e-Texas Recommendations

In Texas, local decision-makers are primarily responsible for the balance of classroom versus non-classroom spending in public education. Taxpayers and parents should, therefore, receive accurate and useful information on what proportion of their education dollars is devoted to instruction. The administrative cost ratio presently used to limit administrative spending in education is misleading and should be replaced by a more understandable statistic, one that clearly indicates the share of taxpayer resources flowing directly to classroom instruction.

Background

State policymakers find it difficult to determine how billions of dollars in state education aid are spent, whether these amounts are too much or too little, and—most importantly—whether these dollars are being spent productively. As education economist Eric Hanushek has said, “Perhaps reformers should really be asking not where new money for schools is to come from, but whether schools spend existing funds wisely.”[1] Yet this question cannot be answered without meaningful, accurate school expenditure information.

For the 1999-2000 school year, Texas school districts devoted 52 cents of every education tax dollar to direct classroom instruction, including teacher salaries, field trip expenses, instructional materials, and computer labs and supplies (Exhibit 1). The remaining 48 cents flowed to support functions such as student transportation, food services, facilities maintenance and operations, and general administration, as well as expenses associated with continuing teacher education.

Instruction	$13,159,445,408	51.7	%
Instructional Related Services	666,296,654	2.6
Instructional Leadership	311,220,547	1.2
School Leadership	1,326,894,889	5.2
Support Services - Student	1,013,514,855	4.0
Student Transportation	616,224,181	2.4
Food Services	1,228,742,205	4.8
Cocurricular/Extracurricular Activities	580,840,151	2.3
Central Administration	885,567,473	3.5
Plant Maintenance and Operations	2,445,463,630	9.6
Security & Monitoring Services	136,016,222	0.5
Data Processing Services	243,622,559	1.0
Other*	2,853,112,784	11.2
Total Budgeted Expenditures	$25,466,959,558	100.0	%

Where the Money Goes

Texas’ spending on public education has increased significantly over the last two decades. The state appropriation to the Foundation School Program, for the 1977-78 school year was $1.6 billion.[2] For the 1999-2000 school year, the same basic appropriation was $10.5 billion, more than a six-fold increase in 22 years.[3]

Two factors often cited for this rapid increase are inflation and the growth in the number of Texas students. However, real (inflation-adjusted) per-student spending on public education in Texas rose by 87 percent from 1977 to 1997, from $1,977 to $3,698, in 1982-84 dollars. During the nine-year period from 1988 to 1997, when real per-student spending increased by 17.5 percent, real average teacher pay in the state actually decreased slightly.[4]

According to the Texas Education Agency (TEA), enrollment in public schools has increased at an average annual rate of 1.9 percent per year over the last decade, while the number of non-teaching personnel has increased at an average annual rate of 3 percent. These increases, however, do not come close to fully accounting for the marked growth in Texas’ spending on public education.

TEA Reporting

TEA’s Snapshot publication reports the percentage of budgeted expenditures spent in various categories by school districts. These include instructional, central administrative, school leadership, and plant services expenditures, as well as “other operating” expenditures including student support, transportation, food services, and staff training. Reported expenditures other than operating costs include debt service and some capital outlays.

In the 1998-99 school year, instructional percentages for the state’s school districts varied from a low of 22 percent to a high of 69 percent, with most districts clustering around the statewide average of 52 percent.[5]

Administrative Cost Ratios

To address concerns over excessive school administrative costs, the 1991 Legislature created a mechanism called “administrative cost ratios” that compares administrative costs to instructional costs through a ratio of the two categories. For each school district, administrative costs are divided by instructional costs to calculate its administrative cost ratio.

The ratios are used to establish caps on administrative costs that are allowed to vary according to district enrollment. Each year, TEA determines district compliance with these targets and asks districts out of compliance to submit a plan to correct the problem. If a district fails to meet the appropriate administrative cost ratio, the Commissioner of Education can reduce its state aid by the amount by which the target has been exceeded.

Unfortunately, this effort to control administrative expenses has proven ineffective, at least in part because the administrative and instructional cost categories included in the ratio are poorly defined in law. Administrative costs, for instance, do not include principal salaries, although principals clearly are administrators. Instructional costs, on the other hand, are defined to include counseling expenditures, although counselors do not teach and often perform many administrative duties such as course scheduling. Instructional costs also include expenses incurred for staff training, curriculum development, “paid sabbatical leaves for instructional staff,” and other expenses not directly related to classroom instruction.[6]

The Comptroller’s Texas School Performance Review (TSPR) has observed a number of situations involving misleading classifications of school district personnel. For example, the Austin Independent School District reported to TEA that it had just 50 central office administrators in 1998-99, although the district’s central offices house more than 500 individuals whose classifications were included in “instructional leadership” and “support” functions.[7] In the San Antonio Independent School District, TSPR found that 172 non-teaching employees had been reclassified to avoid giving each of them a $3,000 raise required by the 1999 Legislature.[8]

Administrative cost ratios, thus, can be deceptive, often understating administrative costs while overstating instructional costs, thereby producing artificially low ratios that can be used to deflect criticism of administrative spending.[9] To be useful, an accountability measure should be complete and accurate as well as logical. The administrative cost ratio, as presently defined, fails to meet these criteria.

Instructional Cost Ratios

Any attempt to define an administrative cost ratio that could satisfy all parties in the educational arena is likely to fail. This is partly due to disputes over how best to define school administration. Other problems are related to the way in which certain cost functions are aggregated, which makes it difficult to separate administrative and instructional costs from other types of spending.

In all, instructional costs expressed as a percentage of total spending seem to be the simplest reliable guide in determining how well a district spends its money. Of course, instructional costs can be difficult to define as well. It can even be argued that all education expenditures are instructional, since all spending ultimately serves to support this function. The basic reason for a cost accountability measure, however, is to prevent administrative activities in support of classroom instruction from being elevated to ends rather than means.

Key measures of school district performance should be meaningful and easily understood. TEA’s Snapshot publication includes the percent of expenditures devoted to instruction. This is based on a calculation similar to that underlying Exhibit 1 and is a well-known and well-recognized measure for school districts.

Recommendations

A. State law should be amended to discontinue the use of administrative cost ratios, replacing them with performance measures that determine the percentage of school budgets spent on instruction and the percentage of school district employment engaged in classroom instruction.

The Texas Education Agency’s (TEA’s) Snapshot depends on budgeted expenditures for its calculations. An instructional cost ratio for accountability purposes should use actual expenditures. To make the issue as straightforward as possible, state law should define an instructional cost ratio that expresses the percentage of a school district’s total expenditures for direct instructional activity.

Physical plant expenditures should be included in total spending to minimize definitional confusion. An instructional cost ratio so defined will fluctuate due to investment expenditures, but local administrative control carries with it a responsibility to explain such variations.

To make instructional cost ratios as meaningful as possible, state law should clearly define instructional staff members as individuals engaged in classroom instruction only. State law also should define an instructional staffing ratio that expresses the percentage of a school district’s total full-time equivalent staffing represented by instructional staff.

B. State law should be amended to require school districts to provide their educators with lists of personnel who are classified as instructional personnel for reporting purposes.

Because any statistics are subject to error, it is important to have mechanisms in place to ensure accuracy. Obviously, educators are in the best position to police statistics reporting instructional personnel because they know from experience who is actually engaged in teaching. In addition, it is in the interest of most educators to ensure that statistics reporting instructional resources are accurate.

C. Taxpayers should be notified of the percentage of their school district’s instructional cost and staffing ratios through TEA campus report cards.

The Texans who fund our public schools have a right to know how their money is being spent. Although school spending records are open to public review, the number and complexity of such records make them difficult for the average individual to interpret. Therefore, it is important to construct key measures that are meaningful and easily understood and report them concisely to taxpayers.

The instructional cost and instructional staff ratios should be calculated and reported for each district using current actual expenditures and staffing levels.

Each year, TEA produces a campus report card for every campus in the state as required by law. Each report card, containing its various accountability measures and statistics, should be made available to anyone who requests a copy and distributed in an abridged form to every student’s parent or guardian. The measures for each district, along with statewide averages, should be published on campus report cards and included on the abridged version circulated to parents and guardians.

Fiscal Impact

School districts already are required to produce campus report cards.[10] Placing instructional cost percentage information in these publications should not entail any additional expense to the state or to local governments.

Providing lists of instructional personnel to educators might result in an insignificant cost for school districts. Any such costs should be minimal, since school districts already regularly communicate with their personnel, and the list could be made available through e-mail and/or the internet.

[1] Eric A. Hanushek, Making Schools Work: Improving Performance and Controlling Costs (Washington, DC: The Brookings Institution, 1994), p. 39.

[4] Based on data from the Texas Education Agency summarizing statistics from the National Education Association (NEA) and current NEA data (http://www.nea.org/publiced/edstats/) as well as Consumer Price Index information from the Bureau of Labor Statistics (http://146.142.4.24/cgi-bin/surveymost?cu); and Texas Education Agency, Snapshot ‘90-’99 (Austin, Texas) (http://www.tea.state.tx.us/perfreport/snapshot/). (Internet document.)

[5] Texas Education Agency, Snapshot ’99 (Austin, Texas, 2000) (http://www.tea.state.tx.us/perfreport/snapshot/). (Internet document.)

[6] Texas Education Agency, TEA Financial Accountability System Resource Guide (Austin, Texas, September 1999), p. 210 (http://www.tea.state.tx.us/school.finance/audit/resguide6/index.html). (Internet document.)

[7] Texas Comptroller of Public Accounts, Austin Independent School District: A Report from the Texas School Performance Review (Austin, Texas, April 2000), pp. 57-58.

[8] Texas Comptroller of Public Accounts, San Antonio Independent School District: A Report from the Texas School Performance Review (Austin, Texas, March 2000), p. 85.

[9] See Texas Association of School Administrators, Administrative Costs and Staffing Levels in Texas Public Schools (Austin, Texas, December 1996), p. 12 for one such example.

Improve Accountability for

Educational Spending