Wednesday, March 4, 2009

The True Cost of Education




The following piece appears on the Oklahoma Council of Public Affairs website. The reason I am posting it here is because the same principles apply even though it is a different state. New Hampshire State officials, towns and school boards must be more transparent with taxpayers as to how their tax dollars are spent. Croydon itself does not have a debt issue as of yet.

Government employee pensions eat up an enormous amount of tax dollars every year. Retired government employees taking home pensions of over 100,000 dollars a year starting at 55 is not uncommon. Police and fireman retire as young as 45 with pensions of anywhere from 75% to 90% of their three highest years salary. Once retired they often go to another community to start earning a second pension while collecting on their first pension. A number of government employees end up earning up to three pension late in life. Some pensioners take home pensions of over 300,000 dollars annually. We could save taxpayers billions of tax dollars annually and solve the social security problem almost immediately if all pensions funds were moved to social security and all pensioners received social security like the rest of us taxpaying schmucks. These are government jobs, civil servant jobs people should not be getting rich off of the backs of taxpayers.

Cathy
Spelling and grammar errors as well as typos are left as an exercise for our readers.

Let the Sun In

February 01, 2009
By Steve Anderson

Education officials are misleading Oklahoma's taxpayers about the real costs of public education. It's time for transparency.
Determining the real cost of public education is an extremely important issue," education scholars Myron Lieberman and Charlene K. Haar have correctly pointed out. "Substantially underestimated costs deceive the taxpaying public, mislead government officials who initiate legislation, and deprive students of educational financial equity."1



Unfortunately, "substantially underestimated costs" are precisely what we have in Oklahoma. And the reason is simple: Unlike schools in the private sector, the government's school accounting systems simply exclude many significant costs.

In 2005 OCPA's Brandon Dutcher and I set out to determine how much Oklahomans are really paying for their schools. In a study entitled Education in Oklahoma: The Real Costs, we presented a more comprehensive analysis of the costs of public education. Using generally accepted accounting principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB), we compiled the federal, state, and local expenditures on K-12 public schools in Oklahoma that were readily verifiable or calculable through third-party sources and that would be included on a regular financial statement.

We discovered that Oklahoma's per-pupil expenditure in FY-2003-the latest year for which data were available-was not $6,429, the oft-cited "official" number. Rather, it was $11,250.

If the CEO and finance division of any publicly held company attempted to influence public opinion with misstated financial data to the extent done by Oklahoma's education officials, they would be subject to criminal and civil prosecution. Indeed, according to Frederick Hess, a former public high school teacher and current director of education policy studies at the American Enterprise Institute, "school accounting guidelines would bring smiles to an Enron auditor."

The late Nobel Prize-winning economist Milton Friedman called our OCPA study "splendid." He said it represented "a real public service." The president of the state's most powerful labor union, by contrast, called the study "highly suspect," so we challenged the union to a public debate. Twice. We're still waiting to hear from them.

While we're waiting, I decided to update the numbers and take another look at where all this money is being spent. As was the case in 2005, my strategy was simple: I looked at every function that a private school would have to perform in a fiscal year, and then looked for the equivalent function in Oklahoma state government. Once the function was identified in a state agency, I traced how much of the agency's cost was related to public K-12 education and included those costs in my financial statement (see page 7).

The result? Oklahoma's per-pupil expenditure in FY-2007 was $10,942.2

To see how I arrived at this figure, let's begin with the numbers from the Oklahoma State Department of Education (SDE). According to SDE, Oklahoma-using a combination of local, state, and federal funds-spent a total of $4.07 billion in FY-2007 on public education at the local school level. Some of these expenditures were direct classroom expenditures, such as providing and operating the facilities and the actual cost of instruction. Others were related to support staff such as public relations officers, attendance officers, and non-instructional program directors.

But one doesn't have to look too hard to find additional expenditures which are currently avoiding the bright light of sunshine.

Debt Service

For example, SDE's report on debt service shows General Fund expenditures of only $287,766 for all the school districts in the state. But in reality, debt service for the Tulsa Public Schools alone 3 was $81,543,927 for the latest year available!

A total estimate of debt service left off the books is difficult to make, so for our purposes I took a conservative approach with an estimate of $300 million statewide.

CareerTech

In addition, more than $136 million in direct instructional costs are hidden in Oklahoma's CareerTech programs. In FY-2008, more than 314,000 students in grades 6 through 12 enrolled in at least one program at Oklahoma's technology centers.4 That's a large number-it's the equivalent of roughly half the K-12 student population in Oklahoma's regular public schools. Yet none of these CareerTech instructional costs are included in the "official" per-pupil average that is reported to the Oklahoma taxpayer.

In addition, CareerTech operates "Skills Centers," including three locations in juvenile facilities providing training to high-school-age offenders. Also, the Office of Juvenile Affairs conducts educational services for incarcerated youngsters. Despite the fact that both of these are clearly public education costs, I didn't even include these costs in this particular study.

Bursar

In a private school typically a bursar collects revenue (primarily tuition) from which the school funds its operations. Oklahoma's public education system has several bursars at work performing this function. They are located in the Oklahoma Tax Commission, the Oklahoma Lottery Commission, the Commissioners of the Land Office, and the Oklahoma Horse Racing Commission. These agencies collect revenues for public education but are not included in the "official" cost of providing public education. To reflect this cost, I apportioned the costs of each agency in relation to the amount of revenue that each provided for K-12 education. I have recorded these costs in the total expenditures, just as a private school would show these costs under financial administration costs.

Retirement Benefits

Clearly, retirement benefits on behalf of teachers and support personnel are part of the costs of operating the public schools. But for some reason, the costs (employer contributions, agency costs, etc.) of the Teachers' Retirement System (TRS) are not included in the "official" per-pupil spending numbers. Moreover, hundreds of millions of dollars of taxes paid directly to TRS are not included in the per-pupil numbers.

Additionally, TRS's General Motors-type defined-benefit plan typically adds debt-debt that would of course appear on the financial statement of any private school-which isn't included in the per-pupil numbers. This debt will be paid by future generations of Oklahomans. It's called the Unfunded Accrued Actuarial Liability (UAAL), and in FY-2007 it was $7.6 billion.5

One former state auditor and inspector indicated that TRS "faces possible difficulty in meeting its future obligations" and that "funding is not sufficient to amortize the UAAL."6 This retirement debt is the largest of the mounting "accounts payable" the education establishment is hiding from public view. But when TRS starts cash-flowing negatively, Oklahoma taxpayers will be footing the bill for retiring this debt.

Other Agencies

Not only is the cost of TRS excluded from per-pupil calculations. Even the cost of the State Department of Education itself is excluded! This is the agency which distributes funds to each school district and provides a host of administrative services. Clearly, SDE is part of the cost of public education.

There are other, more obscure agencies whose expenditures are not included in per-pupil costs. For example, Oklahoma has a special government agency, the Oklahoma Commission for Teacher Preparation, which is responsible for "the accreditation of teacher preparation programs, the assessment of teacher candidates, and the ongoing growth and development of classroom teachers across the State." This accounts for another $5.8 million in costs.

Oklahoma operates a tuition-free residential high school called the Oklahoma School of Science and Mathematics (OSSM), and also operates regional centers for other students gifted in science and mathematics. Of course, somebody has to pick up the $29,282-per-student costs at OSSM.7 That somebody is the taxpayer, of course, and this accounts for another $7.2 million.

There are also public education costs tucked into places like the state Department of Agriculture ("Ag in the Classroom") and the Oklahoma Arts Council. I have included only those program costs I could identify.

Depreciation

Any business which has buildings has an expense charge for the yearly depreciation of those buildings. This depreciation figure represents how much of the building was "used up" in a current year. Prudent stewards realize that "wear and tear" is a fact of life, and will consider this dollar figure to be a guide to how much money will be needed for repairs or replacements.

Oklahoma schools do not report the yearly depreciation of their buildings, so one is forced to make an estimate. As it happens, in 2006 the Oklahoma Education Association (OEA) teamed up with three school districts to bring an "adequacy and equity" lawsuit against the state. The lawsuit claimed that the unmet, immediate capital needs in Oklahoma exceeded $3 billion.

Granted, approximating the actual value of buildings and structures based on that figure is difficult. However, consider that the Tulsa Public Schools Annual Report shows over $500 million in land, buildings, and equipment. Add in the Oklahoma City Public Schools and the other 500-plus school districts, and one can assume that Oklahoma school district assets are at least the equivalent of the OEA's unmet capital needs claim. I used an average depreciation of 20 years to approximate the yearly depreciation on structures and equipment.





Dropouts

Obviously one of the most important numbers used in the per-pupil calculation is the number of students. But even here, the education establishment is hiding something: dropouts.

One might think that Average Daily Attendance, or actual students served, would be the only acceptable figure for calculating per-pupil costs. However, the SDE 2006-2007 annual report uses several numbers-including the Average Daily Attendance, the Average Daily Membership, and an even more fascinating Weighted Average Daily Membership-to show school usage. In other words, in order to get more money the government counts as its "customers" people who don't actually show up.

Inner-city schools in Oklahoma City and Tulsa have graduation rates of roughly 50 percent. One wonders how much these students actually attended classes. For my calculation, I used Average Daily Attendance-the actual number of students who used services.

To read the consolidated financial statement click here.

Other Costs

There are many other costs I didn't include. For example, millions of dollars of public school costs-such as the costs of teacher education and the costs of remedial instruction-show up in Oklahoma's higher education budgets.
When informing the regents in 2000 that more than 48 percent of University of Oklahoma students admitted on the basis of their 3.0 high-school GPA needed remedial courses, OU president David Boren remarked: "I'm sorry to say this may be a statement as to how well students are being prepared in the rest of our education system." And in 2008, commenting on the fact that nearly 80 percent of Oklahoma's community college students have to enroll in remedial coursework, a spokesman for the Oklahoma State Regents for Higher Education suggested that the students' "preceding educators might be to blame."

Conclusion

In the end, taxpayers spent more than $6.5 billion in FY-2007 on Oklahoma's public education system. That's $10,942.11 per pupil. If the OEA again thinks this number is "highly suspect," we at OCPA would welcome the opportunity to debate them on the matter.

In any case, it's clear that government officials owe Oklahoma's taxpayers more sunshine and transparency than they're currently getting. The financial statement on page 7 is a valuable and useful tool, but the only reason it exists is that a private think tank devoted the time and resources necessary to produce it. Taxpayers deserve better from their government.

Sunshine Week, spearheaded by the American Society of Newspaper Editors, will be observed March 15-21, 2009. That would be a good time for state Superintendent Sandy Garrett to announce that she will no longer allow the government's school accounting systems to play these games, and that her office will publish annually a financial statement showing the real costs of education.

Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow and a Certified Public Accountant with more than 20 years of experience in private practice. He spent two years as a budget analyst in the Oklahoma Office of State Finance, and was formerly a state-certified teacher with 17 teaching certifications.

Endnotes

1 Myron Lieberman and Charlene K. Haar, Public Education as a Business: Real Costs and Accountability (Lanham, MD: Scarecrow Press, 2003), pg. 17.

2 This figure is down slightly from the FY-03 per-pupil cost of $11,250, primarily because the increase in the Unfunded Accrued Actuarial Liability (UAAL) was less in FY-07 than in FY-03.

3 http://www.tulsaschools.org/district/financialYear0708.pdf

4 http://www.okcareertech.org/measuringup/FastFacts/FastFacts-home.html

5 http://www.ok.gov/TRS/documents/2007%20Actuarial%20Valuation.pdf

6 Oklahoma 2004 Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2004, "Independent Auditor's Report," pg. 24.

7 Governor Brad Henry, FY-2009 Executive Budget, pg. B-80.


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