Some policies work against economies of scale in K-12 education

By Brendan Walsh

An analysis of statewide financial data would support State Superintendent of Schools Mike Flanagan’s claim that consolidating the administration of Michigan’s K-12 school districts “would save millions of dollars minimally.”

What Dr. Flanagan, and other critics, must also recognize is that other Michigan policies are having the opposite effect.

2011-12 Department of Education data shows that Michigan’s 549 local school districts spent $1.56 billion on administration, or roughly $1,089 per pupil. This is 10% lower than 2005-6 when those same districts spent $1.75 billion.

The number of traditional public school districts has remained stable while the number of charter schools has increased. In 2005, Michigan charter schools spent 81% more per pupil on administrative costs, or $1,935 per pupil.

By 2011-12, the number of charter schools had increased by 22% and administration costs increased 43% at the same time that traditional public school administration costs decreased by 10%.

Are high administration costs uniquely a problem with charter schools? Perhaps, but a better bet is that the smaller the organizational structure, the less efficient the economics of administrative function. Charters just happen to be among the smallest operating units in Michigan’s K-12 environment.

Michigan’s traditional public schools average 2,630 students to charter schools’ 475.

The most efficient school districts, as grouped by the state according to student population, are the Class E schools whose average district size is 4,815 students. A Class E district has between 4,500 and 5,000 students. There are 13 of these sized districts in the state. Class E districts average $989 per student in administrative costs, 14% lower than the statewide average and 92% lower than Michigan’s charter schools.

So Dr. Flanagan’s hunch is right. Larger districts’ organizational structures provide them an economy of scale that drives down administrative costs per pupil. If all districts' proportional spending on administration costs equaled that of the Class E districts, $615 million annually could be re-purposed in other ways or simply reduced.

If all districts carried the same administrative cost burden of Michigan’s charter schools, costs would increase by $1.4 billion annually.

Dr. Flanagan’s idea has merit, but the same scrutiny needs to be placed on the new market entrants as much as on the incumbents.

The objective should be for this potential $615 million to be directed to the benefit of teaching and learning. That benefit won’t be realized if the money winds up where so much of it has over the last decade, funding a broken public school employee retirement system.

From 2005 to 2011, $356 million more has gone to retirees’ pension and healthcare. Statewide spending per pupil in this category ($1,101) is nearly equal to all administrative spending per pupil ($1,151). As noted before, administrative costs per pupil are decreasing while retirement costs are massively on the rise.

Public school budgeting is a complex exercise. As we strive for new solutions, we must be careful to recognize where other policies are at odds with the new ideas.

Brendan Walsh is a former treasurer of the Grosse Pointe Public School System board of trustees.

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Chuck Fellows
Tue, 07/30/2013 - 4:37pm
"For every complex problem there is an answer that is clear, simple and wrong." H. L. Mencken. Simpson's Paradox may be afoot here. There are just too many variables generating the data sets being used to draw these conclusions. The conclusions are probably wrong. A hammer is being used when a finer tool, say a pair of tweezers should be employed. This essay deserves a dose of the question "Why?" asked several times. Broad brush conclusions about the potential effectiveness of 'consolidations" are more than simple and wrong, they are dangerous. Especially dangerous when the conclusions are drawn from accounting data from many different sources. For example, Charters spend more on administration than traditional public schools. How do you know? Could it be that larger districts classify administrative tasks as "teaching" within the definitions of the school accounting manual, functions that Charter Schools don't need? Could it be that many of the administrative expenses paid by charter schools are for the brick and mortar, expenses that traditional public schools can incorporate in a capital budget? Does a valid conclusion require a more nuanced analysis? Arsen and Ni, two widely quoted supporters of the opinion expressed in this essay, accepted evidence from the traditional community in developing their study on this issue. ( I don't doubt the sincerity of the authors or their sources, only their assumption that the analysis proceeds from a common base. If you have ever experienced the games played to achieve "balance" in financial statements the conclusions being drawn are suspect. The risks involved in these types of comparisons are serious - look at this example of reporting on educations failure But far more important are the learning outcomes, long term learning outcomes for the children. Our attempts to find root cause deserve far better discipline than high level innumeracy.
Ned Curtis
Sun, 08/04/2013 - 8:36pm
In calculating administrative costs of charter schools you need to deduct/remove the rental/lease cost items that PSA's have budgeted there and traditional schools fund through bond sales and a seperate budget. Facility costs are a major challenge for charter schools.