State: Cost estimate method irks amendment backers

The $27.5-billion price tag on the ballot initiative to reduce class sizes, an estimate regularly cited by Gov. Jeb Bush, relies on budget assumptions rarely if ever used in state government.

If standard budget practices had been followed, the estimate calculated by state budget analysts would be cut by more than half.

The higher estimate is the result of a so-called cumulative cost analysis. Operating costs are added again and again, year after year, until the class size goals listed in the constitutional amendment are fully met in 2010.

"It is not only unusual, it is not used at all in state government," said Ed Montanaro, who this month left his position as the longtime director of Florida's independent Office of Economic and Demographic Research. "It drives up the cost."

Opponents of the amendment counter that the cumulative cost analysis is an honest attempt to let voters know the costs will be ongoing and considerable.

"Voters are only getting half the truth if you do not clearly state the costs associated with the phase-in of this initiative," said Katie Muniz, spokeswoman for Bush, who has been speaking out against the amendment in recent weeks.

But the unusual cost analysis has amendment supporters crying foul.

"That method of adding up the cost is part of the plan to scare the public," said Sen. Kendrick Meek, D-Miami, the driving force behind the initiative. "They know the appeal of reduced class size, so they're trying to scare people with outrageous numbers."

Under the cumulative method, for example, implementing the amendment in two years would make it appear less expensive than spreading out the cost over more time.

Though a definitive price tag is unknowable, the possible financial impact will be debated for months to come. The multi-billion-dollar cost is shaping up as the first argument against the initiative, which opinion polls show has broad appeal among voters.

This much is known: Even if the costs are lower than the state's official estimate, reducing class sizes will be very expensive. It would force state lawmakers and Florida's next governor to find billions of dollars in spending cuts or higher taxes, or both.

A 1-cent increase in the state sales tax, for example, would raise about $2.7-billion a year. Such an increase, which would be the first statewide increase in the sales tax since 1988, would meet or exceed some estimates of the cost of reducing class sizes over eight years. Other options for paying for the constitutional amendment would include keeping the sales tax rate the same but extending the tax to cover more goods and services that are now exempt.

The initiative is highly partisan. The governor and the Florida Republican Party oppose it. The three primary Democratic gubernatorial candidates and the Florida Democratic Party support it.

Amendment 9 would be the broadest, most expensive class size reduction effort in the nation. It would be even bigger than a statewide plan in California, which is straining its state's budget this year.

Meek says his plan is different from California's in more fundamental ways. "They tried the "microwave plan,' " he said. "They tried to do it overnight, and they ran into problems."

California struggled to find qualified teachers and space for all of the new classes. "We knew that, physically, we couldn't do it in one year," Meek said. "That's why we went with the phase-in."

But the eight-year transition is working against him.

Last year, the Florida Department of Education estimated that reducing class sizes by 2010 would cost $13-billion.

Since then, the state's official estimate has more than doubled. The only difference is the math. Other estimates have been even higher.

The governor's office estimated the cost at $40-billion, including some other costs to even out school funding across the state.

In June, the state's Revenue Estimating Conference, a group of economists from various state agencies that estimates how much revenue the state will collect, met to settle on the amendment's cost. The meeting was the result of a new state law requiring citizen initiatives to carry price tags.

Estimates ranged from an implausibly low $4.1-billion -- all new classes in portables, all new teachers making minimum salary -- to a high of $27.5-billion.

Conference members disagreed, but finally issued an official estimate: $27.5-billion over eight years. That's $9.3-billion for construction and $18-billion for operating costs, mostly teacher salaries.

The $27.5-billion figure could be on the Nov. 5 ballot if the state wins a legal challenge.

The estimate relies on a cumulative cost analysis. While rarely used, some say the unusual nature of the initiative demands it.

"You have to come up with a way to communicate that these are ongoing costs," said Jim Hamilton, deputy superintendent for Hillsborough County schools and a critic of the amendment.

David Figlio, a University of Florida economics professor, said that although the cumulative cost analysis "makes the numbers look gaudy," the costs might ultimately be higher. For instance, Figlio said, "this is going to increase demand for teachers, while doing nothing about the supply. That drives the price up. Either teacher salaries will go up, or teacher quality will go down."

The cumulative approach illustrates that a teacher hired in the first year of implementation would be paid again in the second year, the third year, and so on. But that approach can lead to distortions.

The price tag would be cut in half if the initiative were implemented in two or three years simply because the cumulative costs would be added up only two or three times. But that would be misleading because the costs continue.

Montanaro, who was a member of the Revenue Estimating Conference when it convened in June, disagrees with the cumulative method. The three other economists on the conference -- they represent the House, Senate and governor's office -- supported it. They declined comment.

Montanaro says the one-time construction costs should be separate from ongoing operating costs. He might express the cost as $6.6-billion for one-time construction costs, and roughly $1.9-billion in ongoing annual costs.

"I think the cost will be considerably less" than the official state estimate of $27.5-billion, Montanaro said. "I would assume the Legislature will do this as economically as possible."

Some state budget experts outside Florida said they weren't surprised at the wide-ranging estimates.

"When opponents want to kill a project, they maximize the cost," said professor Kurt Thurmaier, director of the public policy and administration program at Iowa State University, who specializes in state budgeting. He added that proponents tend to minimize costs.

"This sounds like a way to maximize the cost," he added.

Thurmaier said the goal of a cost estimate is to give the public a better understanding of the financial impact. He questioned whether the cumulative cost approach accomplished that.

"No matter what estimate you go with, we're talking about the B-word -- billions of dollars," said Bill Proctor, executive director of Florida's Postsecondary Education Planning Commission. His organization did its own cost estimate and came up with $29-billion over eight years.

"Take our estimate or the lowest estimate," Proctor said. "Either way, that's a lot of money."

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Lucy Morgan

From the Times state desk