School Funding

State lawmakers left the 2017 session without creating a new school funding system. Is the state now spending enough money on schools? In what ways could the finance system be improved?

Let me start this question by reflecting on the purpose of education.  I know this may seem obvious, but there may be some debate on this or at least some variation on beliefs.  In recent history, we hear a lot of politicians referring to the need to improve education in order to prepare our children for the jobs of the future.  But might it be possible that education, for the purpose of job preparedness, may have mixed demand in the future.  What will the future hold for labor force demand, given the monumental shift in technology over the last few decades and with the promise of artificial intelligence quickly becoming a reality?  By the way, you don’t need to take my word on technology-enabled disruption. Our very own Dallas Federal Reserve President and CEO, Robert S. Kaplan, has been beating this drum for a few years now.  This trend has already started and my belief is that it will continue. The result on education is that we will likely need to push our children to learn more technological skills, and even with this shift in educational focus, there may not be the promise of employment or high paying employment at the end of one’s academic endeavors.  We already see this pressure, as many coders can be locked into lower paying jobs, where the skill is seen as more of a commodity than as a high-skill, high-pay ability of the future.  Yes, there are larger implications here but let’s stay focused on education.  So, if job preparedness seems like an increasingly weak justification for education, does that mean education becomes less valued in our society?  My view is no. Democracy itself requires a population with a base level of education.  This is the Jeffersonian democracy view of education.  Essentially, education becomes a right by virtue of the fact that obtaining education is required to have a say in government. But what is the level required and does that base level mean that education is being used to participate in our democracy? Are we more apt to use our literacy to keep up with Kardashian relationships than review the Federalist Papers?  Thus, the rationale for education is an important consideration, as we begin to look at what we expect as the outcome for our educational efforts.

 

Now let’s consider funding, where our current method for calculating funding leaves a lot to be desired.  For the time being, let’s ignore the actual source of funding.  School finance today is like finding an old cake recipe of your Mom’s in the attic.  One of those universal recipes that says if you are cooking for nut lovers add ½ cup of pecans, for those that like fruit use ¾ cup of your favorite preserves.  On this hypothetical recipe, let’s also assume that the prices for all of the ingredients are written on the back.  Here is the problem; there is no connection to the prices you find on the back of the recipe with the prices you might find in the store.  In addition, our recipe seems to have ranked 41st out of 50 in the last national bake off. 

 

So, the primary question that we may want to ask ourselves is whether the Tier I formula is any good. Again, putting aside the source of funds and the lack of connection of the formula to actual prices, does the funding from this formula meet educational needs? At best, I think the formula is inconsistent, which is to be expected with trying to match a formula with diverse communities and districts.  Our districts are complex organizations within their own right, and normally there are scalability issues that need to come into play, which make formulaic funding highly problematic.  So let me explain. If we are running a bakery that makes specialized cakes, we may need 2 bakers to make 20 cakes a day. But if we are trying to make 2000 cakes a day, the model itself changes, simply due to scale.  When an organization moves up to that scale, there are support and back-office functions that would have to be added to the organization to meet that level of service.  While our current Tier I formula considers some of these issues, it still considers these costs based on a formula. 

 

We will address other formula issues shortly, but let’s also consider the overall educational model in relation to a production model.  In a manufacturing company, what we assume is, that the higher the volume the better our efficiencies.  So, for example, the cost per unit of producing 1 million widgets should be less than the cost of producing 10 widgets.  Intuitively this makes sense, as the fixed overhead cost of the building (for example) has to be spread over the number of units manufactured. We can spread those costs over more units when we produce more.  But education is different; after all, our product is educated children.  In manufacturing, we are taking uniform raw materials and turning them into uniform products.  Quality control can be quite easy when this is your production model.  In education, we are taking a highly diverse raw input (children with differing levels of socio-economic background, parental educational attainment, parental involvement, behavioral temperament, parental psychology, cultural differences, daily psychological/behavioral variances) and trying to produce uniform educational attainment measures.  With this in mind, it may follow that the production model actually calls for a higher cost per unit the higher the volume to educate.  So, consider the following: the 111 most populated districts educate 3.64 million students, with an average expenditure per student of roughly $8,900, while the 408 least populated districts educate 108,132 students, with an average expenditure per student of $11,473.  This disparity may be the first indication that the formula is failing to address the unique characteristics of providing education.

 

The formula is somewhat complex. But worse than being complex, it isn’t very intuitive. Moreover, it is difficult to get information on how the formula was actually devised.  Did we run some sort of statistical regression on data over the last 10 years, 20 years?  Even if the formula had been devised in that fashion, I am sure we can ask how good was the data or how much flexibility does it have to current actual functions and costs?  We should also consider what formula funding gives us.  Formulas give us the illusion of fairness.  If we all follow the same Tier I formula, then we can’t say one group was favored over another.  From that perspective, it gives some cover. But if the formula was devised with bias to begin with, then it may or may not be fair.  Put differently, if I had control over my Mom’s recipes, I may increase the cinnamon content because it favors my particular taste.  So an initial issue needing to be addressed, is whether there is a better method that can be devised to come up with a base level of funding.  My preference would be, regardless of the ultimate method, that budgets tie it back in some form to actual costs and establish a band (or range) for yearly fluctuations.  If our system is making adjustments for certain student characteristics, again, I think it is important to follow those funds to actual costs.  The goal here is not to micromanage the use of funds but rather to validate the underlying intuition of any funding method. Considering that drastic changes may create significant impacts, my view is that adjustments to the funding methodology should take place over multiple years, where we could adjust the methodology based on measuring its accuracy to costs and the effectiveness of the intended outcomes.

 

Ok, one more issue before moving on to sources. Technology can also provide us with a means to reduce the costs of education.  Technology in education is no different than technology in sectors and applications as they continue to evolve.  Moreover, artificial intelligence along with virtual and augmented reality, provide promising opportunities to bring curriculum and measurement to students in new and innovative ways.  However, there are actual societal costs to moving in this direction.  So coming a full circle to where we started, the purpose for education, by implementing advanced technologies we help further technology-enabled disruption.  More importantly, we should consider that if that disruption leads to a reduction of teachers, there are future compounding issues.  You see, teachers participate in a retirement system, so the impacts to the economy don’t simply effect years of working life, but retirement life as well.  Not to mention having to evaluate the actuarials and solvency for those retirement systems.

 

Finally, let’s consider the source of funding.  Ok, so here is a little secret, unless you are selling off your belongings on Craigslist or selling your properties to pay your taxes; all taxes are income taxes.  That is the money you use to pay your taxes ultimately comes from your income (or possibly a loan that you will eventually have to pay back with your income).  So this is important to understand; how we assess taxes may depend on a property or a product you buy in a store, but ultimately it is paid with income.  I mention this because when we say that the bulk of our education system is paid by property taxes, we must understand that the amount we need to pay, is calculated using a formula on property but it is actually paid with income.  Also, there is an argument out there that the state needs to pay its fair share.  But in order to make this argument we would have to know that the proportion the state collects in sales tax is dramatically different than the proportion of property tax collected from county to county.  To put this differently, what does it matter if you taxed my income calculated by property versus what I bought, it is still a charge to my income.

 

Let’s take one step back. In a private enterprise when we see sales drop, we modify the business; we may reduce our workforce or cut some other cost.  Basically, the cost side of the equation is adjusted to reflect the level of sales we think we can generate.  The public sector and especially schools, do not have this choice. It is not as if the demand for K-12 education is reduced during a recession or a subprime mortgage bubble bust.  To put this more simply, the sources of funding are disconnected from the level of cost required to provide education.  Moreover, because we use property valuations to assess taxes, that are ultimately paid by income, we have another layer of disconnection.  So my property value fluctuation has nothing to do with my income fluctuation, which I use to pay property taxes; and, neither one of those is linked to the actual costs of providing education.  Layered over all of this are market forces that impact property value, salary level, and educational costs.  When you consider all of these disconnections, I think it is clear that the situation can lead to significant discontent among constituents. So identifying the sources also means developing a mechanism that can help fund schools during periods of fluctuation in those sources.

 

Ok, all of this and we haven’t even addressed equity, copper pennies, golden pennies, or infrastructure.  Don’t worry, I will spare you the pain.  The truth is, educational finance needs some love and attention, but like other areas being addressed here, the solutions will ultimately need to be structural.  We will ultimately have to evaluate how our systems are actually working together and we can’t fear doing our homework.  I know political narratives want to present you with easy solutions, but the solutions are hard.  My goal here is simply to demonstrate that I am prepared to facilitate the hard conversations, and start the work.

 

Is your brain tired?  Yeah, mine too.  Thankfully, I had my K-12 public education to get through it.  If you have a chance, drop a teacher a quick note of appreciation; they are patriots fighting for democracy every day.