Stretching the School Dollar

New York City is closing down its ineffective and poorly designed merit pay system in light of a RAND report published yesterday. Mayor Bloomberg and Joel Klein made a terrible deal to get the pilot program into the city's contract with the teacher unions, giving teachers an option to retire at 55 years of age with 25 years of service instead of age 62. Gotham Schools points out that these pension costs will likely leave a much more lasting mark on NYC than the short-term program they enabled.

There's a basic lesson in financial management here for district leaders: match the time period of your liabilities to the assets or services they pay for. Don't put yourself on the hook for decades of payments in exchange for a five-year pilot.

? Chris Tessone

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It's funny that Nicholas Kristof compares the education system to an escalator in his column in this weekend's New York Times. We know a great deal about broken escalators here in DC ? our subway system is full of them ? and the reason they're so often out of order has as much to do with bad management and absurd union rules as it does with resources. (Unsuck DC Metro had an illuminating post about this late last year.) As in public transit, so in public education: how we spend our education dollars is an important and widely ignored problem. Instead, we've mostly preferred in years past to hike tax rates and throw more money at the problem, to little effect.

Kristof tries to shame budget-cutting governors by comparing our education spending here to our commitment to education in Afghanistan. It's hard to imagine a worse comparison, given that Afghanistan spends about four percent of its meager budget on education, down precipitously from the level of spending in 1980. The US spends about 14 percent of every public dollar on education, and the level of spending has increased steadily for decades, even accounting for inflation. Kristof complains that we "scrimp at home" and "don't invest in our kids' futures," yet we spend more than half a trillion dollars annually on K-12, nearly a full trillion if you count higher ed. Accountability for how these dollars are spent should not be an after-thought, as it is...

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The Rockefeller Institute has some good news to share: state tax revenue collections were up 9.3% in the first quarter of 2011, recovering nearly to the level they were at in early 2008, prior to the financial crisis. The news is not all good, however. Local tax collections are down 0.6%, meaning school districts are still going to feel the pinch when it comes to local funding. What's more, residential real estate markets in most places have not recovered ? even when they do, tax collections will lag by a few years as property values are reassessed. Even at the state level, increases in collections don't mean happy days if legislators assumed even greater increases in revenue in order to balance budgets.

Economic recovery is not likely to bring an end to the "stretching the school dollar" era. As we and others have reported, many states still have catching up to do in funding their pension promises. The rising cost of health care is also weighing on school budgets. This means that rising revenues will not necessarily find their way into new classroom programs or innovative reforms. Instead they'll be funneled to pay for increasingly expensive fringe benefits that are mostly out of sync with what high-performing young workers expect. School boards and state legislatures will have to implement more sweeping changes to get increased bang for the buck.

? Chris Tessone...

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Times are tight for school budgets, which is one reason Fordham and others have dedicated new attention and energy to doing more with less. Being conscious of cost-effectiveness is about more than pinching pennies, however; it also enables schools to get the very best quality for the dollars they spend on services.

Nathan Levenson, managing director of the District Management Council and a former district superintendent in Massachusetts, highlights this in an interview today with StudentsFirst, talking specifically about special education and early intervention:

I like to simplify this topic, and assert that only three things really matter in early intervention -- reading, reading, and reading. The stats are clear -- reading is the gateway to all other learning. Children who struggle in reading are over-referred to special education and often never catch up. This is especially sad, since we have "cracked the code" on how to teach reading. The National Reading Panel and the What Works Clearing House spell it out. Some districts feel they don't have enough money to implement a best practice reading program, but our studies have shown that typically it costs 1/2 to 1/5 as much as the current mish-mash of elementary support programs. The obstacles aren't dollars, but focus, turf battles, silos, and other organizational self-imposed barriers.

The mentality that schools don't have enough resources ? despite marked increases in per-pupil spending over decades ? can lead to blaming every failure in education on a lack of resources. Levenson's experience...

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Democracy Prep is expanding in a novel way next school year ? by taking over a failing charter school at its authorizer's behest. SUNY was set to deny Harlem Day Charter School's charter but instead asked for proposals to turn the school around. Democracy Prep stepped up.

It's a huge risk. By and large, turnarounds are unsuccessful. For Democracy Prep, which had the city's highest progress report score for a middle school last year, this would be its first attempt at a turnaround. In New York City, the Bloomberg administration has relied largely on shutting failing schools down and re-starting from scratch, a method that critics say disperses the neediest children and destabilizes communities. Under Mr. Lambert's plan, the students stay put, and the management and board are wiped out.

It's great to see "acquisitions" like this one. Democracy Prep is a solid performer, and this gives them a new school complete with kids, parent and community recognition, and some momentum. Clearly it comes with challenges as well, however, with more than 40% of their kids being held back to repeat a grade. The question this raises for me is, why do we wait to talk about these kinds of takeovers until a school is failing?

Entrepreneurs, charter school founders among them, start businesses for many reasons. Not all of them are great long-term managers. Instead, what the most successful of them have is a keen sense of the needs of customers and stakeholders and the ability...

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Only halfway through 2011, a number of states have reformed their laws governing public sector workers' benefits, a few of them in dramatic fashion. The need to close the yawning gap between promises made to workers and the dollars saved for them on states' balances sheets is evident. According to a recent analysis, the average household will have to pay $1,398 in additional taxes every year for the next 30 years to fund retiree benefits, with New Jersey taxpayers on the hook for $2,475 per year per household before that state's recent reforms.?Even more optimistic commentators recognize that the funding ratios reported by states themselves rely on rosy assumptions about investment returns that are not likely to be borne out in reality.?Consequently, states have begun to adjust contribution rates, close loopholes, and otherwise modify pension and retiree healthcare benefits.

It is worth noting that most of these reforms leave public-sector workers, especially those newly-hired, worse off. In many states, this is a necessary evil, with budgets straining and taxes being ratcheted ever higher. Some states have done better than others in making fundamental reforms to address the sustainability of workers' benefits without soaking new workers or taxpayers, however. Here are our best and worst of the year so far, recognizing that actions in New York and Connecticut are still pending. Thanks to our indefatigable research intern, Josh Pierson, for digging up some of the details on states' reforms.

Best:

  • Arizona: Senate Bill 1614?increases teachers' contributions
  • ...
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Great Britain's largest teacher unions have declared a strike for Thursday over proposed changes to their pensions, and they'll be joined by another 700,000 other workers from the public sector. The strike will likely close a majority of the schools all across the country, even though negotiations with unions over the changes are far from over. A friend of mine who lives outside London reports that although not all of the teachers in her daughter's school are members of the two striking unions, the school will close "for safety reasons."

Commentators in the UK see this as a possible boon for the Conservative/Liberal Democrat coalition's attempts to reform the delivery of education dramatically. Austerity measures to balance the budget may not have left the public at large with much sympathy for workers whose jobs are largely protected and who receive comparatively lavish pensions. Certainly parents are unlikely to appreciate their kids missing out on a day of instruction.

? Chris Tessone

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South Carolina is in hot water with the Education Department over the state's failure to meet federal maintenance of effort requirements for special education spending. ED is threatening to dock South Carolina $111 million in federal aid after rejecting a waiver request. The Palmetto State has cut SPED support for three years running due to budgetary pressure.

Federal mandates are coming under attack across the board, often for good reason. Idaho has announced it will refuse to comply with NCLB ? not ask for a waiver ? while the Council of Chief State School Officers is planning to blitz Arne Duncan with waiver requests. In South Carolina's case, however, lawmakers felt they couldn't continue to privilege special education students over every other recipient of state dollars. The state could, of course, have made its case more compelling by matching spending cuts with an agenda of effectiveness in education services, possibly?following Massachusetts' example of outsourcing services to more cost-conscious providers.

The federal response ? that states should allow special education spending to balloon in a time of fiscal austerity when everyone else in the school system is pressured to be more efficient ? is senseless. Washington's mindless maintenance of effort rules simply distort local budgets in favor of certain groups of students, regardless of local needs or resource constraints. As a result, ED is inserting its own judgment into the South Carolina budget process, which it has no business doing.

? Chris Tessone...

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If you live in New York City, a quarter of the money ostensibly spent on your child's education goes to fringe benefits and pension costs, according to the New York Post:

Why have costs continued to skyrocket while performance lags?

A major cause is pensions. New York City doled out $4,822 for each child in its public schools on fringe and retiree benefits for teachers and other education employees in 2008-09 (the latest available) ? a whopping 27% of the total spent per kid.

That's more than twice the $1,493 cost of health care and pensions per kid in the 1999-2000 school year, and double the 13.4% of $11,121 in per-pupil spending back then, data by the Independent Budget Office show. ?Unlike the increases in salaries and staffing, this isn't something that was planned or desired,? said Charles Brecher, research director for the Citizens Budget Commission. ?It's proven to be very difficult to manage and control.?

New York's retirement system for teachers mandates 8% returns and taps taxpayers whenever the market fails to deliver. This puts kids on the hook for market risk instead of workers; if the retirement plan's investments don't perform well, more resources get sliced out of classroom budgets. Teachers, meanwhile, pay only 3% of their salaries for that risk-free 8% return.

Practically every other profession is able to attract high-quality workers without Ponzi-scheme retirement benefits, yet traditionalists decry any attempt to reform teacher pensions on the basis that it will turn...

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Pennsylvania is trying to fix a thorny problem with virtual schools. If two kids attend a virtual school, one from a high spending district that sends along $10,000 in their backpack to the virtual school, and another from low spending district that sends $6,000, the former child's district is subsidizing the latter's education. It's a tough issue.

The solution proposed on Monday by Rep. James Roebuck (D-Phila.) is extreme, however. He proposes that the state pay the entire bill for virtual-school students, as well as youngsters in traditional charter schools, leaving more resources to educate fewer kids in district schools. Since there's on a finite amount of money available for public education in the state, this short-changes children who attend schools of choice.?The proposal also defeats one of the purposes of school choice: competition for students and the resources to educate them.

Virtual schools present some unique governance and school-finance challenges, but rewarding districts for failing to serve kids effectively is not a good solution. Instead, Pennsylvania legislators should develop a financing system where the state steps in to correct disparities but still allows as much local funding as possible to follow a child wherever he or she goes in the education system. Pennsylvania's citizens are taxed to provide resources for all children in public schools, not to preserve buildings and jobs in the traditional system of district schools.

?Chris Tessone...

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