Thursday, March 27, 2008

Administrative Costs

More than one person has commented about how it was interesting that these two stories ran side-by-side on page 8A of the Hilliard Northwest News, March 12, 2008:
  1. "Budget cuts loom after defeat of district's operating levy"
  2. "School board approves raises for administrators"
I wrote an article last October titled "Bad Optics" - discussing how sometimes things which are okay can look bad. This seems like it might be another one of those cases. At the very least is seems that it was poor judgment on the part of the School Board to make this one of their first agenda items at the first meeting after the election in which an operating levy had been soundly defeated. Did they even think about it in these terms? None of the Board members could have been pleased to see page 8A with those two headlines side by side, and it didn't have to come out that way.
Could it be that the administrators' raises were somehow tied to the levy outcome? Perhaps promises were made like "We'll give out X dollars in administrative raises if the levy passes, but much less if it doesn't." We may never know because I suspect this is the kind of thing the Board discusses (inappropriately I believe) in Executive Session instead of during their Eight Minute public meetings.

Then on March 26, Hilliard Northwest News ran another story about administrative costs, in which the Administrators and School Board tried to defend our district's spending by saying it is the second-lowest of the 19 school districts listed.
Nice try, but bad analysis.
The assertion of the school leadership is that they do a good job of controlling administrative costs because our cost-per-student is the second lowest of this set. I disagree with the premise of that assertion. In December 2006, I wrote an article called "Fixed Costs, Variable Costs" which dealt precisely with this situation.
The problem is that doing per-student ratio analysis makes sense only for those cost elements which you expect to change as a direct result of a change in the number of students. For example, the number of teachers clearly must increase with the number of students. And indeed it has, with the ratio remaining approximately 20:1 for the past decade. The number of students would probably also influence the number of bus drivers and bus mechanics, and the number of guidance counselors.
Other costs are less related to the number of students, and more to the number of buildings. The more buildings we have, and the larger they are, the more people we need on the maintenance, janitorial and groundskeeping teams. For example, had we expanded Davidson and Darby instead of building Bradley, we would not need to increase the size of our high school building support team by 50%.
But other costs aren't related to the number of student or the number of buildings. Every school district must have one Superintendent and one Treasurer. After that, the number of administrators a district employs is mostly, if not entirely, optional. One Director of Business Affairs and one Director of Technology is sufficient - smaller districts have neither. There are a bunch of these kinds of costs.
So does that mean that the ratio of Administrative-Costs-per-Student (Admin$/Student) is meaningless? No, but it doesn't mean what many people assume. For example, if the number of students is growing, and the Admin$/Student ratio stays constant - it means the Admin costs are going up at the same rate as student growth, and my suggestion to you is that this might not be a good thing. If many administrative jobs are one of a kind, unrelated to student growth, we should expect the Admin$/Student ratio to go down as the district grows.

By focusing on the Admin$/Student ratio, the school leadership is training us to think it is okay to let administrative costs to grow with the number of students. In other words, if we get 500 more students - an increase of about 3% - we should expect Admin$ to go up 3% as well, which by the way lines up nicely with the kinds of raises which were given out to administrators this month.

So let's look at Admin$ in terms of absolute dollars: If our cost is $941 per student and there are 14,217 students (2006-2007 data used), our total Admin spending is $13.4 million.

Upper Arlington spends 30% more per student than us on Administrative costs: $1,220. However, with only 5,492 students, their total Admin$ is $6.7 million - half of what we spend. Bexley gets by on $2.8 million (20%). New Albany, $4.8 million (36%).

What about other districts of our size? Westerville spends a little more, both on a per-student basis ($1,061) and in total ($14.3 million). Dublin spends a little more per student ($1,049), but almost exactly the same as us in total.

What about Columbus City Schools? I found these numbers very surprising. At 53,674 students - 2.75 times larger than Hilliard City Schools - their Admin$/student is the highest in the region at $1,676, and in aggregate they spend $90 million just for Administrative costs. That makes no sense to me - economies of scale should be the greatest in the largest organizations. We shouldn't say we don't care either - Columbus City Schools is subsidized by the state taxes we all pay. But it's not something we can change easily, and it is not our top priority right now.

But we can demand that a closer look be taken at our own administrative spending. Forget the cost/student ratio - it's a guide at best and more likely serves as a smokescreen for the truth. Instead we need to look at each and every administrative position and expense, and decide whether it is necessary or 'nice-to-have'. These are tough decisions, and it's people's jobs we're talking about, so this has to be done with compassion.

But this is where we have to start if the mission is to cut expenses - which I believe is the mandate given to the School Board by the levy defeat.

By the way, if you rank central Ohio school districts by total Administrative spending, we come in fourth from the top, not second-to-last.

(The numbers I used in this analysis are available here)


  1. Concerning: What about Columbus City Schools? I found these numbers very surprising. At 53,674 students - 2.75 times larger than Hilliard City Schools - their Admin$/student is the highest in the region at $1,676, and in aggregate they spend $90 million just for Administrative costs.

    There's a very simple reason for this: Not all students are the same.

    Those of us mathematically-inclined tend too often to look at people as widgets rather than complex individuals greatly influenced by parents of varying skills and coming from different cultural backgrounds.

    Simply put, ten kids in the Columbus school system require more Administrators than ten kids in the Hilliard school system, just as there are more police-per-resident in Columbus than in Hilliard.

  2. Thats an interesting hypothesis, and it would be interesting to see if the data supports it.

    You're right about the tendency some have to look at the numbers and draw conclusions. My experience is that you use the numbers as instrumentation, just like the gauges and idiot lights in your car.

    Most of the time you can ignore readings within the normal range, and devote your attention to the readings that are out of whack.

    When your engine temperature gauge reads too high, it doesn't tell you which of a number of things might be wrong (low coolant, plugged radiator, failed water pump, etc). You have to check it out.

    Same thing here. All I know at this point is that the numbers are out of whack. I suspect that the answer is not as simple as you suggest.

  3. So we are 4m in the holesupposedly and we are giving out 4% raises. How about showing somefiscal responsibiity and giving out just 2%
    Lots of time off, good benefits.

  4. Based on what I've seen lately from the administration, their are some very inept people making a lot of money! $150K is usually reserved for a competent leader and one that has the ability to run an organization. Clearly this group has severely mismanaged the operation and continue to make tactical errors that are costly. One with real leadership training and attention to details do not make the types of errors made by this administration. I'm completely unimpressed! I almost hope the levies fails so that this administration and board gets displaced for a much better team. Teachers have had their issues of late (contract negotiations) but at least they are succeeding in their jobs. Can't say the same for the admin and board.

    Pay for performance for teachers? ok. How about administration accountability? Who's watching them? Who'd head will roll because of the mess they have gotten us into? Mistake after mistake after mistake. It's almost hilarious. They've cost us MILLIONS by purchasing software and/or curriculum, to only discard it the next year. Poor communications, complete disarray organizationally, and allowing a simple problem to become a MAJOR issue are some of the "sins" of this admin. First rule in business... Assess risk, measure risk, mitigate risk. Has that been done here? NO! Operations managers should never be surprised or put themselves into a position where they have one, and only one, option. Poor planning, poor execution, and an overall ineptitude for the jobs they have.... NEXT PLEASE!

  5. What's the latest? Where are the $4 million in cuts going to come from? When might we hear?

    I hope the district chooses to be fair and forthright with the cuts so that the community "trusts" them again and will vote in favor of the levy. I hope it's not the same old plan of inflict pain now and have a guilt-a-thon in the fall. I just don't think that will work anymore. Under the best of times, that barely works. Current circumstances will make it difficult to pass the levy even if all involved make all the right moves. There is no room for error here. I hope that's known!

  6. Careful there KJ. You are too brave! This is a very vindictive group that resides on Cemetery Road.

  7. Joe sounds like he's running for school board. :-)

  8. ummmmm, thanks anon. Not sure what you mean, but I'll keep that in mind.

  9. According to the CUPP report for FY 2007 (which can be found on the Ohio Department of Education's website), Hilliard's pupil/administrative ratio was 222.79, while the state average was 159.72. Columbus City was 176.06. Bexley was 182.95. Upper Arlington was 197.39. Therefore, Hilliard actually has fewer administrators per number of students than those other districts you mentioned.

    I don't understand how you think a district can add students, teachers, custodians, etc. without adding additional supervision?

    In relation to how much administrators are paid, what is a fair salary? Wouldn't you need to pay the supervisors more than the people they are supervising in order for them to take the job? I would bet you that there are non-administrative positions that are being paid close to $100,000 (ask for the W-2s for guidance counselors - they are usually the highest paid non-administrative staff members in a school district).

    Plus what does a CEO of a $200 million company earn? Or a CFO or a COO? Maybe Hilliard's administrative salaries aren't that out-of-line with the private sector.

    Now with that being said, I am not saying that the administration shouldn’t be admonished for how they have created Hilliard’s current financial predicament nor am I saying they are under-paid.

    I just wanted to provide a different perspective. And no, I am not an administrator in Hilliard. :)

  10. In response to last anon, I believe that no one has said that the district staff, teachers
    etc should not get an increase in compensation. However as I have just had to do, adjust staff, cut expenses etc. The district has the following in place

    1. Current contract with step raises is over 7% and the teaching staff has a premium medical plan
    2. The district just handed out
    a ton of 4% raises when we supposedly are 4m in the hole which I dont doubt.
    3. The attitude is that it is the taxpayer, homeowner Doesnt get it
    or understand. To a point that is true. Most dont understand but the
    communication from the board has been poor on all of this.
    4. I think the fear is that people fear busing cuts, activity fees increased, and other things that directly effect the kids versus
    limiting the compensation model

    I see and hear from more and more individuals that because of the poor communication, lack of respect
    giving away the store at negotiation time that while they have supported past levys they arent going to do it anymore untill the district stops this
    ridiculous increase in compensation
    when supposedly we cant afford it.

    Right now we just gave 4% raises to admin, including 4% increases to two pr folks, which we dont need by the way. With steps we are compensating in many cases
    7.5 % increases and medical insurance that is top level.

    Dont be suprised when everyone says
    this is over. The next levey could go down 60 - 40 especially if a group mobilizes against the
    levy, which CAN happen !

  11. Thanks for your comment - additional perspectives are a good thing when rationally and respectfully offered, as is yours.

    You stated: "I don't understand how you think a district can add students, teachers, custodians, etc. without adding additional supervision?

    Your premise is that most people classified as administrators are in a supervisory role. I may be wrong about this, but my understanding is that 'administrators' is the set of all employees who are not members of either HEA or OAPSE. While that includes the people in various supervisory roles, such as principals, it also includes some folks in non-supervisory staff positions.

    But to your point - no I don't think that just because you add more kids, you need to proportionally increase the number of people in every job function.

    For example, as an IT professional, I know that the number of people needed in the IT department is driven primarily by the number and complexity of applications they have to maintain, and the number of development projects they have to get done. It doesn't really matter whether the school system has 5,000 or 15,000 kids, the workload will be about the same. Don't take this as a criticism of the district's current IT staffing by the way - I'm only using them to illustrate the point because it happens to be my field.

    But it seems like the same things would hold true for a bunch of administrative roles. We only need one head of personnel, and one head of curriculum, for example.

    The point of my comments about administrative spending is not to say that administrators are paid too much, but rather to challenge the tendency to evaluate all spending in 'per-pupil' terms.

    How much does the CEO of a $200 million company make?

    That question has particular interest to me - it is much like the subject of my senior thesis in college. There is no one right answer in terms of dollars, of course. I'm a free-market, minimal-government type, so I think the best answer is "whatever the market demands." If the company is privately held, and the CEO owns most of it, then this number might be pretty large.

    I knew a guy whose wrote a daily economic analysis of the investment bond market. He sat in a big house in Lake Tahoe and posted his analysis each day on a computer service for his subscribers to read. His thinking was so valuable that he collected $20 million/yr in subscription fees. His small staff was very paid well, but he still kept about $12 million/yr of it for himself. I'd say he deserves it, because his customers got to decide every day if his information was worth that kind of money.

    So what should our Superintendent (or any other administrator) be paid? My answer is that we should be willing to pay whatever it takes to recruit a person who can perform the duties of the position well. There is no precision in that statement - we have to agree on what 'perform well' means, and also must decide how much we're willing to pay. I've had some colleagues over the years who would make excellent leaders of our district. But we'd probably have to pay them a lot of money to take the job I suspect.

    All this is one more argument for a Friedman-style voucher system. The salaries of school personnel would be set by competitive forces, just like it is in the rest of our economy...

    ... except that one of my key concerns about our economy is that our competitive jobs are being lost by the thousands every day (to workers in other countries), while government jobs (which includes working for a school district) have become among the best compensated and least threatened.

    Not everyone can work for the government - somebody has to be working in the private sector to generate income to pay the taxes that in turn pay the compensation of government workers.

    Many of us - maybe most of us - in the private sector are feeling the pressure right now. The outcome of the Nov levy vote was, to a large extent, the community saying that the school employees needs to feel a little of that too.

  12. KJ, since you asked....

    40-some teaching positions eliminated, more to come.

    All noon-aides let go (Wow, what a savings that will be! sarcasm

    Guidance counselors getting hit too. Not sure if all of them are going, but I know many have already been told. Rumor is that all will be let go or asked to go half time. (GC's aren't necessary, especially in the lower socio-economic schools. again, sarcasm

    Expect more teaching eliminations in secondary as all cuts to date have been in primary.

    No admin positions eliminated at this point in time.

    Looks like the cuts are coming from the meat, not the fat.

    More to come.....

    (If you want Paul, start a blog on updates and I'll post as I get them... Others may have info to share as well)

  13. In light of Administrative positions and the number of principals at the HS level I wonder if we comparing apples to apples when we compare ourselves to Dublin or other 3-HS districts.

    Dublin already has the 3 high schools in their budgets, so their principals' salary and AD's salary are already in the "per pupil cost".

    If we add 6 more principals and 3 AD's (one assistant) and who knows what other Admins to Bradley, that will be another $1MM or so added to the administrative costs of the district, will it not? That would take us above $1,000 per student for admin costs wouldn't it???