BRINGING COSTS "UNDER CONTROL"

Reducing the property tax burden will be the major task of the 1997 legislature, and Gov. Howard Dean has announced a principle upon which education finance "reform" must be based. On WCAX on November 10 the Governor declared that "You can't solve property taxes without dealing with spending issues." Just so.

When the spending is a line item in the state budget, it's simple to deal with. Given the political will, the item can be reduced by 3 percent or $2 million or whatever. When the spending is done by somebody else - by school districts or by individual Vermonters - "dealing with" gets quite a bit more complicated.

A comparison with hospital costs is instructive. Soaring costs for health care, political leaders say, must be "brought under control". So in 1995 a state agency began to set and enforce an overall budget for every Vermont hospital (this is still being litigated).

A hospital facing a state-imposed spending ceiling can take several steps. It can reduce its work force. It can hold down their pay and benefits. It can hustle patients out the door earlier. It can contrive to avoid receiving the most costly patients.

But it can't do much about changing the rules of medical care delivery. Highly-paid doctors have to deliver most treatments. Charges must be collected from third party payers (insurance bureaucracies). The lab must be run the way the federal government requires.

Malpractice premiums must be paid based on a legal system tilted against the provider. The refusal of many doctors to accept Medicaid patients (because the government only pays some 60% of their bills, and won't allow the doctors bill for the difference) results in Medicaid patients coming to hospital emergency rooms for high-cost treatment of minor problems.

It does not seem to occur to most budget-driven policy makers to rein in government-paid costs not by imposing more government mandates and spending caps, but by letting the providers break loose from a rigid set of government-imposed rules and traditional institutional arrangements which require spending more money than necessary.

Now look at a key feature of the Governor's property tax solution, putting the state in charge of local education costs which are "out of control". As in its hospital policy - ardently promoted by the Governor - Montpelier will impose mandates and penalties to control local school spending. If a town spends "too much" on its schools, it will face what amounts to a state tax on its excess educational spending.

Of course the underlying rules and economics of education will not have changed. Local schools districts will still be teaching pupils forced to attend government-run schools under penalty of truancy. Pupils will still be taught by a "sage on the stage" certified by a state bureaucracy, unionized by the Vermont NEA, virtually immune to removal for poor performance, and ineligible for merit pay.

These teachers will be supervised by layers of expensive administrators whose job it is to make sure everyone complies with the state Board's current version of "The Green Mountain Challenge" and above all, doesn't make any waves. No wonder local education costs, and thus local property tax burdens, are "out of control."

The "solution" for education costs, and thus property tax relief, will not be found in Montpelier-imposed cost control. It lies in changing the rules of the system to expand competition among providers, local initiative, consumer information and choice, and innovative learning methods ranging from apprenticeship and mentoring to distance learning via Internet. That will result in more satisfied and better educated children, more efficiency in the use of tax dollars, and lower property tax burdens.

Unfortunately a reform built on those ideas is thoroughly unpalatable to the teachers' union, most administrators, most elected school boards, most legislators fearful of the political power of all those groups, and, at least so far, Gov. Dean.

And so we are likely to end up with state government trying to control local educational costs in the same way that it attempts to control health care costs: mandates, caps, limits, ceilings, penalties, and lawsuits to make sure such spending stays within some state-determined budgetary target.

What is really needed is major change in the structure and incentives of education. Real reform means customer choice, flexibility, competition, innovation and opportunity - not a Montpelier bureaucracy using an ever-bigger hammer to enforce its budgetary will on a ever more costly government-run school system long overdue for radical change.

November 1996