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.


  1. Paul,

    Why don't you just use the recognized formula for local tax effort -- (district total FAGI)/(total local school tax effort)?

    The state tax department used to produce this statistic, the last in 2008 here.

    Regardless, without a true market, you are poking around in the dark.

  2. Jim:

    I completely agree with you comment about markets, and have said as much.

    I appreciate the link to the report from the Ohio Dept of Taxation. It should be read by anyone who wants a deeper understanding of Ohio's school funding system.

    I recall you having some criticism of the local tax effort calculation. I looked up how it is supposedly done, as documented here, and found that the four step procedure they describe algebraicly resolves to Median State Income over Median District Income. That's not very interesting.

    The statistic I calculated takes in both how much is spent to educate one kid versus the average income. The notion is that there is probably some 'normal' relationship between spending and income, and it would be interesting to note districts who spend outside that norm, especially if your own is one of them.

    Because 80%+ of the spending by most school districts is for salaries and benefits, why not just calculate the average cost of salaries/benefits versus the average income of community members? It seems like that would be more helpful that the state's effort index.

    Employee income vs community income an interesting measure as well, but my statistic also takes in the number of employees, as well as other operating costs. I'd like to incorporate capital costs too, but haven't yet found a good way to get my hands on that for all school districts.

    Because the state funding system takes away dollars from districts with high property values, I have no issue with wealthy districts spending a lot to run their schools, as it's substantially their own money that's being spent.

    Without a market to set prices, district-to-district comparisons is about all we have to work with.

  3. Not to confuse the issue, but I know that there are different measures of income out there and different results can be produced based on which measure is used. For instance, there are measures such as "average income", "median income", "median household income". Some prefer the use of a measure such as "median household income" since this measure is the 50th percentile of all household incomes in the respective community, whereas an "average" number can be skewed by extreme values.

    You will notice that communities like Hilliard and Pickerington tend to rank higher in median measures, while Grandview Heights tends to rank higher in average measures.

  4. SJ:

    You are correct about all the different income statistics. Neither average nor median tell the whole story because, as you say, large outliers will skew the average, while median hides the distribution.

    In the case of the CUPP report, the income numbers come from state tax returns, so it's not quite individual income (eg 'married filing jointly'), and not quite household income (when there are multiple filers in a household).

    I'll continue the search for a better indicator of affordability, but the punch line is the same regardless:

    Please get educated on the facts, and participate in the process of determining how much we should spend to operate our schools. Critical decisions are going to be made over the next few months.

  5. Paul,

    I agree with your assessment of the usefulness of "average" vs. "median". And yes, the bottom line is for the citizens of HCSD is to be both educated and involved.

  6. Pretty sure that around here, we all realize where that $10,000+ per student goes. The compensation model has to change, and I am not talking about 1 year pay freezes like Reynoldsburg just accepted. Regardless of what formula is used, the average income in Hilliard, as well as other districts, is going down due to unemployment and businesses trying to cut their own expenses, or at a minimum is staying level. Our percentage of income going to the schools cannot increase at the level of the last several contracts without it being painful to a majority of the districts residents, and impossible for at least a minority of those residents. I hope the Board and the HEA keep that in mind when negotiations begin later this year. All they need to do is look at that graph which shows the Revenue/Expense line crossing in 2010 to realize something needs fixed, and neither side needs a bloody battle over large levy increases every two years from now until forever. Even those of us who voted Yes (notice I don't say "supported") on the last several levies will not continue to vote Yes forever.

  7. Paul,

    The problem with district-to-district is that the main assumption is flawed -- that the average district (in whatever pool or peer group) is efficiently spending tax dollars.

    As far as the local tax effort stat, ODE and Tax use different equations -- and ODE's is flawed (as I noted on my blog).

  8. Paul,

    You wrote:

    "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?"

    As a Hilliard teacher, I very much doubt that most parents would agree with you that using Allen East's performance index and rating would pass for "getting the job done." The clear message I get from parents is that they fully expect an EXCELLENT education for their child, not merely an EFFECTIVE one. I must admit I do not know anything about Allen East as a district, but it seems like it would be easy to compare programs and student performance with some research (which I admittedly do not have time to do with parent-teacher conferences coming this week). How much scholarship money do their graduates earn, compared to ours? How do their students perform on the PSAT, SAT, and ACT? What percentage go on to college? Just food for thought.

    The clear message we as teachers get from our Superintendent (and I assume the Board agrees) is that we should never be satisfied with what we are doing as teachers...we should be constantly striving to increase student achievement rather than resting on our accomplishments. I am not saying that automatically requires us to spend more money per student, only calling into question your assumption that an "Effective" rating would be considered "good enough" by Hilliard stakeholders. In the 20 years I have lived in Hilliard, that is certainly not what I've heard from anyone: neighbors, parents, students, colleagues, or administrators. And as the parent of two Hilliard high school students approaching college, I am relieved we chose Hilliard for their education, even if it has cost me more in taxes. My own high-school education was effective. But I am thrilled my own children have had an education that exceeded mine. They have had academic opportunities I could never have imagined.

  9. P.S. to my post of late last night: see the Dispatch Forum article "Good people, ideas make good schools" in today's paper, page A8. Rather than comparing us to Allen East, a district with a lower state rating, let's look at districts like Jonathan Alder, who educate kids for far less money per pupil than we do in Hilliard, yet still are achieving an EXCELLENT rating with strong test scores, attendance, and graduation rates. How can we control spending while maintaining the same level of academic excellence? I believe THAT is the question to ask.

  10. Keeping the Faith:

    Of course the people of Hilliard expect our schools to be better than average. When my wife and I moved here 30 years ago, it was because we knew that once we started having kids, we wanted them to attend Hilliard Schools. They did, from kindergarten to graduation, and had a wonderful experience. We voted in favor of every levy along the way.

    I quoted the numbers for Allen East simply in an attempt to establish a baseline for school spending in Ohio. If the Ohio Constitution says the minimum standard for our public schools is “adequate and efficient,” then it seems that a school district which achieves an Effective rating while having the lowest cost per pupil might be a good candidate for this benchmark.

    But this leaves us with a few difficult questions, including: 1) is there are a definitive (vs empirical) relationship between per-student spending and performance; and, 2) if there is, how much more than the baseline should we expect to spend to maintain a rating of Excellent with Distinction?

    I don’t know the answers to either of those questions. Furthermore, I’ve never heard of anyone who claims they do.

    So here’s another statistic that may be worth considering: the per-pupil spending divided by the Performance Index on the Report Card. For Hilliard, this is $10,968 divided by 101.5, which equals $108. In other words, we spend $108/student for each point on the Performance Index.

    I accept your use of Jonathan Alder as a comparison district, as they achieved an Excellent with Distinction rating, just like us.

    Their per-pupil spending is $8,087 while their Performance Index is 100.9, meaning their spending/performance index is $80. So why do we spend 25% more per student for the same outcome?

    Part of the answer may be in the breadth and depth of programming we offer. We may soon have to examine this, given the fiscal challenges before us.

    But the biggest part of the answer lies in the cost of compensation and benefits. The average classroom teacher in Jonathan Alder has a salary of $48,650, while the average salary for a Hilliard classroom teacher is $60,325 (FY08 data), or 24% more.

    This isn’t because of time in service – 46% of Hilliard teachers have 4 years experience or less and 63% have 10 or fewer; while only 28% of JA teachers have 4 years experience or less, and 48% have 10 years or fewer. The JA faculty has more experience, and is still paid significantly less than the Hilliard faculty.

    The pupil-teacher ratio plays a part, with Hilliard at 18.76 and JA at 22.14.

    Here’s where this ratio of average teacher salary to average income might be informative: it is the case in both Hilliard and Jonathan Alder that the average teacher salary is 90% of the average income of the community members.

    Does this not suggest that given the comparable academic outcomes for Hilliard and Jonathan Alder, the difference in spending is attributable simply to their community’s respective ability and willingness to pay?

  11. Before someone rebutts on this basis:

    I do understand that the demographics of the students and their families play a part in the answer as well. For example, on a proportional basis, our school district has 10 times as many Limited-English-Proficiency kids as does Jonathan Alder.

    There is certainly cost associated with this, and not much of it has been borne by the Federal Government, whose policies created this issue.

  12. Cool graph, but would be interesting to see the true load a given school district carries, net of state gov't and commercial real estate subsidies. People in the Columbus SD, for example, aren't carrying that heavy a load. It may be that Hilliard is carrying a really high load if property taxes versus average income were compared.

  13. keeping the faith

    So we can count on your peers and yourself to agree to a reasonable contract to stop the very large increases in your pay structure along with a benefit package that is very lucrative to be able to keep
    some of the programming that is currently available

    or can we count on the same work to the contract stuff, and how that affects the students and their families.

    Economic times will get better. However the smart play for the district and the teachers is to agree now to make a major adjustment to the past increases.

    The community has stepped up many times. Now is the time to make some critical financial decisions
    that will keep as many programs in place as possible.