Column: Amendment necessary to support public schools properly

The proposed constitutional amendment on education offers a simple solution that solves more than one problem. Education can be improved, and high home prices reduced.

A large body of research finds that higher property taxes reduce home prices.

“Investment properties” is a commonly used term and can even be found in Chamber of Commerce Hawaii testimony. The Chamber claims it’s too vague — but it usually means properties not lived in by the owner and often rented out. More precisely it means properties bought, like stocks, primarily to increase wealth.

One example was Genshiro Kawamoto, who bought one mile of beachfront properties in Kahala, tore down the houses, and then reaped a 5 percent annual appreciation rate when he sold them 20-plus years later.

This points to the fallacy that this measure will raise rents as landlords pass along property taxes to tenants. Many are vacant lots, or aren’t rented, or are rented to visitors.

Residential property taxes in Honolulu were 35 cents per $100 in 2016. Honolulu raised property taxes to 45 cents for properties over $1 million. Hotels are taxed at $1.25. All well below the national average of $1.41.

In Hawaii, per-pupil expenditures were 17 percent above average. Where does that extra 17 percent go?

The state Department of Education spends 12 percent of its operating budget on electricity. Rates in Hawaii were 224 percent higher than the national average in 2016. Work through the math and that means electricity prices drive up per-pupil expenditures 27 percent, other things being equal.

Things are not equal. Below-average teacher salaries, and general adminis- trative expenses, mean higher per-pupil expenditure is entirely explained by electricity prices.

Nationally, average teachers’ salaries in 2017 were $58,950; in Hawaii $57,674. Our price level in Hawaii is 18.4 percent higher than average. The purchasing power of teachers’ wages was $48,629. A 21 percent across-the-board raise would have brought teachers up to average in 2017.

On paper, estimates of teacher raises between 2010 and 2017 were also about 21 percent. In reality, they rose just 4.7 percent over seven years. Obviously an overestimate. The recent teacher contract projects similar raises of 13.6 percent consisting of across-the-board increases and “step increases.” These last are derived by assuming no one quits or retires, and everyone moves up to a higher step.

However, employee turnover means higher-salary teachers are replaced with lower-salary teachers.

Such mistaken estimates about teachers’ raises leads to overestimates of projected general fund expenditures on them.

Past estimates projected average salaries $12,000 higher than they actually were in 2017, thereby overestimating expenditures by $156 million. This, combined with the teachers shortage, ends up as surplus — that does no good.

Including benefits makes the situation worse, the main one being health care. (Pensions are self-funding).

The state website (eutf.hawaii.gov/active/eutf-hsta-active/rates-contributions/) reports that the state pays 59 percent of the total premium. In the example of the least-expensive plan, a teacher’s copay would be $266 a month, or $3,127.92 a year, which works out as a pay cut of 5 percent. The state’s description of benefits doesn’t mention these copays, nor are these included in state press releases on teachers’ pay.

After these items are calculated, an additional $297 million is needed annually, at least. That’s $2.97 billion over 10 years. Which could be covered by a half percent GET surcharge? Didn’t we just have that war?

The public school system fails at the most fundamental level: unable to have a teacher in every class. We need to understand our problems and use the full power of our state financial system to solve them. This amendment is a first step.

Lawrence W. Boyd is an economist at the Center for Labor Education and Research at the University of Hawaii-West Oahu.