the cost of the pre-k program for the additional children being offered pre-k services.

(2)    What changes in federal or state regulation of special education funding might be required to make this system workable?

(3)    How specifically would the system in practice identify special education cost savings on an ongoing basis?

(4)    Exactly what formula would be used for switching over from charitable funding to K-12 funding?

As the Working Group’s recent discussions indicated, there are some efforts around the country to get answers to some of these questions. These include efforts in Utah, Colorado, Minnesota, and Alexandria, Virginia.

More details on the PKSE idea can be found in the following powerpoint, from Robert Dugger of PAES and Bob Litan of the Kauffman Foundation.

I think this is a promising idea. But we will have to see whether the numbers work out for this model by itself to lead to fully sustainable funding.

In addition, as I have noted in previous posts, many early childhood programs may have substantial long-term benefits, for example in the form of state economic development benefits or lower crime, without having sufficient special education cost savings to finance these programs. The case for early childhood programs does not rest on special education cost savings. “Peeksee” financing should be seen as a means to the end of financing early childhood programs, not as the main rationale for early childhood programs.

Posted in Early childhood program design issues, Early childhood programs | Comments Off on The potential for “peeksee” financing of pre-k programs

Michigan’s recently-enacted business tax cuts

Posted on May 23, 2011 by timbartik

Several reporters have recently asked for my opinion on the business tax cuts recently enacted in Michigan. These business tax cuts lower the main state business tax in Michigan by about $1.7 billion annually. Will these tax cuts succeed in creating jobs?

My response is that the effects of these business tax cuts on Michigan job creation are likely to be disappointing, for several reasons.

First, across-the-board business tax cuts are less cost-effective in creating jobs than more targeted business tax cuts. Across-the-board business tax cuts include non-export-base businesses as well as export-base businesses. Export-base businesses sell to consumers and businesses in other states. These export-base businesses thereby bring new dollars into the state, which recirculate and create multiplier jobs in local suppliers and retailers.

Non-export-base businesses by definition sell to consumers and businesses in the state. Therefore, the economic activity of non-export base businesses is due more to disposable income in the state than it is to the business taxes that are paid. Including non-export-base businesses in a business tax cut decreases the likely job effects per dollar of the tax cut.

Across-the-board business tax cuts also include businesses that are not even considering creating jobs. Business tax cuts that are conditional on job creation provide incentives for job creation that have a lower cost per job created than if we also give tax cuts to businesses that are not creating jobs.

Second, in Michigan’s case, the main state business tax already had much lower rates for many export-base businesses. This is due in part to the state’s use of 100% sales factor apportionment.  I explained this important but obscure tax provision in a previous blog post. In addition, many of these businesses already received MEGA tax credits for new investments.  Because many export-base businesses already paid low tax rates in the main state business tax, cutting the tax further would not have major effects on their behavior.

Third, in the overall budget package, these business tax cuts are being paid for, depending upon one’s perspective, either by higher personal taxes or lower spending on K-12 education and other programs. In the short-run, reduced spending or higher personal taxes will tend to decrease disposable income and jobs in the state. This demand-side impact will offset or even outweigh the short-run positive impacts of lower business taxes.

I think that Michigan’s business tax cuts have more to do with perceived tax fairness than economic development. Many locally-oriented Michigan businesses resent that the current tax structure leads to these businesses paying higher taxes than export-base Michigan businesses.  Whether this favoritism towards export-base businesses is fair is debatable. However, favoring export-base businesses does make sense in terms of promoting Michigan job creation in a cost-effective manner.

However, even if the true effects of the Michigan business tax cuts are disappointing, I think it likely that these business tax cuts will be perceived to be successful. U.S. manufacturing is doing better. The Detroit 3 are doing better. This improvement in Michigan-based manufacturing is already increasing the relative performance of Michigan’s economy, and is likely to continue to do so.

In the long-run, whether Michigan’s business tax cuts have a positive impact on the economy is likely to depend on how they are financed. (This financing is not a settled issue yet, because it depends upon decisions make not just this budget year, but in subsequent budget years.)  If the tax cuts are financed by lowering the quality of K-12 education, then the effects of business tax cuts are likely to on net be negative.  On the other hand, if the state tax cuts, and other state budget policies, allow the business tax cuts to be combined with increased investment in high-productivity educational programs, such as early childhood programs and selected K-12 programs, then the net long-run impact on Michigan job creation is more likely to be positive.

Posted in Business incentives, Economic development | 1 Comment

A brief presentation summarizing some of my book’s key points

Posted on May 20, 2011 by timbartik

The Milton Friedman Institute at the University of Chicago has now posted my prepared remarks for my May 9, 2011 presentation on my book Investing in Kids. This presentation was to the Youth Human Capital and Economic Development Network of the Human Capital and Economic Opportunity Working Group  of MFI. This working group is financially supported in part by the Institute for New Economic Thinking, whose founding sponsors were George Soros and Jim Balsillie. I think the juxtaposition of the Milton Friedman Institute and the folks associated with INET suggests the diversity of perspectives that are interested in human capital development and the economy.

The presentation summarizes some of the key points in my book. It does so in a little over 4 pages of text. The presentation was accompanied by some powerpoint slides, which are also available. However, the presentation can be read and understood without referring to the slides.

Posted in Early childhood programs | Comments Off on A brief presentation summarizing some of my book’s key points

The special value of greater capability for local earnings

Posted on May 19, 2011 by timbartik

I’ve been reading Martha Nussbaum’s just-published book, Creating Capabilities: The Human Development Approach. Martha Nussbaum is a well-known philosopher at the University of Chicago. She is one of the co-creators (with Nobel-prize-winning economist Amartya Sen) of what is sometimes called the “capabilities” approach to economic development. This “capabilities analysis” has been very influential in thinking about economic development in Third World countries. However, this capabilities analysis is more broadly relevant to how we think about economic and social goals in all countries.

The main point of the capabilities approach is that our goals for economic development should be broader than just increasing per capita GDP. We should be thinking about how economic development can enhance the most important human capabilities.

This approach leads to economic development analysis that includes a variety of measures of economic progress. We should be concerned not only with GDP per capita, but also with measures of health, education, ability to participate in democratic governance, the rights of women, etc. The question is: how well does the economy and society do in helping develop  for everyone the core human capabilities that give human life greater dignity?

At first glance, there might seem some tension between this analysis and my book Investing in Kids. I have focused on estimates of how a state’s investment in early childhood programs or business incentives might affect state residents’ per capita earnings.

However, focusing on per capita earnings is progress, compared to how economic development is often discussed by state policymakers. State government economic development policy has for too long focused only on how many jobs the state government can claim to have created. Whether the jobs actually go to state residents and increase their employment rate, or what the jobs pay, have been secondary considerations.

Furthermore, as discussed in more detail in chapter 2 of Investing in Kids, earnings per capita of local residents represents a special category of benefit.  Being able to be more consistently employed has a special significance to people. The value of a job is more than the earnings obtained. Obtaining and holding a job enhances an individual’s dignity. Being able to be employed in a better job also enhances  dignity. Higher earnings is correlated with job quality, although only imperfectly.

In addition, being able to be employed in one’s home area has a special importance.  The ability to stay and play a productive role in one’s home area allows an individual to better maintain and develop important ties to family, friends, and familiar places and institutions. Local ties are an important form of social capital. We know that local ties are important because people are willing to spend money and time to maintain those ties. For example, people are willing to forego many economic advantages to avoid moving away from their home area.

Therefore, enhancing local employment rates and earnings rates is one important way of enhancing human capabilities. Measuring that enhancement by the increase in earnings per capita of local residents is an imperfect measure. I think that the social benefits of increasing earnings per capita actually have a greater worth than is captured by the dollar increase in earnings.  However, the dollar increase in earnings is a figure that can be compared with costs.  To anyone interested in a “bottom-line” analysis of preschool or business incentives, we can say that the social benefits are at least equal to some multiple of the costs.

Posted in Economic development | Comments Off on The special value of greater capability for local earnings

An example of an economic development organization that understands that early childhood education is part of economic development

Posted on May 18, 2011 by timbartik

One of my web searches came across a recent blog post from the Southern Minnesota Initiative Foundation (SMIF) about early childhood education. SMIF states its vision as follows:

“Since 1986, Southern Minnesota Initiative Foundation has been a catalyst for economic growth in 20 Minnesota counties. We work to build a prosperous region with vibrant communities, innovative businesses and a skilled and valued workforce.

To accomplish this, we invest in emerging businesses and the emerging workforce. We help businesses, local governments and nonprofit organizations find common ground, pool resources and achieve more.”

This includes investments in biobusiness, emerging businesses, and minority-owned businesses. It also includes investments in early childhood education.

In the recent blog post, SMIF President Tim Penney (a former Congressman from Minnesota) states the reasons behind the Foundation’s support of early childhood education:

“I’m occasionally asked why SMIF invests in early childhood programs when, at first blush, it seems disconnected from our “economic development” vision. My response has always been that early childhood is a long-term investment in a quality workforce that translates into vitality for our businesses and communities. SMIF believes that a strong workforce starts at the beginning—with young children who understand they are appreciated and have something valuable to give, even at an early age. Over the past eight years, we have invested about $1 million annually to support organizations and communities who are working to ensure that every child has a good start to life.”

This is a good statement of the case for early childhood programs as local economic development. In this case, it doesn’t come from a policy wonk like me. This statement comes from an organization that also actively promotes local economic development in more conventional ways focused on immediate business needs.

Both well-designed services to businesses, and cost-effective ways of promoting job skills, are essential to a balanced local economic development strategy.

Posted in Early childhood programs, Economic development | Comments Off on An example of an economic development organization that understands that early childhood education is part of economic development

Coordinating early care and learning

Posted on May 17, 2011 by timbartik

I received a request for my comment on Michigan Governor Rick Snyder’s recent proposal to consolidate early childhood programs in one office. (This request came in response to a recent post of mine, in which I asked readers to suggest topics for this blog. Please feel free to send in additional suggestions!)

The Governor’s proposal  is to coordinate all 84 funding streams for early childhood programs under one office, the “Michigan Office of Great Start – Early Childhood”, within the Michigan Department of Education. This coordination includes not only the state preschool programs of the Michigan Department of Education, but also the child care programs and Head Start programs now overseen by the Michigan Department of Human Services.

This consolidation and coordination follows the precedent set by some other states. For example, Pennsylvania has since 2007 had a state Office of Child Development and Early Learning. OCDEL provides similar coordinated oversight and administration of Pennsylvania’s early childhood programs.

This coordination is welcome for two reasons. First, coordination in and of itself makes sense. The standards for child development and early learning should be similar across various early childhood programs, regardless of whether the program is labeled “child care” or “preschool”, and regardless of whether the funding comes from one source or another.

Second, coordinating early childhood programs with an explicit child development and education focus is welcome. I would not be so enthused by a coordination that de-emphasized child development goals, and focused on early childhood programs simply as freeing up parent work time. However, in both Michigan’s case and Pennsylvania’s case, the consolidation appears to be focused on child development.

However, consolidation and coordination only goes so far in what it can achieve. In Michigan’s case, the reality is that just 16% of four-year-olds are currently enrolled in state-funded preschool. This compares with a national average of 27%. Furthermore, the state’s funding for preschool is only $3400 for a half-day slot.  This funding is insufficient to ensure high quality. So far, many school districts have supplemented these funds to create high-quality preschool slots. But this local supplementation is becoming increasingly difficult with state budget cuts to K-12 education.

Consolidation and coordination of early childhood programs with a child development and education focus can yield efficiencies and higher quality. But having a large state economic impact also depends on having enough funding for sufficient slots for the state’s children, and having enough funding that those child care and preschool slots can be high quality. Coordination does not cause money to grow on trees.

Posted in Early childhood program design issues, Early childhood programs | Comments Off on Coordinating early care and learning