Cascade Policy Institute

This proposal is one of ten winning reports from the 1996 Oregon Better Government Competition. The 1994 and 1996 Competitions were organized by the Portland-based Cascade Policy Institute. Opinions expressed are those of the author(s) and not necessarily those of Cascade staff or advisors, nor should they be construed as an attempt by Cascade Policy Institute to influence any election or legislation.

Financing Schools Without Taxation:
Unraveling the Mystery of Oregon's Trust Lands

by John Charles
Sandy, Oregon

Executive Summary

Public education, including both K-12 and higher education, is the single largest category of state spending in Oregon. During 1995-97, 58% of state general fund revenues are being spent on public education, yet many educators and citizens are calling for increased spending.

However, the level of education spending, per se, is relatively unimportant; how the money is collected and administered is what matters most.

The problem is public monopoly schools paid for through taxation; the solution requires that we privatize state schools and have families pay for education through user fees, while abolishing all school taxes. The way to ensure that low income students receive a quality education is to provide them with full-cost scholarships to the schools of their choice, paid for by selling off $1.1 billion of state-owned lands that are dedicated to education finance. These lands currently earn only 0.5% return annually; selling the lands, placing the revenues in the Common School Fund (where they can earn 7% or more annually), and using the earnings to provide scholarships will ensure that all school taxes can be abolished.

This same approach should be taken with higher education. All public colleges and universities should be privatized, and tuition assistance provided through need-based scholarships, funded by Oregon Lottery funds.

I. Preface

This proposal is concerned primarily with the fiscal aspects of education. For the most part, the paper is neutral on issues related to educational standards, curriculum requirements, teacher certification, tenure, or student performance. The proposal does not change legal or social expectations that parents should educate their children; it simply gives parents more control over how that happens.

I hope that people currently working in the public education system will not perceive my suggestions to be an attack on their work. As a former educator, I have nothing but respect for those in the profession, both paid and volunteer. The financial problems of the system are the result of bad incentives, not bad people.

II. Introduction

Public education is the largest single category of state spending in Oregon. During the 1995-97 biennium, 58% of state general fund revenues are being spent on public education. By comparison, all other human resource programs combined will use only 14% of the general fund.

Yet despite these expenditures, there is a widely held perception that public schools are under-funded, and that this situation is becoming worse due to the effects of ballot measure 5, which passed in 1990. Indeed, because some public school districts have reduced the number of teachers for the 1996-97 school year, school finance is considered a crisis issue among most public official. A review of the 1996 voters' pamphlet shows that virtually every candidate running for public office believes that "solving" the public education crisis is a top priority, and each promises to do something about it. Most candidates suggest that the solution will require increased expenditures by the state.

Unfortunately, these responses miss the point of what is wrong with the financing of public education. It is not a money problem. In fact, the amount of money spent on public education -- at least at the K-12 level -- since 1990 has actually increased by 22.1%, while inflation rose only 18.4% during that same time period. Teachers' salaries also grew by 25.3%.⁽¹⁾

If the teachers' salaries had only risen at the 18.4% rate of inflation, the savings in 1995-96 would have been $62 million, enough to have hired 1,240 new teachers.⁽²⁾

During the 1980's, teacher salaries grew by nearly 79% or 1.76 times the rate of inflation, and benefits grew by 172% or 3.84 times the rate of inflation. This trend continued during the years of 1990-95, despite the passage of ballot measure 5.

Non-teacher expenses have also risen dramatically. In 1966-67, non-teacher expenses accounted for 39.3% of total current expenses or $231 per student that year. By 1993-94, non-teacher expenses had risen to 47.5% of current expenses, or $2,400 per student.

On a per student basis, non-teacher expenses grew by 67% during the past ten years, while inflation rose 43.7% during that same period.

In the words of one analyst, the conclusion is simple:

Ballot Measure 5 did not reduce funding of Oregon schools. Expenditures grew 36% faster than inflation, but the highest priorities were teacher salaries and benefits, with non-teacher expenses growing disproportionately slower, and new teaching positions not being a priority at all."⁽³⁾

While this news may be surprising to many Oregonians who have assumed that we need to spend more on schools, the fact is that on a national basis, there is no evidence that more money leads to better educational outcomes. As one expert has noted:

Between 1967 and 1980, for example, student achievement test scores in the United States declined by the unprecedented equivalent of one and a quarter grade levels even though per capita spending on public education in the same period had increased in real terms each year. The decline of achievement continues today, although at a slower pace. Clearly, increasing the level of education spending in and of itself does not improve educational achievement.⁽⁴⁾

Student performance in Oregon since 1990 apparently reinforces this conclusion. In August, 1996, the Oregonian carried an article under the headline, "Schools find money no factor in test scores." The reporter noted that students made as much progress on test scores in schools that lost money under Measure 5 as in those that enjoyed large increases.

According to an analyst cited by the author, this was highly predictable. Eric A. Hanushek, an economics professor at the University of Rochester in New York, said he had reviewed about 400 studies "that show spending has little effect on student achievement."

III. Addressing the Systemic Problems with Oregon's School Finance System

The problem with posing the question simply in terms of "How can we raise more money for schools?" is that it distracts us from a systemic flaw that cannot be solved with money: public education is an open-ended entitlement program, run as a government monopoly, with no direct link between those who pay and those who benefit. Without that link, there can be no fiscal discipline. Thus, the system will always appear to require more money.

Our current system represents in some sense a utopian vision in which all families get "free" services in unlimited amounts. The tragic irony is that there is absolutely nothing free, or utopian, about the reality of public education. It is based entirely on coercion: the state imposes taxation, transfers income to designated education providers, and assigns children to specific public schools.

It's important for policy makers to understand that simply throwing more money into the current system will simply be a very expensive band-aid. In order to come up with a real solution, two key flaws must be addressed: school taxation and monopoly service.

Taxation destroys incentives to control costs because it eliminates the fiscal relationship between education providers and education consumers. Under normal market conditions, retailers must provide services at affordable rates or exit the market. Public education providers face no such pressures because their revenues come from taxation, not customers.

Monopoly service eliminates incentives to control costs because it destroys markets for education. Without markets (i.e., competition), it is impossible to efficiently allocate financial resources. When linked with school taxation, the result is a guaranteed pool of revenue and a guaranteed pool of customers.

Until these two aspects of public education are changed, Oregon's school finance problems will continue indefinitely.

IV. Proposed Reform

The solution to Oregon's educational finance problems is replacing taxation and monopoly service with user fees and markets. Education must be allowed to function as part of the broader market economy.

This proposal calls for the privatization of public schools, beginning with higher education and high schools, followed gradually by middle schools, and finally elementary schools. This should happen over a period of perhaps ten years, to allow all participants to adjust their expectations and behavior.

As each step of privatization is phased in, there should be a corresponding reduction in school taxation so that parents will have more of their own income to spend on non-state education services.

In order to deal with the obvious equity concerns about low income residents who could not afford private education even with total tax relief, this proposal includes a scholarship program created by the sale of a $1.1 billion portfolio of lands held in trust by the State Land Board for the Common School Fund (CSF). Most of these lands, known as "trust lands", were deeded to the state at the time of statehood by the federal government, to be managed for the benefit of Oregon schools. The lands include grazing lands (mostly in southeastern Oregon), other agricultural lands, and the Elliott State Forest near Coos Bay.

Although the State Land Board is required by the state constitution to manage the trust lands for the maximum benefit of the CSF, the average annual return for the portfolio is a mere 0.5%. In contrast, the assets of the Fund that have been invested in equities have averaged a return of 17% over the past five years.

However, an important part of this proposal is that the proceeds from the sale of trust lands, should such a sale take place, not go to education providers. Rather, funds should be placed in the Common School Fund endowment, and the investment earnings used to provide assistance to education consumers, in the form of tuition vouchers or scholarships. This is perhaps the single most important element of the proposal, because it is the key to controlling costs. When the subsidies are in the hands of consumers who are free to shop around for the best education in the market, all educational providers will have strong incentives to offer quality services at affordable rates.

Since the CSF provides revenue only for K-12 schools, this proposal also calls for the use of lottery funds to be used for need-based scholarships for college students, in lieu of lowering tuition rates for all students.

It's important to note that, unlike many voucher proposals, this concept does not use any tax dollars. That eliminates one of the most common objections to vouchers, namely that tax funds would be used to subsidize private schools.

Moreover, this paper calls for the eventual privatization of all schools, making the public/private school debate moot.

V. Making the Case for Markets in Education

Competition in the marketplace is the essence of the American economy. When people have no competition, they have no incentives to be creative, increase productivity, or cut costs. In sectors of the economy that have moved from government-mandated provision of services to a more de-regulated status, such as the surface freight and airline industries, the empirical results have overwhelmingly been favorable for consumers, by at least two important measures: greater choice of service, and lower costs.⁽⁵⁾

Competition implies that consumers have access to alternative providers of goods or services. The current system severely limits this access, because public schools are financed through tax dollars, while alternative consumer choices -- private schools -- are funded through user fees. When parents are first taxed for public schools, they have less income to spend on the private school of their choice, severely limiting the range of alternatives.

Even within the public school system (for K-12), tax paying parents have relatively few choices. If parents are not able to educate their children at home or afford a private school, they can only exercise choice by moving to a different neighborhood, trying to send their children to a magnet school (where such schools exist), or by negotiating a transfer between schools or school districts -- which administrators will only approve in limited circumstances. In essence, each local public school has a franchise agreement that gives it a monopoly over most public school students in a particular geographic region. This has the undesirable effect of driving up costs.

VI. User Fees vs. Taxation

It was stated earlier that perhaps the most important element of this proposal is the switch from school-based grants to user-based scholarships. The reason is that user-based subsidies create a type of fiscal discipline in the marketplace that cannot be replicated through large, tax-supported grants to institutions. As one expert has written:

Revenue obtained through generalized, organizational subsidies have very different incentive effects than revenue obtained through "sale" of products, such as educational services. Economic theory predicts, for example, that some portion of such subsidies would be dissipated on so-called X-inefficient behavior of the enterprise -- essentially, indulgence of the perquisites of the management and staff of the enterprise, rather than the quality or cost of the service. Although some offsetting incentives can be built into the granting mechanism (such as making the subsidy capitation- or enrollment-based), it is difficult to craft in incentive formula that replicates consumer incentives. The aid formulae employed in most states thus do little more than prorate aid to the size of the institution. Hence, they would not be expected to lead, necessarily, to increases in instruction expenditures of direct benefit to students, per se.⁽⁶⁾

In contrast, user fees are an excellent means of imposing quality and cost control on service providers. In a retail shopping district, for example, consumers have both competition and the power to withhold revenue from shoddy merchants. The competition itself would be relatively meaningless if the potential customers were forced to turn over a percentage of their income to be divided among all retailers in the district.

This is why charter schools and most voucher proposals are fundamentally misguided. They are usually described as methods for providing parents with school choice, yet they rely on generalized taxation as a revenue source, with the redistribution of income controlled by the state. This is not true competition, it is a contrived marketplace where consumers are barred from controlling their own expenditures.

Market-based pricing of school tuition places the purchasing power in the hands of the consumer. People who are not satisfied with a product or service can demand a refund, take the retailer to court, and/or refuse to do business with that provider in the future.

In the context of school subsidies,

...providing financial assistance through students (rather than through the institution) should stimulate, on the part of [school] managers increased emphasis on student educational outcomes rather than outcomes that benefit faculty or staff.⁽⁷⁾

VII. The Politics of Revenue Distribution: "Concentrated Benefits, Dispersed Costs"

The primary reason why public monopolies supported by taxes spend more money than market-based institutions do is because of the political principle known as "concentrated benefits, dispersed costs". Certain interest groups, such as teacher unions, administrators, and school board members, have a higher than average interest in maintaining or increasing the flow of public subsidies, therefore they take the political steps necessary to ensure that outcome.

But the average citizen has no such incentive to be involved, because the costs are widely dispersed. Paying an inept teacher, or paying for unwanted services, may be a complete waste of money to individual families, but when the costs are divided among a large population of citizens, it will only cost each taxpayer a few pennies. In such circumstances, it is not worth the time or effort for citizens to obtain financial information, learn the political process, and organize sufficiently to affect a financial decision. Consequently, most citizens don't.

This explains why the rates of increases in teacher salaries, teacher benefits, and non-teacher expenses have risen substantially faster than the rate of inflation in Oregon. It's almost impossible for any individual school board member, administrator, or tax payer to maintain cost control in the system; the institutional incentives to spend overwhelm scattered efforts at fiscal reform.

User fees correct this political problem by linking costs with benefits. For that reason, they are widely used in the provision of many important public services. For instance, most drinking water providers charge consumers consumption-based fees. Some providers, including the Portland Water Bureau, have tiered rates in which the first increment of consumption is priced at one rate, while higher levels of consumption are charged at higher rates. The obvious purpose of such pricing is to let consumers know that water is not an unlimited good.

If water districts were to let people use all the water they wanted for free, or if they charged a fixed amount through property taxes, people would be encouraged to use large amounts of water during the hot summer months, possibly creating water shortages. If the district had to purchase more water as a result, costs would rise for all consumers -- including those who had practiced effective water conservation techniques.

In short, unit-based pricing rewards those who are thrifty, shifts most of the costs to those who demand the most, and helps keeps overall system costs down. The fact that unit-based pricing is widely used in the provision of water, electricity, gas, and telephone service is evidence that both retailers and consumers understand the basic rationale, and that it works.

VIII. Empirical Evidence: Cost-Effectiveness Data from Private Schools

The soundness of market-based pricing can be observed within the educational sector by looking at data from non-state schools. Decades of experience with Catholic schools demonstrates that when parents voluntarily pay for tuition at the schools of their choice, market pressure drives down costs -- without any apparent loss in teaching effectiveness. According to data in the reference book High School and Beyond⁽⁸⁾, the differences in test scores between sophomore and senior years for most students, whether in public or Catholic schools, is very small: 0.15 standard deviations per year for public schools, and 0.18 for Catholic schools. The difference between the two, just 0.03 standard deviations per year, does not support the contention that one school system is significantly better than the other in terms of academic performance.

However, given that Catholic schools spend, on average, just half as much per student as public schools, there is no reason to think that Catholic school students should out-perform public school students. The more important point is that since test scores are approximately the same in each system, it means that Catholic schools are twice as cost-effective as public schools.

Such results are not confined to religious schools, nor to private schools only in this country. A recent survey conducted by the World Bank looked at studies of public and private school performance in Columbia, the Dominican Republic, the Philippines, Tanzania, and Thailand. When researchers incorporated per-pupil spending to estimate cost effectiveness, they found that private schools were more cost effective in every case⁽⁹⁾.

IX. Providing low-income assistance within the user fee framework

Because user fees operate on the "willingness to pay" principle, rather than the "ability to pay" principle, they promote economic efficiency but not necessarily social equity. This problem is best resolved through use of consumer-based subsidies that target the assistance, so as to avoid subsidies to the general population.

As a society, we have extensive experience with this approach in our food assistance programs. The use of food vouchers allows us to help the people who really need the assistance, while preserving market competition that makes food producers and retailers compete for those vouchers. The result is that the United States has the best food production system in the world.

In those instances where government has chosen to intervene with supplier-based subsidies -- e.g., crop price supports, import quotas, or federally-built dams that provide below-market water and electricity -- the results have universally been disappointing, and occasionally disastrous. Even members of Congress, the architects of such subsidies, are now coming to realize that free-market agriculture will be better for the country, and some of the supplier-based agriculture programs are in the process of being phased out⁽¹⁰⁾.

When it is recognized that such life-sustaining commodities as food and water are provided through market-based pricing, the need for school finance reform becomes even more compelling. It forces the question: if the current method of paying for education is the best way to provide for essential goods and services, shouldn't we be calling for the creation of a new entitlement program for "free food", supplied by massive, state-run farms, distributed through state monopoly food stores, and financed through billions of dollars of new state taxes?

Or shouldn't we be able to consume all the water and electricity we want, paid for only through fixed tax rates on the general population?

Clearly the answer is "no."

Oregon policy makers must accept the fact that user fees control costs through market discipline, while taxation relies on political discipline -- an oxymoron.

X. Income Profile of Oregon Families

Many people assume that public schools are necessary in order to address the income disparities in society. They might be surprised to learn that our current system of taxation and income redistribution results in subsidies for families that have very little need for them, resulting in higher costs for everyone else. A study completed in Oregon last year found that:

The social characteristics of dependent students attending Oregon's public and private four-year institutions are highly similar in terms of parent education attainment, family incomes, and family composition. The 1992 median family income of dependents at OSSHE institutions was $47,210 compared with $45,734 at private colleges. While the family income of community college dependents was lower, they represent a predominantly middle-class population as well, with a median family income of $40,097.⁽¹¹⁾

For the 1993-95 biennium, Oregon institutions of higher education received state subsidies of $691 million, which allowed them to keep tuition and fees at an average of $2,780 (out of state students were charged an average of $8,580, presumably the real cost of providing service). The average for the state's nine largest private institutions was $12,791. Given that the families with dependents at public institutions tend to have higher incomes than those with dependents at private schools, the use of public funds to subsidize 68% of the tuition for all in-state students at public institutions seems highly questionable.

It would make more sense to require those students capable of paying the full amount to do so, and reserve subsidies for those demonstrating the greatest need, regardless of which school they chose.

Lewis and Clark College president Michael D. Mooney proposed this reform several years ago. In an interview with the The Oregonian editorial board, he cited studies conducted in Washington, California, Minnesota and Ohio showing that "the range of family economic backgrounds for students attending public research universities is about the same as those in private institutions."⁽¹²⁾ According to Mooney, private colleges are not "havens for the rich".

The Oregon legislature recognized the wisdom of privatization in higher education -- at least on a limited basis -- during 1995 when legislators voted to spin off Oregon Health Sciences University (OHSU) as a non-profit corporation. In reviewing this decision in its lead editorial on August 17, 1996, The Oregonian posed several important questions: "Was it the right thing to do? Is the institution effectively using the advantages of being a corporation while still protecting the public interests it served as a state agency?"

The editorial board concluded that:

While it's far too soon to give a definitive answer, the signs are generally positive. As a corporation under a single board, OHSU has shed bureaucracy and gained flexibility and efficiency. It has joined with other health providers to streamline operations and end duplication; it has sold bonds to pay for maintenance that the state was slow to take care of; and it is becoming more businesslike in handling administration, personnel and payroll, budgeting and accounting, and overhead.

Admittedly, the OHSU example is not entirely on point, because the university is receiving $106.6 million in state support for the 1995-97 biennium, and expects to ask the legislature for the same amount for the next biennium. But the essential task of privatization has already been completed; converting an appropriate level of state subsidy from provider-based grants to user-based scholarships would be an easy next step.

XI. Implementation of the privitization model

Phase 1: Privatizing Higher Education and High Schools

A. Higher Education

Privatizing higher education is likely to be the easiest element of this proposal to implement, because existing institutions already have fully developed sets of infrastructure -- land, buildings, boards of trustees, administrators, and teaching faculty. This system is being supported during the 1995-97 biennium with general fund/income tax revenues of $489 million and $33 million in lottery funds (there are also other sources of revenue but they are not relevant to this analysis).

The Oregon legislature should sever all ties between the state and institutions of higher learning, and refund whatever amount the legislature would have otherwise appropriated for the 1997-99 biennium to Oregon taxpayers through lowered tax rates (during the 1995-97 biennium, for example, this was $489 million).

Then the legislature should calculate how many low-income students will need assistance paying for tuition, and budget enough lottery funds to provide partial/full scholarships to those students. Students could apply for scholarships from a single state agency, and use the funds at any school, in-state or out-of-state.

Students from more affluent families should be able to finance their own education, or secure loans in the private sector. A permanent tax rebate of some $489 million per biennium, most of it collected from middle class residents, will certainly help parents finance these costs.

This change will free college and university administrators from tedious negotiations about programs, tuition, and roles with the State Board of Higher Education -- which could be eliminated -- and other elements of the centralized education bureaucracy. Each institution would chart its own vision, based on collaboration with students, faculty, trustees, community leaders, and alumni.

As the transition to a market-based system occurs, it will be essential that mandatory school taxation be phased out at the same time. Since personal income taxes account for 77% of all state general funds, the eventual elimination of 58% of state expenses through school privatization will have a very favorable impact on personal income tax rates if these savings are passed through directly to tax payers.

B. Privatizing High Schools

Since privatizing higher education would be so simple, we should not wait for that to happen before we turn our attention to high schools. After all, the so-called school finance "crisis" is even greater at this level then it is at the higher education level, and the stakes are higher: a total of $2.632 billion in income tax, property tax, lottery, and CSF revenues will be spent on K-12 during the 1995-97 biennium.

However, privatizing high schools will be more complicated than higher education because the infrastructure for private ownership does not uniformly exist. Unlike many colleges, public high schools do not have independent boards of trustees, nor do they charge tuition in a competitive market for students. They are governed by centralized school boards, they are regulated by various state agencies, and they have what amounts to exclusive franchises for geographic territories.

For these and other reasons, high schools resemble Soviet Union-style state enterprises much more than colleges do, which means the transition to competitive markets will be more difficult.

Since the primary source of power that the state imposes on the system springs from the authority to tax everyone to benefit monopoly schools, probably the first step would be to withdraw all state funding for high schools and permanently refund that money to taxpayers. The legislature should also pass legislation to bar local governments from enacting property taxes for high schools.

After those steps occur, we will have to decide what to do with all the high schools already in existence. Perhaps the best way to manage the transition would be to turn each high school over to a local private foundation, created for the express purpose of managing school assets. In essence, these foundations would replace school districts, and the foundation trustees would replace school board members.

Each foundation could then pick from a number of options. One would be to run the school as a traditional school, only with paying students. In schools that currently enjoy high levels of satisfaction among faculty, students and parents, it's likely that very little would change, except that the foundation would charge market-based tuition and have total control over all fiscal matters related to the school.

A second option would be for the foundation to sell the physical asset, using the proceeds to assist needy students purchasing education on the open market (this could be in addition to state-sponsored subsidies described later in this paper). Potential buyers of the facility could include for-profit schools, non-profit schools, or teacher/student/family co-operatives.

A third possibility would be for the foundations to retain ownership of the physical assets, but create an educational mall by leasing space to a variety of education providers. Teachers would sell their services in whatever manner they wanted.

The end result would be the educational analog to a shopping mall. Just as virtually no one would go to a shopping mall and spend 5 hours at one store, students would spend their days at the educational mall working with multiple education providers. Parents would contract with whomever they wanted for their educational needs.

For instance, in a given week, a child might learn math, english composition, a foreign language, science and computer applications; take clarinet lessons; practice volleyball for club competition; and participate in practices for a community theater production. This could all happen under one roof, but not necessarily with one service provider.

It does not seem necessary (or even possible) to spell out how all these institutions would come into being; we can assume that if teachers and administrators were released from monopoly high schools and knew that a competitive market for their services existed, they would organize themselves just as entrepreneurs have for hundreds of years in America. The impetus for this would be particularly strong with millions of dollars of scholarship revenue being held by consumers.

If one reflects on why malls or other retail centers are so popular, it is precisely because shoppers have the freedom to move about at will, to spend money (or not spend it) as they wish, and to be able to hold retailers accountable for their products. An educational mall might prove to be popular in its own way, for similar reasons.

Phase 2: Privatizing Middle Schools

It's likely that all of the scenarios described for high schools would apply to middle schools as well. Because these changes are so fundamental, and likely to be disruptive in the short run, the legislature should simply establish a timeline for phasing in the complete privatization of the system. Each step is likely to be easier than the previous one, because of what all parties will learn about change.

Phase 3: Privatizing Elementary Schools

If the two previous stages are successful, then the legislature should complete the change by eliminating state support for elementary schools, and refunding the tax money to tax payers. Obviously, by this point, we will have significant experience with the process. If it has not worked, then the privatization proposal for elementary schools can be reversed; if it has worked, it can be done in a fashion similar to the two earlier phases.

XII. Creating the Scholarship Fund in a Privatized Educational System

In order to maintain the integrity of this proposal, it is important that subsidies be funded through non-tax measures. If taxes are re-instituted to pay for the safety net, many middle class families will not be able to pay for private education services, increasing the pool of needy students and propelling the state into a downward spiral towards state-sponsored education again.

Fortunately, a two-part solution exists. The two elements are: wiser use of Oregon's existing Common School Fund for K-12 education, and increased use of lottery funds for college students.

A. The Common School Fund (CSF)

The CSF is a permanent fund, or endowment, that exists to provide revenue to Oregon's K-12 schools. The CSF includes two types of assets -- financial assets (e.g., cash and investments in stocks, bonds and other securities) and real property. The Fund's financial assets are managed by the State Treasurer and the Oregon Investment Council and are currently valued at approximately $328 million.

The Fund's real property assets are managed by the State Land Board [comprised of the Governor, Secretary of State, and State Treasurer] and the Oregon Division of State Lands (DSL) and conservatively valued at approximately $1.1 billion, representing more than thee-quarters of the Fund's total value. Contributions to the CSF from real property assets are derived from leasing State lands and other resources to public and private interests for a variety of business activities.

The DSL manages approximately 2.34 million acres of land owned by the state of Oregon. These lands fall into two broad categories -- Trust Lands and Non-Trust Lands. As described in a recent DSL report entitled Draft Asset Management Plan (DAMP):

Trust Lands were granted to the state by the federal government at the time of statehood specifically to support the state's public schools (kindergarten to 12th grade). They originally included sections 16 and 36 in each township. Since that time, many of these lands have been sold or exchanged. All of the submerged and submersible lands underlying navigable waterways were also granted to the state at the same time. These and other lands granted to the state at a later time are known as Non-Trust Lands.

In managing these state lands, the DSL acts as the administrative arm of the State Land Board who, in turn, is the trustee of the CSF. As a trustee, the Land Board has a legal obligation to manage these lands for the benefit of the common schools.

Historically, management of the CSF real property assets has suffered from several basic shortcomings:

1. The Land Board and the Division have never adopted an overall plan or vision for managing their land portfolio, leading to inconsistent and ad-hoc management.

2. The real estate portfolio portion of the CSF has not typically been put on an equal investment footing with the Fund's financial assets. More often, state lands have been viewed as bargaining chips or avenues for advancing other state policies, rather than as investments to be managed for long-term revenue generation.

The amount of [Trust] land managed by the Division and its approximate market value is summarized by land classification in Table 1.

Table 1. Division Asset Inventory and Market Value,1993-94

Although DSL has different mandates for managing Trust and Non-Trust Lands, there is no clean separation of these two categories of assets in accounting for DSL and CSF monies. The CSF can be viewed as a large bucket, with funds flowing in from a variety of revenue sources and funds flowing out to pay for different types of expenditures.

The flow of funds to the various activities is governed by the state Constitution, statutes and Attorney General Opinions. State Land Board policy establishes the mix of the investment portfolio within the principal amount. The Treasurer invests the CSF principal based on Oregon Investment Council guidelines and Land Board policy.⁽¹³⁾

The distribution to schools is the single biggest expenditure category. Earnings on the bonds and cash held in the Treasury and rents from the State Lands building are distributed to counties in January and July of each year based on estimates of school age population from Portland State University. The counties, in turn, distribute the funds to each school district.

Prior to distribution, expenses for DSL's land management activities and the Department of Forestry timber land management contract are deducted from the investment earnings, according to Land Board policy protecting the principal.

Over the past two years, Fund distributions have averaged $10 million or more annually. In Fiscal Year 1994/95, the CSF contributed $9,051,662 to Oregon school districts, which accounted for 0.21% of the total education budget of $4.3 billion.

B. Legal Requirements for Managing Trust Lands

The Trust Lands were given to Oregon as a condition of statehood for a specific purpose -- to support K-12 schools. The lands and funds resulting from the use of these grant lands are managed under trust principles, with the Land Board acting as the trustee and the public schools as the beneficiaries. The Trust is a fiduciary relationship in which the Land Board must manage the Trust asset for the exclusive benefit of the beneficiaries.

This is a perpetual responsibility; that is, the Land Board has the obligation to manage the Trust for all generations, without unduly favoring present or future beneficiaries. This relationship and associated management responsibilities are different from those for non-Trust assets (e.g., navigable waterways) which are to be managed for the benefit of the public, as directed by the Oregon Constitution.

C. Constitutional Mandate

Article VIII, Section 5(2) of the Oregon State Constitution provides the primary directive concerning the management of Division lands. Specifically, it provides that:

The (Land) board shall manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management.

This mandate represents the "basic standard" which must be considered in acquiring, exchanging, selling or otherwise disposing of, offering leases, or determining allowable uses on Division lands.

D. Admission Act Mandate

Section 4 of the Oregon Admission Act provides that:

First, the sections numbered sixteen and thirty-six in every township of public lands in said state, and where either of said sections, or any part thereof, has been sold or otherwise disposed of, other lands equivalent thereto, and as contiguous as may be, shall be granted to said state for the use of schools.

This provision provides a second, higher standard of management responsibility (above that imposed by the State Constitution) on the Board and division when dealing with Admission Act lands. Broadly referred to as Trust Lands, these lands must be managed not only in a manner consistent with the state's Constitutional requirements, but also to obtain full market value from its sale, rental, or other use.

When dealing with Trust Lands, the Constitutional requirement concerning "greatest benefit for the people" has been interpreted by the Oregon Attorney General to be the maximization of revenue over the long term (emphasis added). As the trustee of this land, the Land Board and DSL are obligated to manage these lands with revenue maximization as their primary goal and, according to the Attorney General, "non-economic factors may be considered only if they do not adversely affect the potential financial contribution to the Common School Fund".

Admission Act lands include eastern Oregon rangeland, almost all of the Elliott State Forest, the so-called Wilsonville tract in Clackamas County and other scattered agricultural lands, and other lands.

E. Financial Returns on Trust Lands

The average rate of return on the Trust Lands during the past 10 years has been 0.5%. However, the rate of return varies widely by land type. The state consistently makes money on timber sales and leases on some agricultural lands, and loses money on grazing tracts. During the nine year period of FY 1985-86 through FY 1993-94, the state lost a total of $988,000 on rangeland management. The largest loss was $326,000 in FY 90/91, while the smallest loss was approximately $44,000 in FY 87/88 and 93/94. The average loss was $109,778 per year.

In contrast, during the same nine-year period, revenues from Trust forest lands have varied between $9-20 million per year, with an annual average since 1988 of approximately $13 million.

However, these are gross revenue figures, not net. The state incurs annual expenses of some $3,500,000 to manage these lands, and, according the DAMP, "the ratio of expenses to revenue has increased consistently during the [nine-year] study period, increasing by one percentage point annually, on average. This trend is expected to continue, even though revenues from timber sales are anticipated to remain constant in the short term."

The Division's 133,000 acres of Common School Forest Lands generated just $59 in net revenue per acre in FY 1993/94. According to the DAMP,

Assuming the market value of lands within the Division's Elliott State Forest at $850 million, and also assuming that all CSFL income derives from the Elliott Forest (a generous assumption), the return-on-asset value (ROA) was a negligible 0.91 percent in FY 1993/94. With the anticipated acceleration in management expenses described above, the ROA can be expected to further decline.

State managers already know that this is not the best way to maximize revenue for schools. In fact, an Oregon Department of Forestry report published in 1994 stated that "selling the CSF timberland would be the most effective way to maximize CSF revenues in comparison to implementing other timber management alternatives."⁽¹⁴⁾

Whether or not the actual trustees of the CSF lands -- the State Land Board members -- are aware of this recommendation is unknown. However, in December of 1995, the Land Board voted unanimously to retain ownership of all lands -- including grazing lands that lose money for the CSF. The original DAMP had recommended selling the grazing lands, which primarily benefit 40 ranchers who currently pay $.47 an acre for leases on land that is valued at $39-100 per acre. But political outcry from both ranchers and environmentalists was sufficiently strong that the Land Board backed away from the recommendation in the DAMP.⁽¹⁵⁾

F. Comparison with Other Types of Common School Fund Investments

The other part of the CSF consists of $328 million in assets that are invested in stocks, bonds and other similar instruments. The average annual return on this portfolio is approximately 7%. However, the equities portion of this fund has had an average return during the past five years of 17%.

The investment choices made by the Investment Council and the State Land Board have cost the CSF hundreds of millions of dollars, if not more. To put the performance of the Trust lands in perspective, the compound annual returns on various types of investments during the period of 1925-1994 were:

Small company common stocks: 12.2%

Large company stocks: 10.2%

Long term government bonds: 4.8%

Treasury bills: 3.7%

During this same period, the inflation rate was 3.1%.⁽¹⁶⁾

Heavy investments in common stocks during that same period by the Oregon Land Board would probably have resulted in billions of dollars in extra revenue for Oregon schools, when compared with the returns on real estate. To estimate the magnitude of the losses, calculations were performed estimating returns during the next 40 years if the Land Board decided to sell the real estate assets this year. Four scenarios were analyzed with the following assumptions.

First, it was assumed that not all of the trust lands would be sold, due to endangered species habitat restrictions and other social factors. If the state netted $1 billion on the sale of most Trust lands, and invested 80% of that in stocks, over a 40-year period the $800,000,000 would grow to the following amounts (compounded annually, and assuming no withdrawals):

Table 2. Investment Option/Rate of ReturnPortfolio Value after 40 Years

Because of the powerful effect of compounding over time, even a difference of .8 of a percentage point (the difference between 11.2% and 12%) creates a $21 billion gap in returns.

These calculations are for illustrative purposes only; this proposal does not suggest that trust land assets be invested without withdrawals for any set period of time. Rather, they should be sold and the assets managed much as assets in the Public Employee Retirement Fund are, in order to maximize revenue over the long term.

XIII. If Trust Lands are Sold, Competitive Bidding Should be Allowed

If this policy option is chosen, the legislature should strongly consider allowing open competitive bidding for these lands, in order to maximize revenue from the sale. If the only people who are allowed to bid on rangelands and forestlands are ranchers and tree farmers, respectively, it's unlikely the state will receive fair market value. Some lands may well have far greater value for rural residential development, destination resorts, or vacation homes.

While advocates of rigid land-use planning may object to such bidding on the grounds that range and forestland resources would be degraded or "lost" if purchased for non-commodity purposes, it's likely that just the opposite would be true. Lands held only for commercial forestry or grazing would probably suffer from the environmental effects commonly associated with those industries, e.g., damaged riparian vegetation, turbidity and bacterial contamination of streams, and destruction of wildlife habitat.

If some of those lands were purchased for rural residential or vacation home use, it's likely that much of the landscape would be preserved, as these amenities (i.e., standing timber, native vegetation) typically enhance the value of such properties.

Thus, on both fiscal and environmental grounds, open competitive bidding on the trust lands would be in the public interest.

XIV. Using Lottery Funds

Lottery funds may need to be added to the CSF each biennium in the early going to help build the corpus if the earnings are insufficient to provide an adequate number of scholarships. That number will depend on the social goals of the legislature.

At a minimum it should provide for the educational needs of low income residents⁽¹⁷⁾, but the legislature may wish to provide scholarships for other (perhaps all) Oregon students, regardless of family income. If that were the case, the goal could be accomplished over time by adding to the CSF whatever level of lottery dollars it would take to achieve the desired earnings. Once that level were reached, the CSF would not need any additional funds, and the scholarship system would be totally self-financed.

XV. Creating the Scholarship Fund for Low Income College Students

During 1995, Oregon Senate President Gordon Smith led a campaign to create a new educational trust fund, which was intended to be endowed with lottery funds. No funds were appropriated for 1996, but during 1997, 15% of lottery revenues will go into the fund.⁽¹⁸⁾

The existence of the trust fund provides the obvious mechanism to implement the concept described above, using lottery funds. In so doing, there would be two funds serving identical purposes: the Common School Fund (CSF) providing scholarships for students at the K-12 level, and the second trust fund focusing on college students.

While the provision of need-based college scholarships might require a greater use of lottery funds than is currently in use today, there is a strong rationale for such use, consistent with the original mission of the lottery -- to promote economic development. Privatizing Oregon universities and lowering taxation in the process will improve the economic climate in Oregon for every taxpayer, giving them more of their own income to keep or invest as they desire.

This would be much better for the Oregon economy then to maintain monopoly schools and higher tax rates, while using lottery dollars to pick winners and losers in the economy through grants. The legislative process for distributing lottery dollars is one of the worst pork-barrelling processes in the capitol, and suffers from the same flaws as supplier-based grants to schools, i.e., funds are spent based based on political demands, not market demands. This is both economically inefficient and socially inequitable.

XVI. Timetable for Implementation

The trust lands could be sold at any time by a decision of the State Land Board. This concept should be put before the Board during 1997, concurrent with a legislative proposal drafted to begin the privatization of public schools.

Another option would be for the legislature to pass a more comprehensive privatization bill, including a mandate that the Land Board sell off most of its real estate holdings. Since the Land Board has already demonstrated a reluctance to sell even its money-losing lands, such a mandate may be necessary to carry out the proposal.

XVII. Potential Barriers

The biggest problem with this proposal is simply the cultural attitudes towards public schools and public lands. Most people, even if provided with vouchers and relief from school taxation, would find it difficult to imagine non-state education. For many parents, accustomed to the thought that schools are de facto day care centers, this would actually be a frightening proposal.

Many people also feel that lands owned by the public should remain in public ownership.

Fortunately, the current fiscal "crisis" is generally thought to be so great that legislators, parents and teachers may be forced to confront alternatives. The average voter can probably be made to see the foolishness of the state receiving 0.5% annual return on a $1.1 billion portfolio of real estate when it could be receiving the 25% that the Oregon PERS fund received during 1995 -- while at the same time legislators are discussing tax increases to pay for schools.

It will also be important to point out that approximately 60% of the land mass in Oregon is already publicly owned, and that the trust lands are not multiple-use lands managed for recreation or scenic viewing; they are required to be managed for the maximum benefit of students.

In fact, according to the management plan for the Elliott State Forest, no funds are allocated for recreation, and there are no developed recreational facilities within the forest. Some local residents use the forest for hiking, camping or fishing, but it is not a recreational destination for other citizens of the state.

The grazing lands have even less value for the public, despite public ownership. Grazing leases give some 40 ranchers virtually exclusive use of those lands. Since the cost of administering the leases generally costs more than the revenue received, there are no measurable public benefits from retaining these lands in public ownership.

Sale of all the trust lands would reduce the total public land acreage in Oregon by only 2%.

The only cautionary note with this strategy is that within the Elliott State Forest, there are currently 18,000 acres of forest land set aside for endangered species habitat and riparian protection. These lands should either be retained in state ownership, or sold with covenants restricting timber harvest.

A. School Personnel: Supporters or Opponents?

Many teachers and administrators are likely to oppose this plan, because it dismantles a system that they understand and are comfortable with. Even more threatening, it forces them to sell their skills on the open market, and thus be fully accountable to consumers.

However, while mediocre faculty may find change threatening, superior teachers and administrators should welcome this concept. In the current system, outstanding performers are constrained by numerous factors, including:

2 Tenure, which diverts resources from high-achieving faculty to support marginal employees.

3 Lack of market forces, which prevents faculty from charging market-based rates for highly valued services, or teaching larger numbers of students to generate higher incomes. With non-state schools, faculty may be able to achieve greater financial rewards by pursuing one or both of these strategies.

4 Lack of control over the work environment, which forces teachers to teach mandated curriculum, with methodologies they may not be comfortable with, in class sizes that may be inappropriate. Furthermore, their students are conscripts, many of whom might choose not to attend if they and/or their parents had a choice.

Teaching in a work setting where most or all of these factors are under the control of the teacher, with students whose parents are voluntarily paying tuition, would be a vast improvement in working conditions for most educators.

B. Making School Pensions Portable

One of the more attractive features of the current system is the excellent retirement benefits for school employees. These benefits should go with school personnel as they leave the system, on a pro rata basis.

Since Oregon school employees do not contribute to their own pension funds, this will require that the state legislature continue to appropriate funds each biennium to the PERS account long after public schools no longer exist, to cover the obligations of school personnel vested in the current system. However, over time, these obligations will drop, and eventually terminate.

XVIII. Experience With User-Based Education Subsidies in Other States

Vermont

Although no state has gone so far as to abolish school taxation and privatize public schools, Vermont has had a voucher program for over one hundred years. Approximately 95 of Vermont's 246 communities have no public high schools. They choose instead to pay tuition for their high-school age children to attend any public or private school of their choice, either in-state or out of state, with the exception of religious schools.

This program originated in 1869 as a way to enable small and geographically isolated regions to provide high school education for students without incurring the expense of building their own public schools. Minimum tuition amounts are set at the average cost of tuition at a Vermont public high school, with parents usually responsible for paying any additional tuition charges and transportation.

Has the Vermont program worked? Although no one has attempted to compare the achievement growth of students in Vermont who participate in the choice program versus those who do not, anecdotal evidence, and the longevity of the program itself, suggest that it is succeeding. According to one report, for example, "educators may disapprove, but from all accounts parents love it. In some cases parents have chosen to move into a town simply because it gives them the right to choose their children's school."[^16]

Milwaukee

Milwaukee, Wisconsin has also had a limited school choice program since 1990. The program has allowed about 1,300 low-income students to attend a number of secular private schools in the Milwaukee area. As many as 15,000 may become eligible to join the program.

During 1996, researchers from the University of Houston and Harvard University analyzed data that had been collected annually since the program's inception. The analysts found that randomly selected students who had remained in the choice experiment for three years had average reading and math scores of 3 and 5 percentile points higher, respectively, than those in the control group. If they stayed for four years, their reading and math scores were, on average, 5 and 12 percentile points higher. Over 80 percent of the students were either Latino or African American.

While it is difficult to draw conclusions from such a small experiment, the results do address one of the common arguments against school choice proposals -- that minority students would be harmed. The Milwaukee program suggests that minority students would be no worse off, and probably better off, with a comprehensive choice program. As the authors of the study noted:

If similar success could be achieved for all minority students nationwide, it could close the gap separating white and minority test scores by somewhere between one-third and one-half.[^17]

New York

District No. 4 in East Harlem, New York, has had a school choice program in effect since 1974. The stimulus for this reform was crisis: The educational system was a disaster. Out of New York City's thirty-two school districts in 1973, District No. 4 ranked last in reading and mathematics.

Beginning in 1974, innovative leaders in the district developed a large number of alternative schools that were formed by teachers. To help make this possible, district officials rejected the traditional notion that each school must have its own building. Thus, in some cases, there are multiple schools within the same building -- the East Harlem version of an educational mall. The names of some of these schools -- The Academy of Environmental science, the East Harlem Maritime School, the Jose Feliciano Performing Arts School, the Isaac Newton School for Math and Science -- reflects the diversity in educational preferences that can emerge when allowed to.

The schools have been granted substantial autonomy, and are free to decide which students to accept. This kind of decentralization has not led to the kind of chaos that some people might expect. While schools control their own admissions, they need students just as students need schools. Schools are shut down by the district if they do not attract a sufficient number of students. In recent years, 60 percent of students have received their first choice of placements, 30 percent their second choice, and 5 percent their third choice.

On virtually every relevant dimension, the East Harlem reforms have been a tremendous success. While only 15.9 percent of the district's student were reading at or above grade level in 1973, 62.6 percent were doing so in 1987. Its scores now put it in the middle of New York City districts, rather than at the bottom. The achievement levels are so significant that some students actually transfer into the East Harlem district from other parts of the city -- something that would have been unthinkable in 1973.

This turnaround is remarkable, considering that some 80 percent of students qualify for free school lunches, and that 50 percent come from single parent households.^[18]

While it is almost a cliche to say that any particular policy reform is not a panacea, John Chubb and Terry Moe, in their book, Politics, Markets and America's Schools, suggest that policy makers:

Would do well to entertain the notion that choice is a panacea. This is our way of saying that choice is not like other reforms and should not be combined with them as part of a reformist strategy for improving America's public schools. Choice is a self-contained reform with its own rationale and justification. It has the capacity all by itself to bring about the kind of transformation, that for years, reformers have been seeking to engineer in a myriad of other ways.¹⁹

The evidence from states that experimented with school choice programs demonstrates not only that school choice works, but that there is a strong latent demand for expanded choice programs. In the words of one analyst:

There is abundant evidence that public school parents want choice; that they are more satisfied with and have more confidence in schools that provide it; that parent choice increases the commitment and cohesion within schools extending it; and that these attributes combine to improve school quality and make schools more effective.[^20]

XIX. School Choice: Not Just Another Reform

The evidence from Vermont and other regions that have experimented with school choice programs demonstrates that school choice can strengthen student performance, encourage parental involvement, and lower educational costs by as much as 50%. Furthermore, these experiments have revealed a strong latent demand for expanded choice programs. As one expert has written:

There is abundant evidence that public school parents want choice; that they are more satisfied with and have more confidence in schools that provide it; that parent choice increases the commitment and cohesion within schools extending it; and that these attributes combine to improve school quality and make schools more effective⁽¹⁹⁾

While defenders of the public school monopoly frequent respond that the solution to many of our public school problems simply requires greater parental involvement, state governors in the United States recognized in their 1986 report on education how compulsory attendance at assigned schools discourages parental involvement:

Too often, parents of students in the public school system recognize that they have no choice, and they reason that they have no responsibility. They assume that a societal institution called public school in their neighborhood has a monopoly on the education of their children. Our model of compulsory, packaged education, as it now exists, is an enemy of parental involvement and responsibility simply because it allows no choice⁽²⁰⁾

XX. Conclusion

Oregonians own more than a billion dollars of real estate that could serve as the key to revolutionary change in our school finance system. The state constitution requires that these lands earn the maximum revenue possible in support of student education, yet the trustees of these lands have been unwilling to sell off even lands that routinely lose money.

In the context of post-ballot measure 47, the existence of the Trust Lands means that Oregon state Government is relatively cash-poor but asset-rich. Turning those lands into high-performing financial assets is the key to solving our school finance problems -- but only if we're willing to shift subsidies from schools to students in a market-based system that has built-in fiscal controls.

Although it's difficult to imagine what non-state education would be like, we can be sure from our experience with other sectors of the economy that markets will spur a tremendous increase in creative activity. With the total elimination of school taxation and complete freedom to collaborate with the educators of their choice, parents will be encouraged to play a much greater role in the lives of their children than they do today.

As envisioned by author Sheldon Richman in his powerful book, Separating School and State:

... we cannot predict in any detail what would arise in a free market in education. But we do know that over the past decade, computer and telecommunications technology has changed in a way highly relevant to education. Today people have on their desks -- or in their briefcases -- computing power that only a few years ago none but the largest companies could afford. The price continues to fall.

The development of huge databases, modems, on-line services, interactive compact disks, and virtual reality is bringing a literal world of information into our homes. Homes and classrooms can now be linked, enabling students to "attend" the classes of their choice thousands of miles away. Right now, encyclopedias on compact disk display motion pictures of recent historical events. Soon the desktop computer will be able to display the books of the greatest libraries and high-resolution pictures from the world's greatest museums. The possibilities are endless. It's all the products of the free market, human intelligence, and sand (from which are made silicon chips and fiber-optic cables). How can education ever be the same?²¹

Parents troubled by the prospect of a pay-as-you-go approach should ponder the observation of Harold and Arlene Schnitzer, two of Oregon's most respected philanthropists. As part of a recent Oregonian profile, the Schnitzers discussed a youth center in a low-income southeast Portland neighborhood that they support. Despite the fact that they could easily afford to fund all expenses at the center, they insist that the youngsters who use the facility pay a $1 admission fee.

When asked why this was a condition of their support, Harold Schnitzer replied, "when people get things for free, they don't respect them."

The Schnitzers understand that if you want to help people, simply giving them things is not the best way. The same holds true for education. Oregonians owe it to themselves to consider market-based education as the policy solution to our school finance problems.

Endnotes

1. Richard Marshall, The Need for a Common Understanding of Oregon School Expenditures, (undated), p.3, Portland, OR.

2. Ibid, p. 4.

3. Ibid.

4. Randall J. Pozdena, Ph.D., Dedicated Funds Won't Improve Education, Cascade Policy Institute, Fiscal Insight #10, April, 1995.

5. The Economic Effects of Surface Freight Deregulation, Clifford Winston, Thomas M. Corsi, Curtis M. Grimm and Carol A. Evans (1990); and The Economic Effects of Airline Deregulation, Steven Morrison and Clifford Winston (1986).

6. Randall J. Pozdena, Ph.D., The Use of Direct Student Assistance to Finance Higher Education Expenditures: An Analysis of the Potential in the State of Oregon, forthcoming from Cascade Policy Institute and The Reason Foundation.

7. Ibid

8. James Coleman, Thomas Hoffer, and Andrew Greeley, High School and Beyond, 1987.

9. World Bank Policy Research Bulletin, January-February 1992: 4.

10. For instance, the Federal Agricultural Improvement and Reform Act of 1996 decouples direct payments from commodity price movements and gives farmers much greater flexibility to plant whatever crops will bring the highest return in the market. These fixed payments will decline by nearly 30 percent over the next seven years. Under this law, government payments will no longer play an income-stabilizing role.

11. Oregon Family Resource Study, Human Capital Research Corporation, Chicago, IL, August, 1995, p. vii.

12. The Oregonian, article by Bill Graves, date and page unavailable.

13. Division of State Lands, Draft Asset Management Plan, 1995, Chapter I.

14. Review of Timber Marketing Alternatives for Oregon's Common School Forest Land, Oregon Department of Forestry, 1994, cited in Division of State Lands Draft Asset Management Plan, Appendix A, p. 5.

15. Prior to the Land Board's meeting, I faxed the three members a letter suggesting that they sell off all trust lands, not just the grazing lands, but that idea was never seriously considered.

16. Stocks, Bonds, Bills and Inflation 1996 Yearbook, Ibbotson Associates, Chicago.

17. It could be argued that providing unlimited scholarship assistance to low income families encourages irresponsible family planning -- in much the same fashion that welfare for the past 35 years has -- but that debate is somewhat beyond the scope of this proposal.

18. Personal communication with Marlene Meitner, Oregon Lottery office, August 18, 1996.

19. School Choice: The Essential Reform, Herbert J. Walberg and Joseph L. Bast, in The Cato Journal, vol. 13., no. 1, p. 110.

20. ^{Mary Anne Raywid, "The Mounting Case for Schools of Choice." In J. Nathan (ed) Public Schools by Choice: Expanding Opportunities for Parents, Students, and Teachers, 13-40. St. Paul, MN, Institute for Learning and Teaching..}

21. Walberg and Bast,op. Cit., p. 117.

22. Sheldon Richman, Separating School & State, Future of Freedom Foundation, 1994, p. 89.