Poor red states suffer from low fiscal capacity.
Striking teachers in West Virginia recently made headlines in their efforts to increase their pay and benefits, which are among the lowest in the country. Teachers in Oklahoma, Arizona, and Kentucky have followed suit with similar protests. The dominant narrative, pushed by Democrats and their allies in the labor movement, presents these protests as part of a larger struggle between underpaid educators and miserly state Republicans more concerned with cutting taxes than with investing in children. While politically convenient, this story is largely a red herring distracting us from the real reason teachers in West Virginia and elsewhere are currently underpaid and unlikely to see substantial pay increases any time soon.
The problem is fiscal capacity. This is the ability of governments to raise enough revenues for the provision of basic public goods. Some states have greater total taxable resources (income, wealth, natural resources, etc.) than others. Typically, social scientists discuss fiscal capacity in regard to the inequality that results from the ability of rich suburbs to spend more on education than poor urban areas. While reformers have made great strides in reducing the disparities between urban and suburban school spending, they have paid almost no attention to disparities among states. It is impossible to address the teachers’ grievances without addressing limited fiscal capacity among poor states.
Comparing West Virginia and New Jersey helps us understand the underlying problem. Each state dedicates the same proportion of its resources to spending on education salaries and benefits — about 3.5 percent of its GDP. In other words, they are putting in the same effort. The crucial difference is that New Jersey is a very rich state, which gives it more fiscal capacity. West Virginia, on the other hand, is a very poor state, which severely limits its fiscal capacity.
The difference in fiscal capacity translates into about $5,800 more per pupil for teacher salaries and benefits in New Jersey relative to West Virginia ($15,203 versus $9,409). If you want to know why the average teacher salary in West Virginia amounts to only 65 percent of the average teacher salary in New Jersey ($45,701 versus $69,623), then look no further than the fact that per-pupil spending in West Virginia amounts to only 62 percent of per-pupil spending in New Jersey.
Some of this gap can be attributed to regional differences in the cost of living. A $45,701 salary gets you more bang for your buck in West Virginia than in New Jersey. But when it comes to student learning, New Jersey ranks near the top of the National Assessment of Student Progress while West Virginia ranks near the bottom. Like any other service, you get what you pay for when it comes to education.
Critics contend that Republicans could simply raise taxes to pay teachers better. This misses the fundamental problem with West Virginia’s limited fiscal capacity. In order to attain per-pupil spending on par with New Jersey’s, West Virginia would need to substantially increase the tax burden on its already poor residents far above and beyond that of any other state. Even if West Virginia introduced a trendy new millionaire tax, it would not raise anything close to the necessary revenue because the state ranks near the bottom in terms of millionaires per capita.
The only way to ensure that underpaid teachers in poor states receive the pay raises they deserve is to directly address disparities in fiscal capacity across states. The most effective way to do this is through a federal equalization block grant targeting states with below-average fiscal capacity. An equalization grant would enable poorer states to provide the same level of public services afforded to residents in richer states without adding crushing new tax burdens. Most states already do this when doling out local aid to municipalities by accounting for variations in property-tax bases in their formulas. This has helped reduce disparities in spending across school districts.
The United States is actually the only country with a federal system without an equalization grant.
The United States is actually the only country with a federal system without an equalization grant. Introducing one would have similar effects in reducing spending disparities across states by raising education spending in the poorest states. That means more money for teachers and a better education for students in West Virginia.
An equalization grant is a tough sell politically, though. An effective grant would distribute the vast majority of its benefits to poor states that also happen to be red states. Rich blue states such as California, New Jersey, New York, and Massachusetts would receive nothing. Unfortunately, it is hard to imagine blue-state Democrats voting for a policy, even a progressive one, that offers no benefits to their labor constituents at home. Likewise, it is hard to imagine Republican leaders lining up to introduce an expensive new block grant, even if it primarily benefits the states they represent.
Despite these obstacles, the implications remain clear: Labor struggles at statehouses across the country will largely be fought in vain until the federal government begins to provide poor states with the funding they need to boost their fiscal capacity and provide basic public services to their residents.