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Fuzzy Public School Accounting Schemes

March 31, 2010 by Aaron Smith

From Enron to Tiger Woods, fuzzy accounting is rampant—and the world of education has not been spared. A recent paper written by Dr. Adam Schaeffer of the Cato Institute details how school districts and analysts use accounting methodology to under-report per pupil expenditures. In particular, many use “current” expenditures for their calculations, often omitting whole categories such as capital costs and employee benefits. Schaeffer found that in some cases, the gap between actual and reported per-pupil spending is as high as 90%. Such is the case in the Los Angeles metro area, where the average real per-pupil spending calculated by Schaeffer, $19,000, was significantly higher than what districts claimed to have spent, $10,000. Comparatively, he estimates that the average real per-pupil spending for private schools in Los Angeles is only $8,400, or 44% of what their public schools spend.

If the spending gap between public and private schools were accompanied by greater student achievement, one might applaud the Los Angeles districts for lavishing their students with such an abundance of resources; however, I somehow suspect this isn’t the case. In fact, if you scratch the surface of this particular example you’d probably find an inverse relationship between spending and achievement when comparing private and public schools. How could this be possible? Look no further than waste and inefficiencies.

Interestingly, Schaeffer’s paper was released at a time when school closures are becoming more common throughout the U.S. In cities such as Detroit and Kansas City, districts are shutting the doors on underperforming and underutilized schools by the dozen. While media headlines may frame this as another example of education getting the shaft, could actually be a boon for students if higher performing schools are made accessible and receive adequate funding to maintain achievement. A significant part of this, as Schaeffer points out, is having good data on per-pupil expenditures. These developments, in conjunction with an e-mail from Jeremy Jones, motivated me to assess YES Prep’s efficiency.

According to Academic Excellence Indicator System (AEIS) data, YES Prep spent $9,980 per student during the 2007-2008 school year; comparatively the average per-pupil expenditure in the state of Texas was $11,024. While $1,044 per student may seem like a drop in the bucket, it’s actually quite significant—especially considering we had 2,043 students at the time.

In essence, if we were operating with the same efficiency as the average school district in Texas, we would’ve required well over $2 million in additional funding—much to the disdain of our wonderful Development team. What’s more astounding is the fact that, by almost any objective standard of measurement, YES Prep is light-years ahead of the average Texas district in terms of student achievement. So, in summation, we’re doing much more with much less.

There are myriad of potential reasons for our efficiency and outcomes including extremely dedicated employees, a high-performance culture, and a lack of decapitating bureaucracy; however, I postulate these are resultant of one thing: rational donors. Yes, it’s that simple: the performance of our district stems from the rational decisions of our generous donors.

If YES Prep student achievement were average, our donors would most likely take their philanthropic dollars elsewhere. Similarly, if our district and campus leadership were allocating resources wastefully or inefficiently, our donors would likely give less money, to the point where we reached an optimal level of spending and student achievement. Likewise, if we failed to do “Whatever it Takes”, our donors would quickly recognize this inefficiency and…well, I think you get the point. YES Prep simply cannot underperform and survive: success is truly our only option, to the benefit of thousands of students. We have an effective system of checks-and-balances and literally thrive on accountability.

So, what does this have to do with fuzzy accounting and underperforming districts? Everything. When underperforming districts misrepresent their per-pupil expenditures, it gives them ammunition for demanding additional funding from taxpayers. After all, how can one expect Los Angeles school districts to drive student achievement when they’re “only” receiving $10,000 per student? The commonsense solution, it would appear, is for the state to allocate more funding to this supposedly resource-starved district; when, in actuality, it’s not a funding issue per se, but rather a performance issue (just to reiterate- I haven’t a clue how the Los Angeles metro school districts studied are performing; this is simply for illustrative purposes). As a result, taxpayers and politicians cannot allocate resources rationally as YES Prep donors do and essentially throw good money at bad systems. The result of this inefficiency is a grave opportunity cost: high-performing districts don’t receive the additional funding that could be used to expand their reach to impact even more lives. Hence, the biggest losers of fuzzy accounting methods are the students.

Next time you see a donor, don’t only thank them for their generous support—also thank them for holding us accountable and demanding transparency. In the end, our students are the ultimate winners.

YES Prep knowledge manager Aaron Smith Aaron Smith has an MBA from Texas A&M University and a B.S. in Business Administration from the University of Maine. Prior to joining YES Prep he worked as Executive Director of Kaplan College-Beaumont. In his spare time he enjoys politics, running, and watching baseball.