Op/Ed: Town Manager’s Budget Is Penny Wise, Pound Foolish

by | May 13, 2018

By Eugene Quinn

Would you spend $152 for better schools in East Greenwich?

The East Greenwich town manager recently proposed a town budget for fiscal year 2019 that reduces the local revenue requested by the School Committee by $860,558. Ostensibly, the reason for the reduction is to rein in spending on the schools, which the Town Council believes to be rising at an unsustainable rate, and to provide tax relief to residents.

While no one would argue against tax relief per se, it raises two questions:

  • How much relief can we expect?
  • How will the quality of our schools suffer, given that this is the second consecutive year they have been allocated approximately the minimum allowed by law?

It is easy to obtain a back-of-the-envelope estimate of the tax relief if you know the total assessed value of taxable properties for FY2019 (according to the tax assessor it’s $2,368,000,000).

If your home is assessed at $417,000 (the FY2019 median according to the tax assessor), to a first approximation your share of the $860,558 is $860,558 times $417,000 divided by $2,368,000,000 or $151.54.

Cutting the school budget by the amount proposed will reduce the property tax bill by this amount for a home at the median valuation, which amounts to four one-hundredths of one percent of the property value.

This number is approximate because some properties have exemptions that effectively reduce their tax rate, and not all tax revenue comes from real estate taxes, but I would not expect the number to change significantly when those factors are considered.

There is no question that the reputation and quality of our schools declined because of last year’s budget cuts (to the point of threatening their accreditation). If the proposed FY2019 budget is enacted, the School Committee may once again face the prospect of cutting worthwhile programs and denying the current generation of East Greenwich public school students educational opportunities that their predecessors enjoyed.

The Town Council has argued that our school costs are out of control and rising at an unsustainable rate because they are rising faster than inflation, and we cannot afford the increases requested by the School Committee.

This was the reason for hiring the current Town Manager, first as a consultant, then as Town Manager at a salary higher than the governor. Presumably, the money the town would save by eliminating inefficiencies and mismanagement would more than cover her salary. After all, if costs are rising faster than inflation in the schools, it can only be due to poor management and the solution is to bring in someone ”tough” enough to make the hard choices required to rein them in.

Over the past year, as the discussion of East Greenwich property taxes turned to affordability, I began to think that this was a question for an economist, and I asked a number of economics professors about our situation. Every one of them suggested I read the work of William Baumol, who addressed the question of why the cost of services like health care, education, legal services, and public safety tend to rise faster than measures of overall growth like the CPI. His book, ”The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t” (Yale Univerity Press, 2012) is a layman’s explanation of the results author’s work.

The main points Baumol makes are:

  • Productivity gains differ widely in different sectors of the economy. This is because some sectors like manufacturing are better able to exploit automation, while automation is much less effective for activities like seeing patients, giving classroom lectures, or fighting fires.
  • Over the long term, the changes we see in cost stem largely from productivity gains. Costs rise more slowly or even fall in sectors that exploit automation well. Costs rise faster in sectors that can’t.
  • Higher growth rates of service sector costs are not the result of mismanagement or inefficiency, but the inevitable result of unequal gains in productivity (removing the rationale for the hiring and actions of the Town Manager).
  • The growth of costs in labor-intensive services will always be higher than the average (CPI); you cannot “fix” the differential productivity gains. If you try to restrain growth by cutting budgets, the quality of service will decline.
  • Services whose costs increase faster than the CPI do not become unaffordable (Baumol admits that this is counterintuitive and a hard sell, but he backs up his claims with 50 years of data). The title of chapter four in the book is ”We Can Afford It.”

The following quotes by the author are from an article that appeared in a New York Times article following his recent death:

What this says is that the quality of life 30 years from now could deteriorate, because many of the services that we associate with quality of life will become relatively more expensive while mass-produced things become cheaper and cheaper.

The real danger is that the nation, mistakenly thinking it must rein in runaway costs, will curtail valuable health services and render them inaccessible for the less affluent. Well-meaning reformers may take the same misstep in education, law enforcement and other handicraft services.

Here is a link to the New York Times article: William J. Baumol, 95, One of the Great Economists of His Generation, Dies.

Eugene Quinn, Ph.D., serves on the School Finance Subcommittee.

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EG TaxPayer
EG TaxPayer
May 14, 2018 9:09 am

The school costs are out of control and rising at an unsustainable rate because they are rising faster than inflation, and we cannot afford the increases requested by the School Committee.


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