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More Education, Less Incarceration: You must submit a written response to ALL the questions presented in the “More Education, Less Incarceration: Good Policy, Good Politics, or Both?” Case. More Education, Less Incarceration: Good Policy, Good
Politics, or Both?

Case

Author: Author:

Pamela E. Queen

Online Pub Date: June 24, 2020 | Original Pub. Date: 2020

Subject: Taxes & Business Decisions, Government & Business Economics, Business, Government, &

Society

Level: | Type: Indirect case | Length: 4591

Copyright: © Pamela E. Queen 2020

Organization: | Organization size: Medium

Region: Northern America | State: California, Michigan

Industry: Public administration and defence; compulsory social security

Originally Published in:

Publisher: SAGE Publications: SAGE Business Cases Originals

DOI: http://dx.doi.org/10.4135/9781529741384 | Online ISBN: 9781529741384

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http://dx.doi.org/10.4135/9781529741384

© Pamela E. Queen 2020

This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion
or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein
shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use
only within your university, and cannot be forwarded outside the university or used for other commercial
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More Education, Less Incarceration: Good Policy, Good Politics, or Both?

http://dx.doi.org/10.4135/9781529741384

Abstract

Hannah, an administrator in the Michigan state treasury, is faced with the possibility of an
exciting new job prospect in California. Hannah’s work has garnered the admiration of a number
of state politicians, especially Javier, a candidate for controller in California. He is running on
a platform of greater education spending and less incarceration, as a key tenet of better state
fiscal responsibility. This campaign platform is gaining traction in California and other states.
Hannah could be the next chief deputy of policy in the California’s controller office if Javier is
elected. Although a state controller is not a position in Michigan, Hannah is knowledgeable of
the functions and duties of this office, and she is a trusted adviser skilled in working with a
governor’s …

Case
Learning Outcomes

After completing this case, students should better recognize and understand the following:

• Typical sources of revenue for state governments and associated tax policy.
• Factors influencing differences in state tax policy.
• Some criteria used to evaluate state tax policy.
• The difficulty with making trade-offs between funding for incarceration versus education for state

governments.

Introduction

It is the first Tuesday in November and Hannah finds herself intrigued by elections results not in her home
state, but in California. It is the Californian State controller election that has piqued her interest. About a year
ago, she met Javier, a California state legislator now running for state controller. They were both at a national
state legislative conference in which her boss, the Michigan State Treasurer, was presenting highlights of
Michigan’s transformation of policy and budget allocations to fund justice reform initiatives. Hannah, a bureau
administrator skilled in tax policy, attended this conference to provide details and answer questions about
Michigan’s actions to support its justice reinvestment initiatives while increasing revenue for education.

Hannah helped develop her boss’s presentation, which was a guide on how Michigan’s policy on corrections
funding evolved through collaborative efforts. Hannah is Michigan’s subject matter expert on this topic.
Her MBA thesis was an analysis of justice reform policy that focuses on high school completion and job
readiness as an effective diversion method, and more education and workforce development of incarcerated
individuals prior to release. Her study evaluated initiatives from other states to compile “best practices” for
Michigan to implement. Her recommendations to the Governor and state legislators were instrumental to
Michigan’s success with reducing its prison population and redirecting its savings to other state priorities
without jeopardizing public safety. Michigan’s justice reform efforts are touted as one of the best in the
United States (Schrantz et al., 2018), with revamped spending on incarceration and increased spending on
education. These adjustments have a direct impact on Michigan’s tax policy and funding allocations. Since
her tenure as an undergraduate intern, MBA intern, and now full-time staffer in Michigan’s treasurer’s office
(Michigan does not have a controller position), Hannah has garnered a decade of tax policy and state budget
experience. She continues to evaluate how other states, especially Connecticut, South Carolina, and Rhode
Island, utilize savings from justice reform initiatives for other state priorities, especially funding for K–12
education.

Globally, the United States comprises 5% of the population but 20% of the world’s incarceration population
(Lee, 2015). A 2015 study highlights that state prisons are a costly endeavor (Vera Institute, 2015). Prisons

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More Education, Less Incarceration: Good Policy, Good Politics, or Both?

must provide adequate levels of security, administrative staff to supervise incarcerated persons, recreation
and education programs, food and nutrition, health care, substance-abuse, mental health, and specialized
services for aging inmates, infrastructure maintenance, and facility upkeep. As the prison population
continues to grow with higher rates of incarceration for non-violent crimes and longer prison sentences, the
cost of U.S. prisons will continue to increase. With 24-hour oversight, care, and services for incarcerated
persons, according to a Prison Policy Initiative report, approximately USD 80 billion is spent each year on
corrections facilities, which dwarfs the USD 68 billion discretionary budget for the Department of Education
(Kann, 2019). Unlike other countries, the United States lacks robust systems of social services and diversion
programs for mental illness, substance-abuse, homelessness, and troubled-youth. Therefore, the United
States relies more on jails and prisons to lock-up individuals who would be best served by community-based
alternatives. Needed social services and programs are more often implemented at local and state levels, as
the United States lacks a national support network backed by policy to effect a systemic move away from
mass incarceration (Lee, 2015). The mammoth U.S. prison population results from locking more people up
and keeping them locked up for longer.

California’s spending on prisons is comparatively high compared to other states in the United States.
California spends USD 8.6 billion a year on its prison system, which equates to USD 64,642 per inmate,
with the highest gap between corrections spending and education spending of all states at a USD 53,147
difference, which represents merely USD 11,495 on education per pupil (Bauman, 2018). A July 2016 brief
from the U.S. Department of Education (2016) indicates that over the past three decades, state and local
government expenditures on prisons and jails have increased about three times as fast as spending on
elementary and secondary education.

Figure 1. U.S. Incarceration Rates Compared Globally

Source: Statista Data for Organisation for Economic Co-Operation and Development (OECD) Countries as of
May 2019.

Data 1. U.S. Total Incarcerated Adult Population

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Data 2. U.S. Incarcerated Adult Population, Breakdown by Facility

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To unseat incumbents, California’s candidates for Governor, Lieutenant Governor, and Controller embraced
a platform of more spending for education and less spending on incarceration of non-violent offenders, with
plans to use projected cost savings for diversion programs as an essential fiscal policy for the state. Reducing
prison populations is challenging for many states but California has a particularly pressing reason to decrease
its prison population of about 115,000 inmates. In 2011, the U.S. Supreme Court ordered California to reduce
its overcrowded prison population by 30,000 inmates to become less than 137% of facility capacity; this action
was done under court order versus voluntary actions, which underscores the political difficulty of enacting
aggressive policy to curb mass incarceration (Robertson, 2019).

From 2016 to 2018, California’s state expenditures on education spending is on a decline, while Michigan’s
education spending is slightly increasing. Both state’s spending on corrections is steady over this period with
California at a rate of 5% and Michigan at a rate of 4%. At the conference, the California controller candidate
was impressed by Michigan’s efforts to achieve sustainable prison population reductions while maintaining its
education spending. Michigan has a dedicated state education tax to supplement its general fund (GF).

A week ago, the California controller candidate reached out to Hannah to reiterate the job offer, as the
polls were predicting a win for the challengers to unseat the incumbent Governor, Lieutenant Governor, and
Controller, which are all elected positions in California.

Data 3. Government Spending on Education Versus Corrections in Michigan and
California

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Although Hannah was flattered and found the job offer intriguing as she is single, has family members and
college friends who live near Sacramento, and had been contemplating a challenging career move, she has
reservation about differences in budget size, organizational structure, scrutiny and visibility, and policymaking
between Michigan and California that may limit her ability to influence policy changes that were successful in
Michigan.

Crime and Public Safety Policy in the United States

According to the Brookings Institute, the U.S. prison population has grown since 1990, while rates of violent
crime and property crime have decreased by 45%. Many debate whether mass incarceration is making us
safer while costs associated with incarceration are increasing. Some studies find no correlation between
higher incarceration rates and reduced crimes (Lofstrom and Raphael, 2016), while other studies show little
benefit. Research indicates a 10% increase in incarceration, decreases the crime rate by only 2%, thus not
increasing public safety (Donohue, 2009; Johnson and Raphael, 2012). The bottom line is justice reform
initiatives in the United States are weak with failed policies that incarcerate more people regardless ofU the
severity of crime. Furthermore, sufficient diversion programs are lacking and efforts to curtail a prison pipeline
have failed: 66% of state prisoners did not graduate from high school (Bauman, 2018). Often the necessary
tough policies are not politically popular, so key elected officials influenced by popular opinion comprise the
judicial system and do not enact meaningful laws (Lee, 2015).

Criminal Justice Reform Policy

The Sentencing Project highlights five states—Connecticut, Michigan, Mississippi, Rhode Island, and South
Carolina—that have implemented effective strategies based on data-driven reform and bipartisan support to
decrease their prison population between 14%–25% without an adverse impact to public safety. Innovations

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were made in the areas of risk and needs assessment, community supervision, alternatives to incarceration,
sentencing and sanctions, probation and parole, prisoner reentry, and community reintegration. The prison
population reductions in these five states were achieved through data-driven policy reforms that pursued
bipartisan consensus. These states engaged in the Pew Charitable Trusts and the Council of State
Governments Justice Reinvestment Initiative, which bring stakeholders together to combat driving forces
causing prison expansion and to develop policy and practices that curtail these forces (Schrantz et al., 2018).
Table 1 illustrates the prison population decrease for these five states.

Unlike other states, Michigan’s approach to justice reform was not the result of legislative packages
mandating change, but rather collaborative efforts led by the Governor who under the executive branch
created the Michigan Prisoner Reentry Initiative (MPRI) with involvement from state and local leaders,
national organizations, philanthropic groups, universities, and community leaders and groups to address
prison reform using evidence-based models. For Michigan, the primary drivers for justice reform were its fiscal
situation and the impact of an expanding prison system on its state budget priorities. As a lesson learned,
Michigan considers with its funding allocations and tax policy that acquiring supplemental funds to support
reform initiatives is paramount, and estimated cost-savings may be overstated, as offsetting cost increases
may arise in other areas. Although the prison population in the United States is gradually declining, with a 6%
decline from 2009 to 2016, at this rate of change, it would take 75 years to reduce the U.S. prison population
by half.

Table 1. Prison Population Decline in Five U.S. States

State

Peak prison population

Prison population, year-end 2016

Reduction in prison population

Peak year Population Decrease % change

Connecticut 2007 19,438 14,532 −4,096 −25.2%

Michigan 2006 51,454 41,122 −10,332 −20.1%

Mississippi 2008 22,831 18,833 −3,998 −17.5%

Rhode Island 2008 4,045 3,103 −942 −23.3%

South Carolina 2008 24,326 20,858 −3,468 −14.3%

Source: Schrantz et al. (2018).

State Spending on Incarceration Versus Education

Video 1. Comparative Costs of Incarceration and Education

Transcript •

Download transcript

The United States spends nearly USD 70 billion annually for adult prisons and jails, youth detention centers,
and to supervise individuals on probation and parole (Hawkins, 2010). About 75% of corrections spending

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occurs at the state level with dollars drawn from the state’s GF, which is a large discretionary fund used to
support education, public assistance, Medicaid, corrections, transportation, support to local governments, and
most other state expenditures. With competing state priorities, education funding has become a casualty of
budget battles, which perpetuates a vicious cycle of increased corrections spending.

Research shows a linkage between education attainment and incarceration. Furthermore, research indicates
that a 10% increase in high school graduation rates result in a 9% decline in criminal arrest rates (Lochner
and Moretti, 2004). Also, a NAACP study of matching zip codes to high rates of incarceration reveals that
low-performing schools, as measured by math proficiency, tend to be in areas where incarceration rates are
highest (Hawkins, 2010).

For the past three decades, state and local government expenditures on prisons and jails have increased
at a faster pace than state and local spending on education—this includes elementary, secondary, and
postsecondary education. Studies highlight that redirecting investments in education can reduce criminal
activity by altering student behavior and improving labor market outcomes (Council of Economic Advisers,
2016). Early childhood education leads to reduced incarceration by improving outcomes for greater
educational attainment (Currie, 2001). Additionally, studies show that education is a pathway to facilitate
integration back into the community for formerly incarcerated people. Incarcerated individuals who
participated in high-quality correctional education, including postsecondary correctional education are 43%
less likely to return to prison within 3 years than those without this opportunity. Also, for every USD 1
invested in correctional education programs, USD 4–5 are saved on 3-year recidivism costs (Davis et
al., 2013). Reducing incarceration rates and redirecting corrections funds to investments in education for
school completion programs, access to top-rate preschools, focus on high-poverty schools, and high-quality
correctional education programs are more effective at reducing crime, increasing opportunity for at-risk youth,
and decreasing recidivism rates (Lochner and Moretti, 2004; Trostel, 2015). We could save money, reduce
violent crime, and increase economic activity all by simply redirecting prison funds into smarter investments
on education (Ingraham, 2016).

Michigan’s justice reform was a long time coming. Like many states, its war on drugs intensified in the 1970s
with severe mandatory minimum sentences causing its prison population to almost double between the 1970s
and 1980s. With deteriorating prison conditions and overcrowding, under court order and consent decrees,
the state passed a Prison Overcrowding Emergency Powers Act to release prisoners for time-served when
prison capacity levels were reached. In 1980, a ballot proposal to increase taxes for prison construction failed.
After prison riots and a parolee released under the Prison Overcrowding Emergency Powers Act committed
two murders, this act was repealed in 1988 and a Community Corrections Act was passed to fund local
alternatives to incarceration. Additionally, in 1998, Michigan enacted harsher “truth in sentencing” laws to
qualify for federal Violent Offender Incarceration and Truth in Sentencing grants. With sustained prison growth
and related state fiscal challenges, it was obvious that a change was needed. So, by 2003, when Governor
Granholm directed state leaders to develop the Michigan Prisoner Reentry Initiative (MPRI) to transform
corrections policies and practices and create safer neighborhoods, all stakeholders were ready (Schrantz et
al., 2018).

Likewise, California has struggled with shifting funding priorities to implement cost effective criminal-justice
policies and public-safety strategies that curtail crime and direct more tax dollars into children’s education. In
a 2010 State of the State address, Governor Schwarzenegger remarked, “Thirty years ago 10 percent of the
general fund went to higher education and 3 percent went to prisons. Today almost 11 percent goes to prisons
and only 7.5 percent goes to higher education. Spending 45 percent more on prisons than universities is no
way to proceed into the future. What does it say about any state that focuses more on prison uniforms than
on caps and gowns?” (Schwarzenegger, 2010).

State Funding Approaches

Video 2. Applying Business Logic to Public Policy

Transcript •

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Download transcript

According to National Association of State Budget Officers (NASBO), a state’s GF is its primary fund from
which ongoing expenses are paid. Revenue is comprised of a broad set of state taxes, including property
taxes, sales and gross receipts, income tax, and other taxes to provide revenue for this discretionary fund.
Figure 2 shows the 2018 State Government Tax revenue sources for Michigan and California as compared
to all states. Additionally, states receive revenue from the federal government, bond issues for capital
expenditures, and other earmarked taxes such as gasoline taxes, higher education tuition and fees, gaming,
roads, and other restricted sources. Figure 3 highlights state expenditures by fund type (GF, federal funds,
bonds, and other funds).

Figure 2. State Government Tax Table by Category

Source: U.S. Census 2018 Annual Survey of State Government Tax Collection

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Figure 3. State Expenditures by Fund Type

Source: National Association of State Budget Officers (NASBO)—State Expenditure Report (2018)

For most states, GF expenditures support elementary and secondary education, higher education, public
assistance, Medicaid, corrections, transportation, local governments, and other state priorities. The
percentages allocated to each category will differ by state and its tax policies. Table 2 shows GF fund
expenditures by function for Michigan and California.

Often, reallocation of State GFs to corrections and other priorities comes at a great impact to education
funding as a large percentage of GF expenditures support education. Unfortunately, recent trends for
K–12 public school education performance shows declines, as reported by the National Assessment of
Education Progress (NAEP), which measures proficiencies for U.S. students. Hannah knows that state and
local policymakers will closely monitor whether changes to education funding will adversely impact school
performance measures. Per a 2018 report from HavenLife (see Table 3) on public education performance,
which considers NAEP math and reading scores, student to teacher ratio, high school graduation rates, and
per pupil spending, Michigan has an overall rank of 38, as compared to California with an overall rank of 42.
Massachusetts has the best NAEP math and NAEP reading scores at 297 and 278, respectively; Vermont has
the best student to teacher ratio at 10.5 students to one teacher; Iowa has the highest high school graduation

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rate of 91.3%, and New York spends the most per pupil at USD 21,206 (Weinberg, 2018). Additionally, any
changes to state tax policy would be evaluated by the Tax Foundation’s state scorecard. Hannah knows there
is improvement needed in Michigan’s tax policy rankings (Tax Foundation, 2019).

Table 2. State General Fund Expenditures by Function (%)

State K–12 education Higher education Public assistance Medicaid Corrections Transportation Other

All states 35.8 9.7 1.0 20.2 6.8 0.7 25.8

California 38.7 11.2 2.9 18.5 9.2 18.0 19.3

Michigan 1.2 14.2 1.1 27.6 20.9 2.0 33.1

Source: National Association of State Budget Officers (NASBO)—State Expenditure Report (2018)

Table 3. School Performance Measures

State
NAEP
Math

NAEP
Reading

Student-to-teacher
ratio

Per student
spending

High school graduation
rate

California 277 263 23.6 USD 10,467 83.0%

Michigan 280 265 18.2 USD 11,482 79.7%

Source: HavenLife Report on Public School Performance by Adam Weinberg (2018)

Hannah understands the “sausage-making” aspects of state policy having worked in her state’s treasurer
office for 10 years as a college intern, then after graduation with an MBA, as full-time staff. Her college thesis
chair was an architect for the Michigan Prisoner Reentry Initiative (MPRI). She has supported the MPRI with
policy analysis and research and is well-versed in policy and actions needed to implement justice reform,
revamp corrections spending, and fund education priorities. During her tenure, she has become a trusted
advisor to the Governor and state legislators on tax policy innovations. Yet, Hannah felt some angst as she
considered differences between Michigan and California, especially California’s massive budget, structure of
state government, visibility of an elected controller, and existing tax policy. Although there are still more efforts
to be done in Michigan to further its advances in justice reform, she pondered whether Michigan’s progressive
steps could be replicated in California. A key aspect of Michigan’s success was its Governor as a champion
of leading change with a broad set of stakeholders working together for a common goal. Like she had done
in Michigan, Hannah would certainly evaluate any tax policy proposals using the seven criteria outlined for
balanced tax policy from the National Conference of State Legislatures (NCSL) Tax Policy Handbook:

• 1.
Reliability—constant, certain, and sufficient revenue stream;

• 2.
Equity—equitable distribution among taxpayers with different economic circumstances, and equal tax
burden for taxpayers with the same economic circumstance;

• 3.
Compliance—ease of paying tax;

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More Education, Less Incarceration: Good Policy, Good Politics, or Both?

• 4.
Administrative—ease of collecting tax;

• 5.
Interstate and International Competitiveness—tax burden is within a competitive range of
neighboring states;

• 6.
Economic Neutrality—tax does not deter economic decisions on use of products and services; and

• 7.
Accountability—tax burden is explicit and fair.

What Should Hannah Do?

Hannah was glued to a national cable network station that covered election results from every state. Her
state does not have a controller and her boss, the state treasurer is appointed by the Governor, so she was
never concerned about election results impacting her position. Although in principle her potential position in
California’s controller office is not impacted by election results, nevertheless, she anticipates that if effective
policy changes are not enacted before the next election, her position could be in jeopardy. On a positive
note, Hannah knows exactly what needs to be done and has experienced typical pitfalls and barriers with
implementing Michigan’s justice reform and associated tax policy changes. Over the years, she has provided
advice to several states and has implemented “lessons learned” and state-specific insights into presentations
that she creates for Michigan’s treasurer. Also, Hannah is very familiar with strategies to reduce prison
population in Connecticut and South Carolina, both of which are states that elect their comptroller (controller).

California’s election results for governor, lieutenant governor, and controller are closer than predicted. The
lead flipped throughout the day, as mid-day election results are reported. Per her conversation last week with
Javier, if the election results are as the pollsters predict, Hannah will receive a call on Wednesday morning
asking for her answer to the job offer. It is midnight in Michigan and the polls have closed in California; with
final election results coming in, the election predictions appear accurate. It is decision time for Hannah. She
falls asleep anticipating a phone call in the morning.

Discussion Questions

• 1.
What are potential revenue sources to fund Corrections initiatives in California?

• 2.
What are potential revenue sources to fund Education initiatives in California?

• 3.
To what extent do your potential revenue sources for Corrections initiatives reflect the NCSL seven
tax policy criteria?

• 4.
To what extent do your potential revenue sources for Education initiatives reflect the NCSL seven tax
policy criteria?

• 5.
What are the advantages and disadvantages of reallocating GF expenditures for California?

• 6.
Should Hannah take the job offer as chief deputy of policy in the California controller’s office? If so,
what conditions might she request; if not, what reason will she give?

References
Bauman, V. (2018, October 25). Incarceration vs. education: America spends more on its prison system
than it does on public schools – and California is the worst. DailyMail. …

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