Welcome to Carmel High
A video went viral recently that caught my eye. Students at Carmel High School in Indiana were giving a tour of their building as part of an after-school project, but as the video proceeds you see how shockingly huge and beautiful the school is. There are multiple ceramics rooms, computer labs, cafeterias, and sports facilities. People across social media couldn't believe how great the school building was, many noting the kinds of school buildings they grew up with in places without as much money.
It was a rare school facilities finance meme, a cultural moment of recognition that school facilities finance is unjust. A lot of comments I saw reiterated a theme I write about in this newsletter: the disparities between school districts (and also within school districts) are the result of our unique brand of racial capitalism; that these disparities are perhaps the cell structure of that racial capitalism. This is particularly true when you think about school buildings.
One thing I've been trying to do each week is understand the nitty-gritty details of this structure: how do the laws and finance actually work, and what should socialists do about it? It's a learning experience for me because there are so many complex layers to this problem, such vast and uneven landscapes of policy and money, that I'm constantly trying to figure out the basics, particularly when it comes to school buildings.
When it comes to school facilities finance, each state has a different regime. Every time there's an opportunity to take a look at another state I do it because there's so much variation between states. When trying to think about what a socialist United States would look like, you have to parse your imagination into this excruciating variety of contexts and school finance is an excellent opportunity to practice. So far I can talk a little bit about Pennsylvania, North Carolina, Virginia, Minnesota, Nevada, Massachusetts, New York, and Wyoming. Carmel High School is in Indiana. Let's take a look.
A school corporation with some state funds
We use the term school district colloquially to name the hyper-local layer of government in charge of schools, but different states call their education government's by different names. In Virginia they call them school divisions. In Indiana, weirdly, they're called school corporations. There's nothing about the entity that makes it like a corporation in the private firm sense, but I guess they just like the term.
Okay, so to give you a sense of Carmel High School's school corporation, Carmel Clay Schools: it's a thirty minute drive north of Indianapolis, what we might call an outer ring suburb. The Carmel Clay school corporation has about 16,000 students in fifteen schools. That's not big, but it's not small either. As you can see from this EdBuild map, which maps districts by poverty (the darker color signifies more poverty per pupil), Carmel Clay is wealthy and bordering less wealthy districts to its south. Racially you can probably guess the composition: according to NCES numbers, it's 79% white and 11% Asian. EdBuild also tells us that, according to 2018 numbers, median property value is a relatively high $318,000.
A couple things are standing out to me about this brief profile. First, Carmel Clay meets many of the criteria for being a super-expropriator of school finances. It's a wealthier, whiter suburb close to a major metropolitan area that's considerably larger, poorer, and more diverse. Where does Carmel Clay's high property value come from? We'll dig into that but, in broad strokes, that value comes from being close to a city but not being in it (the correlation with predominantly white population is predictable too). The district can fund its per pupil expenditures from that property value and also, as we'll see in a moment, get better interest rates for its bonds.
But something else I'm noticing is that Carmel Clay gets a pretty high percentage of its revenue from state sources, at least on a national scale. On average, about 47% of school revenues come from state sources (while 8% comes from the federal government). Carmel Clay gets 57%. I wonder why?
Check your sources!
I found a recent Republican policy document reporting the state has increased its education spending somewhat over the last decade or so. They're claiming that state funding has increased 21% between 2012-2021, with the basic foundation grant for per pupil expenditure increasing by 33% in that period. So maybe that's why there's more state money coming into Carmel Clay. The Republicans are very proud that they've increased this amount so much.
They might be right. Indiana ranked 3rd in the nation, after Vermont and Kansas, for the highest percentage share of its state budget dedicated to K-12 education according to the National Association of State Budget Officers.
And yet, there's a fly in the ointment. The ASCE reportcard states that there's a $518 million expenditure gap in the school infrastructure in Indiana. That's the average amount of money the school buildings need there to keep up with regular maintenance. But the averages hide differences.
Always check your data sources! Data is ideological. It's clear that the Republicans would be super proud of their amazing work. So I went over to a more trustworthy and progressive source for statewide school finance data, the Shanker Institute's School Finance Indicator's Database. This source is led by Bruce Baker and his colleagues, who are much better on this from a left point of view. He's no socialist but he's got the goods for socialists when it comes to economic data in school finance.
Baker et al paint a very different portrait of Indiana's state effort. Contrary to the conservatives' rosy picture, they find that the state is a "low effort" state, meaning that they don't spend as much as they could. Indiana only spent 3.16% of its economic capacity on K-12 schools, which is .44 percentage points lower than the national average, making them 39 out of the 50 states in the measure. So when you see the happy graphs with upward trending lines in the conservative report, that's just in absolute numbers, not relative to what they could be spending (showing how the association of budget officers is also conservative ideologically).
But the fun doesn't stop there. Baker and colleagues measure state school finance according to adequacy (the dollars it takes to make modest improvements in test scores) and equal opportunity (comparing the adequacy of poor and wealthy districts).
Baker finds that Indiana is "severely unequal" when it comes to educational opportunity: "Spending in IN’s highest-poverty districts is 24.1 percent ($3,755 PP) below the estimated adequate level, compared with 52.6 percent ($3,451 PP) above adequate in the state’s most affluent districts." You can see this breathtaking disparity in the adequacy data, where we find something special about our friends at Carmel Clay.
Indiana has moderate adequacy, where about 39% of Indiana students attend schools that could be getting more to improve their performance. Fine. But check out the differences between the top ten most populous corporations: here we find Carmel Clay Schools, and nearby Hamilton Southeastern Schools, are off the freaking charts when it comes to the adequacy threshold compared to their urban neighbor, Indianapolis. Carmel Clay is literally spending 100% more than they need for adequacy, and 124.5% more than Indianapolis. Staggering. What the f*&# is going on in Carmel Clay?
Bond analysis
When I want to know about the political economy of a district's facilities finance, I read bond documents. Using the Electronic Municipal Market Access portal I got the most recent bond statement from Carmel Clay. Readers of the newsletter know that I love these documents. They tell you the material conditions of a school district better than anything I've been able to find, particularly the appendices where the borrower (the district) is convincing creditors (banks and their customers) that the district is a good investment.
Remember that, to pay for their facilities (and sometimes equipment and other costs), two-thirds of school districts have to sell themselves on the private credit market, paying interest and fees to get the revenue they need. To me it's an ongoing, normalized atrocity that socialists should take up and take on. What the hell is happening with Carmel Clay becomes clear from its bonds: it's a ruling class school corporation.
The bond I'm looking at is for $22.8 million, sold last year. It's got a very high AA+ rating from S&P, with a high underlying rating of AA. So the district is a good investment. The bond is structured with a 5% interest rate at every year of the bond principal comes in. It felt a little high to me but then I remembered inflation and the Fed is raising rates every quarter, so 5% is probably what high-value, investment-grade school districts should expect.
You can tell the district is secure financially because there's no shenanigans in the interest rate structure. It's just 5% every time. Finally, this bond only cost $150,000 to put together, which is a relatively smaller fee for such a big bond. On average, school bonds cost about 1% of the principal. This is .06%.
The bond's purpose is to finance a ton of facilities stuff at, you guessed it, Carmel High School. There are 24 points of specific projects they want to do as part of a larger two-year facilities project. Some highlights for me include: planetarium improvements, renovation of varsity field press box, and expansion of the existing natatorium. I also can see that Carmel High School is the district's only high school, but also it's oldest and most renovated school. It was opened 1958 and had regular renovations, as well as a huge set of changes between 2014-2020, which seems like when the building became the the beast it is now.
And here's the kicker. In the appendices, where the district tells creditors about why it's generally a good investment, it talks about employers in the area. The City of Carmel has a number of corporate headquarters, including Delta Faucet, CNO Financial Group, and Monster.com. The biggest employers in the city are (after the school district) Geico Insurance, Allegion Security, and CNO Finance. This is a ruling class place where finance, insurance, and tech have situated themselves. They have high property value and also get help from the state.
Circuit breaker
As an interesting aside, the bond says that the state's Department of Local Government Finance (DSLF) has a state intercept program, which is when the state says it'll step in if a district can't pay back the interest and principal of the loan for whatever reason. A little less than half of states in the country have this kind of law.
In the process of detailing that program, the are some numbers estimating how much the state will provided in grants in 2023, including $32 million in debt service. So the state is covering some debt service, which is good to know (and not always the case), but there's more.
The DSLF has a policy called the Circuit Breaker Tax Credit that has allocated around $8 million to Carmel Clay between 2020-2022. I'm trying to understand this program. It's supposed to reduce property owners' liability for property taxes above a certain threshold determined by a ratio of assessed value and approved taxes. Basically, the state will step in if the district taxes too much. Pennsylvania has something similar called the Act 1 threshold, which sets a ceiling for how high a district can raise its mill rate on property owners. But Act 1 doesn't actually pay property owners or districts anything, so the circuit breaker policy is interesting.
To me these numbers are crying out for redistribution. If socialists got elected to state leadership in Indiana, I'd recommend putting in place a Vermont Act 60 c. 1998 type structure where places like Carmel Clay had to tax at a certain threshold but could only spend up to a certain ceiling, where the state takes the rest and gives it places like Indianapolis. In Vermont the ruling class went bonkers at this, but you know what, this is wrong and I don't care. Students in Carmel Clay shouldn't get to have three pools while students in Indianapolis can't get the basics.
Double the debt
As a coda, a data point in the conservative report that's sticking out to me in Indiana is that "the three largest recipients of local tax dollars for K-12 education are 1.) Debt Service (39%); 2.) Capital Projects (21%); and, 3.) Transportation (16%)." Think about this for a second: school corporations spending twice as much on debt service as they do on capital expenditures. This comports with something I'm finding generally, which is that for every two dollars of debt a school district takes out for capital expenditures, they only spend one dollar on actual capital expenditures. You can see in the graph below that the light blue (debt service) is is about twice as big on average as the dark blue (capital expenditure).
This is a trend I'm seeing nationally too. While chatting with friend and comrade Eleni Schirmer about related issues, I tracked the ratio of debt service outstanding with capital expenditure on construction nationwide and it turns out that capital expenditure was about 12% of debt outstanding between 2005-2020. For every hundred dollars that school districts owe for capital expenditure they only spend about twelve dollars. Why is that? Something I'm looking into now.
As Marialena Dawn Rivera, who wrote the definitive critical take on school facilities finance in 2016, finds: the regimes of facilities finance in the United States provide very different experiences for students at different ends of the unequal spectra of our society. Wealthier, whiter, and ruling class places might have a lot of debt, sure, but they get good rates, low fees, and end up spending a lot more on their students than places that are diverse and working class.
Carmel Clay's students--whose parents work for insurance companies and financial firms, whose houses are worth a lot, who still get help from the state and spend 100% more than they need to--can show off their jewelry rooms and natatorium, while nearby Indianapolis and outlying rural areas struggle to get by.