Why I voted against the funding request from Okanagan College (again)

The RDOS board took a bit of a blast from James Miller of the Penticton Herald regarding the board's decision not to contribute up to $2M to the new Okanagan College Centre of Excellence (see also the editorial by Dan Ebenal in the Penticton Western News).  I voted with the majority on this, so some explanation is perhaps in order:

Higher education in Canada is a provincial responsibility.  So contrary to Mr. Miller's assertions that rural RDOS taxpayers are free-riding on this project, it is important to recognize that $22.6M of the $28M project is being paid for by people who pay federal and provincial taxes, which is all of us.  This begs the question: If higher education is a provincial responsibility, why is the provincial government not paying for the whole project?  I asked this question but never got a direct answer.  My guess is because the facility, as it is envisioned, includes more than just basic educational infrastructure.  Indeed, if you look at the proposed floor plan for the "trades building", you will notice that a substantial portion of building's footprint is allocated to a new gymnasium and cafeteria/social space.

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(click here for a larger image)

Perhaps the Okanagan College leadership believes that a gym and cafeteria are essential to the mission of the institution.  But those familiar with the history of the demolition of the Pen-Hi gymnasium and auditorium might reasonably ask the following question: If a gym is central to the mission of the institution, why did the college not speak out when the former Pen-Hi gym was available?  After all, the estimated cost to save the Pen-Hi gym (and auditorium) was closer to $1.5M, which seems tiny in comparison to the $28M cost of the current project.  And the planning for this project was underway when the Pen-Hi gym was still standing. Don’t get me wrong: It is not my place to second-guess the decisions of the Okanagan College board.  That is, until they ask Area F residents to pick up the tab for those decisions.  Then I have a responsibility to be a bit more involved.

Then there is the question of the referendum:  Why did the RDOS board vote against holding a referendum so that people can decide for themselves whether they think this is a worthwhile project?  Speaking for myself only, there are three main reasons:

  1. A type of referendum is already in place.  Anyone who wants to can donate to the project by clicking on the “Donate Now” button on the project’s website.  Of course, some may argue that this is not a real referendum since, unlike a tax, a voluntary donation is not coercive.  That is, people who do not want to contribute to the project cannot be forced to donate whereas they can be forced to contribute if a tax is levied.  Well, exactly.  I see no justification here (in terms of externalities or other forms of market failure) to justify a coercive tax.  I am not against coercive taxes generally to address market failures (indeed, that is really the point of government).  But there has to be a solid economic rationale.
  2. Donating to this project using the link above yields a tax receipt. So it is a far more efficient way to make your dollars count than a parcel tax, which is not tax deductible.
  3. A region-wide referendum is expensive—somewhere in the $30K range.  We could wait to piggy-back a referendum question on next year’s local government elections (which would bring the effective cost of the referendum closer to $0), but that decision should be made next year closer to the election.  Clearly, the specter of having to pay a property tax in the future might dissuade some potential donors from making donations now.

So that is more or less my explanation of why I voted the way I voted.  I am confident that the project will go forward and the Okanagan College board will find sufficient voluntary (and tax efficient) donations to cover its costs.  If not, the college leadership may have to consider scaling back some of the non-core features (my suggestion based on 23 years in universities: the cafeteria).  Either way, I do not believe the core "green trades" educational benefits offered by the Centre of Excellence are in jeopardy.  After all, you, the taxpayer, are already investing $22.6M in this project.

As usual, your comments are welcome.

Update 16 Dec 2010:

A contribution to OK College is back on the table at the RDOS and once again I have voted against it.  More specifically, I proposed an admendment to the budget that would require the question to be put to voters in the 2011 local government elections.  Placing a question on the ballot during a general election is much cheaper than a stand-alone referendum.  I figured we could wait 10 months because the construction of the college is well underway (they are not waiting for fundraising to be complete) and the current proposal is for $100,000 per year over three years anyway.  Thus a 10 month wait seemed resonable to me.

But why a referendum on this motherhood issue? Who is against education?

Before I get into this, let's get a couple of facts on the table:

  • The budget of OK College is about $91 million in 2010  (the RDOS budget [less borrowing on behalf of municipalities] is less than half this—OK College is much bigger than the RDOS)
  • As noted above, only a small portion of the cost of the building is not covered by senior government grants.  Of the remaining $5 million, about half that amount has already been raised from private donors.  The outstanding balance is small relative to OK College's overall $91 million budget.
  • The new building is well on its way to completion. The decision by the RDOS whether to invest in OK College has impact whatsoever on the completion of the building.
  • Tuition accounts for $20 million of the OK College budget.  This means that only 22% of the cost of running OK College is covered by tuition.  Much of the difference is covered by $55 million in provincial grants.
  • To say that students at OK College only pay 22% percent tuition is not quite true—they pay less:
    • The OK College budget does not include capital costs, such as building and fixtures.  As this project shows, these costs are covered by taxpayers and, to a much lesser extent, donors. These costs are not generally reflected in tuition
    • Tuition and textbooks in Canada receive provincial and federal tax credits.  Moreover, these tax credits may be deferred or transferred to other individuals (e.g., a parent).
    • Much depends on the situation, but in some cases we could expect a student at OK College to pay about 10%-12% of his/her costs of attending.  Taxpayers pick up the rest.

So you might think as a university professor that I am in favor of subsidizing education even more.  A little story first: When I started at SFU in 1999, we had the cheapest Masters of Business Administration (MBA) degree in Canada at about $4,000.  Today, SFU's Management of Technology MBA costs $31,000.  UBC's MBA is closer to $40,000 and Queen's University in Kingston is $70,000.  Why are MBA students in Canada all of a sudden required to foot a much larger share of the cost of their educations?  And why do they do so willingly (overall enrollments are up)?  The answer is simple: The returns to professional programs such as an MBA are largely private.  That is, MBAs earn more. There is little appetite to tax the general population to further subsidize individuals who will already receive a handsome private return on their large private investment in education.

Does the same logic apply to the students of OK College? The core principle of "user pay" is that the person who benefits from a service pays for the service.  Should students at OK College to be expected to pay more since they will benefit personally from the education?  To answer this, we need some information:

  1. The BC Wage & Salary survey for 2009 provides some useful information on wages and unemployment by occupation.  For example, the median wage of a welder in BC in 2009 was $27.91 per hour ($58,000 per year) and the employment rate was 99.2% (see page 5).
  2. Minimum wage in British Columbia is $8/hour.  The average family (not individual) income in the Penticton region is $54,000
  3. Tuition for Welding A, B, and C at OK College is about $6,500 total (but don't forget the tax credits for tuition).  See the schedule of tuition.
  4. 43% of the residents who took part in my recent Area 'F' residents survey reported that their primary source of income is "pension or investments" (p. 77).  Unlike a 24 year-old with a new welding ticket, many of these retirees have little control over their revenue opportunities.  The only thing they can control is costs.

So here is the question that arises from all this:  Should the RDOS compel its residents—almost half of whom are retired and/or on a fixed income—to further subsidize the education of individuals who, through that education, will be in a position to make more than the average Pentiction household?

To me, this is the exact opposite of social justice. But of course, it is not for me to decide.  No one voted for Michael Brydon to make decision regarding higher education in Area 'F'—the RDOS has no legal right or obligation to meddle in provincial matters.  However, the RDOS can take money from its taxpayers pockets and give it to favored causes through its "grant in aid" program. So that is what we are doing as of first reading of the 2011 budget.

Note here that my objection is not against OK College.  On the contrary, based on my wage and employment research, I have no choice but to conclude that OK College is offering a fantastic investment opportunity for young people. Graduates of its technical trades programs can look forward to high wages and full employment.  Indeed, the investment opportunity (like the SFU MBA circa 1999) is mispriced.  OK College does not need an RDOS handout.  If anything, the College should be reducing its reliance on taxpayer subsidies.

 

 

 

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