The Austin City Council is considering spending an unexpected $14 million surplus in a so-called ‘midyear budget adjustment’. This is similar to their allocation of $10 million for affordable housing last year. This time, if we are going to spend it, it should be invested in creating a universal pre-K endowment.
I’m not a fan of this process. It tends to favor idiosyncratic, short-term topics du jour. If the money is not spent it goes to our fund balance, which is a boring name for what we usually call a ‘rainy day fund’ (RDF) at the state level.
The nice thing about a RDF is that every Austinite benefits. It improves our bond rating, lowering the cost of capital projects that pay for infrastructure that is universally accessible (and fairly non-rival, in economic terms). Additionally, a RDF has counter-cyclical benefits (don’t tell the majority in the Texas legislature they embrace Keynes!). In the event of a downturn we all benefit from draw-downs on the fund to support the citywide budget.
Unlike the RDF, the Council’s wishlist approach focuses on projects with narrower constituencies. And of course, once the money is spent, we lose the counter-cyclical advantages of keeping cash reserves around.
Assuming Council wants to find something to do with the money, I’d prefer they spend it on something with impeccable public value credentials, that is of benefit to the entire Austin community, and that preserves the counter-cyclical benefit of a RDF.
My proposal is that Council allocates the $14 million to start a universal Pre-K (UPK) endowment.
Quality pre-kindergarten programs have thorough social impact credentials. In many ways, UPK should serve as a ‘hurdle rate’ for Austin discussions of public spending in areas such as tax expenditures (homestead exemptions), corporate subsidies, expansion of existing programs (public safety spending growth).
Assuming a policy of capital preservation and a modestly-risky investment strategy, the endowment would generate around 3% in returns for spending or $400,000 per year. That should be enough to fund supporting further development of a plan and current local efforts toward quality UPK And it can immediately start to fund some additional slots. Eventually, it should solely fund slots.
As for the allocation of the slots, it would be most politically sustainable if there was a lottery open to any child, with some advantage in the lottery for kids from verified low-income backgrounds. In other words, even wealthy and middle-class kids get a digital ticket to the lottery computation, but low-income kids get additional tickets. This ensures that the lottery is both progressive and has a diverse socio-economic constituency.
Finally, because this proposal creates an endowment instead of expending all of the surplus, some of the counter-cyclical advantages can be retained. In the event of a crisis, the endowment can be liquidated.
Many leading urban centers are developing UPK initiatives. For example, New York City’s new mayor is prioritizing a big picture UPK initiative funded through a progressive tax on wealthy residents. Austin has different politics and tools than NYC, obviously. We need to take advantage of any opportunity presented to move towards UPK. This surplus might just be one of them.