Transportation Block Grants for Oregon Schools

One of the ideas on the table for reducing the costs of K12 education is changing the way we pay for transportation.  I have written about these problems in the past and created a solution to the problem.  The summary is that the current funding system, a cost sharing system, provides few incentives to reduce costs.  The solution I provided was a way of inducing school districts to compete with each other through something called yardstick competition.

There is another alternative that has better political legs, block grants.  Here is the way the implementation is working out --  you get what you get now.  You will get a little more or a little less if your student population changes.  There is no cost sharing.  If you save a dollar you get to keep it; you don't have to give $0.70 back to the state.

It sounds like a great idea.  All the incentives to save on costs are there, but there are a few catches.

First, you get what you get now.  That means that places like Lake Oswego, that have a waiver to provide more transportation than the law allows, busing kids within a mile of school, will continue to get more per student.  Districts like Portland Public Schools will continue to get less per student because Trimet service is so good, they have a waiver to not bus High School students .

Second, fuel increases and other uncontrollable expenses are all out of the district's pocket.  That means you can get a surprise if fuel prices go up.  This is pretty relevant give oil prices recently.

There is fix to some of this.  What I have proposed is that the costs be recalculated and reset every five years. As you have come to expect, this is something right out of the economics of regulation.  It used to get used in natural gas price regulation.

Here is why the reset is important.  Since the districts get what they get now, they get to keep every dollar they save and use it in district programs.  This provides great incentives to reduce costs and find cheaper ways to transport students.  Every five years the state recalculates your costs over the last few years and changes the amount you receive to this new amount.  The new amount should be lower since you have had the time, and the incentives to implement all those cost reductions.  All those cost savings get dragged back into the state's general purpose fund and can be allocated to the other school districts.  Over time, we get equalization.

So. the pattern is to freeze, give incentives to reduce costs, watch the costs get reduced, and then drag back the cost reductions after a few years to use them in other areas.

I'm for transportation block grants but only with a five-year reset.