Sunday, February 14, 2010

State Funding Guarantee

This is amplification of a story the Columbus Dispatch published with Jim Siegal's byline in the Sunday, February 14, 2010 edition of the paper. The original article is here, and should be read prior to my comments below (if the other link doesn't work, here is a backup copy of the article).

The only comment I have is that the story (as published) doesn't explain why the guarantee amounts have increased so much for districts like Hilliard. Seeing Hilliard's numbers go from $3.6 million to $15.6 million makes it look like we're getting a boatload of new money, and that's not helpful to district leaders trying to help voters understand that State funding is going down, not up.
The truth is that the total amount of money we're getting from the State in FY10 is actually less than we received in FY09.
Every once in a great while, the State significantly changes the algorithm it uses to allocate State funds to the 600+ school districts across Ohio (they make little tweaks all the time in the biennial budget process). While some school districts might have a large windfall with such a change, other districts, particularly the so-called wealthy suburbs, often take a substantial hit. To fix that, a "transitional aid guarantee" is employed to make sure the funding to such a district doesn't go down in the changeover from the 'old' algorithm to the 'new' algorithm.
The prior funding system - which you can call the "SF-3" system - had such a guarantee, and in the last year the SF-3 algorithm was applied Hilliard did indeed receive the $3.6 million in transitional aid guarantee that was reported in the story. However, this was added to $33 million of Basic State Aid and other funding components to bring Hilliard's total Foundation Aid to $37.7 million. Other adjustments took it down to $34.5 million.
With the new system, the PASS form shows that the basic state aid and other funding components come to $21 million, well less than the SF-3 algorithm, which is why $15.4 million in transitional aid guaranteed was added - to bring the total back to the same ballpark as the SF-3 system. After 'other adjustments,' the actual state aid is now $34.1 million, or $400K less than under the old system.
By the way, the 'wealthy suburbs' are doing the yeoman's share of funding State Foundation Aid other school districts. The Dept of Ed publishes a spreadsheet called the CUPP Report which includes a statistic called "District total SF3 AID as a % of Income Tax Liability." What that means is that if a district gets back exactly as much State Foundation Aid as its residents pay in state income tax, then this statistic would be 100%. When the percentage is less than 100%, the school district is a net payor – its residents pay more income tax than the school district gets back in school funding from the state. For the districts named in the Dispatch story, here are the values for this statistic:
Worthington: 17.0%
Reynoldsburg: 98.5%
Gahanna-Jefferson: 16.2%
Hilliard: 40.5%
Dublin: 9.5%
Olentangy: 3.4%

This means that in FY09, the people of the Hilliard school district paid $85 million in state income taxes, but we got back only $34.1 million in State Foundation Aid for our schools.
Whitehall and Hamilton Local schools were both over 200% by the way. They received more than twice as much money from the State as their residents paid in state income tax.
[note that this isn't a discussion about 'fairness' – only an explanation about how things work]
The Dispatch has been doing an important public service bringing these various aspects of public school economics to light. Unfortunately, most of the public remains apathetic to these matters. Public school leaders have a lot of work to do to break through this apathy, and I for one appreciate the help.

Friday, February 5, 2010

Affordability Index

I'm a habitual number cruncher. Give me a spreadsheet full of numbers, and I will calculate ratios and statistics for hours, just to see if anything interesting pops out.

So you can imagine the glee I felt a couple of years ago when I found out that the Ohio Department of Education annually publishes a spreadsheet of statistics on each of Ohio's 600+ school districts. It's been called the CUPP report, and you can find several years worth of them on the ODE website.

The Audit and Accountability Committee used data from CUPP spreadsheet when they created their December 2009 report, which I very much recommend that you read. The Committee did a very nice job of benchmarking our fiscal performance to the school districts they felt were the most like ours: Dublin, Gahanna, Pickerington, Westerville and Worthington. Their conclusion read as follows:

In conclusion, on a cost per ADM (student*) basis, Hilliard is about 6% higher than the state Peer Group but in the middle of the 6 local district comparison. Administrative costs are the lowest of the 6 local districts but Instructional costs are the 2nd highest. Most concerning is the fact that Hilliard's growth in spending from 1995 to 2008 is the highest among the 6 local districts. The reason(s) for spending per ADM outrunning inflation by approximately double the Consumer Price Index (both Hilliard and the other 5 districts) is debatable and not within the scope of this report.

So is there a "right" number for any of these factors? How does one determine if the people of a school district are paying the "right price" to educate their kids? If there's one thing we can be sure about, it's that no two school districts are actually alike.

If we look at the funding side, we know all of Ohio's public schools are funded by three sources: 1) local commercial property taxes; 2) local residential income and property taxes; and, 3) State Foundation Aid. The basic notion of the state's funding system is that there is some floor level of funding, per student, which every school district should have to operate with. The first dollars – equivalent to 23 mills of local taxes – should come from the local sources, and the rest from the State. Then if the people of a local school district want to spend more than this floor amount, they are free to tax themselves all they want in order to fund this additional spending.

Statewide, the district operating at the lowest per-pupil cost is Allen East Local Schools (near Lima), which spends $6,920 per student. Allen East earns a respectable "Effective" rating on its state report card, with a Performance Index of 97.3. For purposes of this analysis, let's say that this $7,000/student per year spending seems to be enough to educate kids to the "thorough and efficient" standard specified in the Ohio Constitution.

So why is it that statewide, the average per student spending is $9,300 if Allen East seems to be able to get the job done for 25% less? Why do we spend $10,968/student here in Hilliard?

One must examine many elements to answer that question. School districts have varying demographic profiles which contribute to the degree of difficulty involved in educating kids to a common standard of performance. Cleveland Heights City Schools has the sixth-highest per student spending in the State, at $16,195, yet achieves only a "Continuous Improvement" with a Performance Index of 86 on its Report Card. I suspect the fact that 57% of their kids come from economically disadvantaged homes may put extraordinary challenges into their education process. Consequently, their student-teacher ratio is 14.75 : 1 while Hilliard's is 18.75 : 1. More teachers means more money.

There are also other factors that enter into the cost per student, such as the local cost of living, which tends to be higher in metro areas than in the rural sections of the state. Consequently teachers, administrators and staff in metro areas expect to be paid more.

But isn't it also true that the cost per student in some districts is in part driven by a mostly emotional desire for "quality," which is a composite of many subjective elements? For example, we want our schools to look nice, and to be nicely equipped. We want the kids to have textbooks which are current and not beat up, and we would like the grounds to be well-maintained.

Beyond academics, we want our schools to have excellent athletic and performing arts facilities, with coaches and directors of a caliber that our teams and organizations are trained and led to compete well at the state, national, and even international level.

None of that stuff is free, but hey, if we can afford it, why not?

The challenge of course is that not all of us can afford it. As our school district's operating costs continue to rise, driven as should be expected by personnel costs, more and more of our community members will be challenged to pay the taxes necessary to underwrite the spending.

So I have been looking at the statistics in the CUPP Report to see if there is some ratio that would indicate relative affordability for a school district. It might also be called a "pain index."

My first thought was to relate the per-pupil cost for a district to the amount of money raised by one mill of property tax. The amount raised by one mill varies because the property values in each school district are different. For example, in the Columbus City School District, one mill raises $10.3 million. In the Bettsville Local School District (near Fremont), one mill raises $21,000. In Hilliard, one mill raises $2.4 million. But the number of pupils served varies similarly: 63,500 for Columbus, 15,000 for Hilliard, and 195 for Bettsville.

So if you divide amount raised per mill by the per-pupil cost for these districts, you get "pupils educated for one mill." In Columbus City Schools, you can educate 739 kids for one mill (highest number in the State), while in Bettsville the number is 2 (two). For Hilliard, it's 221 students per mill.

Interesting numbers, but they aren't very good indicators of affordability. Columbus has a high ratio not because they are particularly efficient, but because the city has a huge commercial tax base which contributes substantially to the funding for their schools. The reason Bettsville educates only 2 kids with 1 mill of revenue isn't because they spend so much per kid, but because their property values are so low. But they're low because it's all agricultural land, and agricultural land is valued artificially low by State law (this is part of what creates the problem of funding schools with property taxes, but that's another story).

You have to be careful drawing conclusions from ratios of ratios, but I think there is something to be learned by relating the cost-per-student in a school district to the average incomes of the residents. I've done this by dividing the cost per pupil by the average income. The idea is that the smaller this percentage, the less pain that is placed on the residents to fund the schools.

The lowest of these ratios is for Indian Hills Schools (near Cincinnati), where the average income is $363,000 (wow!), and the cost to educate a student is $14,000, meaning the cost to educate one kid requires only 3.9% of the average salary.

On the other end of the spectrum is East Cleveland schools, where the average income is $28,000 and the cost/pupil is $13,800, meaning it takes 49% of the average salary to educate a kid. This is the reason East Cleveland schools gets 62% of its funding from the State, and its State funding is 662% of the amount its residents pay out in state income taxes.

As is the case with most of these kinds of factors one can calculate, Hilliard sits right in the middle of Franklin County School Districts. At our average income of $64,006, it takes 17% to educate 1 kid, 8th of the 16 districts in the county. New Albany, with an average income of $186,000, can educate a kid for 5.9% of average income, while for Columbus residents it requires 37% of average income.

Our immediate challenge, as noted by the Audit & Accountability Committee, is that our cost-to-educate is going up faster than the CPI and incomes, meaning this 'pain factor' is only going to get worse for us if the trend continues. Some in our community can absorb this accelerating cost without much impact. Others however, may well be driven from our community a rising property tax burden.

How much our costs go up will be one of the most critical discussions in our community over the next few months. I encourage you to read, learn, and analyze the information that will be made available so that you can participate in the process.

Ignorance, apathy and silence could be very expensive.

* ADM or Average Daily Membership closely approximates the number of actual students in a school district, but includes certain adjustments meant to account for the additional resources required to educate kids with varying degrees of disabilities.