Equity and Adequacy in Education Finance Issues and Perspectives (1999) / Chapter Skim
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8 Performance Standards and Educational Cost Indexes: You Can't Have One Without the Other
8 Performance Standards and Educational Cost Indexes: You Can't Have One Without the Other
Pages 260-297
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From page 260... ...
, and state aid programs can be used to provide all districts with the funds they need to reach a performance level that is thought to be adequate or some higher standard. Performance standards are designed to encourage more effective educational practices, particularly in school districts that are currently not performing well, by holding school districts accountable.
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From page 261... ...
In this chapter, we explain in detail why a performance standard, whether it is set at a level that defines an adequate education or at some other level, must go hand in hand with an educational cost index; we discuss the alternative methods for estimating educational cost indexes, and show how high-cost districts can be brought up to a performance-based state adequacy standard by incorporating these costs indexes into a foundation aid program. Our analysis is illustrated with data from New York State.
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From page 262... ...
In some contexts, one might want to know about the extent to which rain leaks in; in others, humidity might be a concern. As with any performance standard, however, some simplification is necessary, and the indoor temperature appears to measure the dimension of comfort that is of most concern to most people in this country.
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From page 263... ...
An alternative approach, which is analogous to the educational cost indexes discussed below, is to gather information for a sample of locations on (1) average household fuel bills, (2)
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From page 264... ...
To set a performance standard, policymakers must select both a measure of performance and the level of performance school districts are expected to meet. For example, all school districts might be expected to achieve a certain average test score or to ensure that a certain percentage of their students score above some standard reference point on a certain test.
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From page 265... ...
and relatively harsh educational environments, which raise the cost of meeting any educational performance standard. Thus, the key to removing external factors is to calculate an educational cost index; as we use the term, such an index measures the impact of input and environmental costs, not just input prices.
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From page 266... ...
This lesson carries over into education, as school districts with a harsher educational environment must pay more to obtain the same educational performance as other districts. This section explains the impact of environmental factors on educational costs and shows how this impact can be estimated using widely available data.
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From page 267... ...
These studies imply that costs are higher in school districts with a harsher educational environment, but do not estimate cost differences directly. Moreover, the results of these studies vary significantly, depending on the methodology, the quality of the data, and other factors, so that even if the results were translated into cost differences across districts, these differences would vary widely from one study to the next.
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From page 268... ...
Existing cost studies all demonstrate that a harsher educational environment, as characterized by high rates of poverty and single-parent families, for example, results in a higher cost to obtain any given performance level. Just as the harsh weather "environment" in Minnesota ensures that people who live there must pay more during the winter time than do people in San Diego to maintain their houses at a comfortable temperature, the harsh educational "environment" in some school districts, particularly big cities, ensures that those districts must pay more than other districts, sometimes much more, to obtain the same educational performance from their students.
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From page 269... ...
A school district with a harsh educational environment must spend more than other districts to obtain the same performance, even if teachers' salaries are the same everywhere. Thus, an index based on teachers' salaries leaves out one of the key sources of variation in educational costs across districts, namely environ
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From page 270... ...
Similarly, to achieve any given performance standard, school districts with a harsh educational environment not only must pay more to attract teachers, but also must hire more teachers (or spend additional money on other educational programs) than schools with an average educational environment.
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From page 271... ...
Some programs also provide more money to districts with more children in poverty. However, these programs inevitably are ad hoc, with no demonstrated connection between the environmental factors and educational costs.5 The 1996 New York State aid programs, for example, include several provisions that could be interpreted as cost adjustments.6 Operating aid, which provides 53 percent of the total aid paid to school districts, is based on the number of "weighted" pupils in a district.
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From page 272... ...
One might say that this is an advantage, because a potentially divisive debate about the appropriate performance measures can be avoided, but it is also a disadvantage because the performance measures that are selected implicitly might not, if identified, be reasonable. Moreover, even though it may be possible to avoid selecting performance standards in constructing a cost index, such a choice is, as shown below, unavoidable in the design of a performance-based aid program; the implicit standards in a cost index based on this indirect method cannot match the explicit standards in an aid program.
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From page 273... ...
The first of these variables measures one dimension of the private wage scale against which a school district must compete, and the second recognizes that wages tend to be bid up in larger metropolitan areas. Comprehensive Cost Indexes with Direct Controls for Performance Because many measures of educational performance, such as test scores and dropout rates, are available, a more direct approach is to include each district's actual performance level in the cost equation.
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From page 274... ...
However, this approach runs into another problem, namely, that unobserved school district characteristics might affect both school spending (the dependent variable) and measures of performance (explanatory variables)
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From page 275... ...
As a result, our bestpractice variable picks up variation in educational costs as well as in efficiency. Thus, including both this variable and cost variables in an expenditure regression might, in principle, make it difficult to sort out the role of input and environmental cost factors.
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276 Cal .s Cq o a= o 3 Cal a' o o 3 a' _' Cal a' o Cal o to C)
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From page 277... ...
Using data from 631 school districts in New York State in 1990-91, we show how input prices vary, why it is so important to account for environmental factors, how direct and indirect controls for performance compare, and what happens when one accounts for inefficiency.~° The key analytical tool in these calculations is a regression analysis of school spending. In our preferred regressions, the explanatory variables are several performance measures, teachers' salaries, environmental cost factors, and a bestpractice control for efficiency.
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From page 278... ...
The results in this column also reveal that costs are relatively high in the smallest and largest districts and that costs tend to increase slightly with income and with property value except at the bottom of the distribution. These results provide striking testimony to the magnitude of variation in educational costs particularly between large central cities and suburban districts.
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From page 279... ...
A cost index based on New York State's official weighted pupil measure is presented in the sixth column of Table 8-2. This index exhibits little variation across districts; indeed, only one category of district, namely under 100 pupils, has costs more than 3 percent away from the state average.
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From page 280... ...
Under 10th63 99.56 90.35 101.33 102.09 10th to 25th95 97.06 88.13 99.25 99.74 25th to 50th158 96.50 89.95 98.74 98.20 50th to 75th158 100.55 99.62 99.80 98.63 75th to 90th94 103.69 115.96 101.02 100.08 Over 90th64 106.67 129.44 101.91 106.03 NOTE: All indices are relative to the state average, which is set at 100. Sample size for the analysis is 631 school districts.
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From page 281... ...
DUNCOMBE AND JOHN M YINGER State 281 Exogenous Indirect Cost Index Cost Index Based on Teacher Salary Efficiency (No Efficiency Index)
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This section explores the link between educational costs and one important state policy, namely, a foundation aid program. We show how to bring educational cost indexes into a foundation aid formula and what happens when cost indexes are ignored.
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From page 284... ...
is a property value index. A foundation aid program is designed to provide every district with enough resources to provide the foundation level of spending per pupil at the minimum tax rate specified by policymakers.
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, which aggregates the cost of typical input bundles, so long as the calculation is based on the inputs employed by a district with average input and environmental costs.~5 Returning to the home comfort example, our approach is analogous to a regression-based approach, whereas this input-aggregation approach is analogous to an engineering study. Our approach provides an alternative to the approach in these other studies because the cost equation reveals how much a district with average costs would have to spend to meet any performance standard, so long as this standard is set at some percentile of the performance index.
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From page 286... ...
In combination with these extra steps, moving to a performance-based aid system would allow a state to say that it had provided each district with the resources it needs to meet the performance standard, as determined by the best available information and the current state of knowledge about educational costs. Simulating the Effect of a Performance-Based Aid Program Using data from New York school districts, excluding New York City (which otherwise would dominate the aid program, Duncombe and Yinger (1997)
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From page 287... ...
DUNCOMBE AND JOHN M YINGER TABLE 8-4 Comparison of Predicted Performance Under Different Foundation Formulas Relative to State Average Performance in 1991 for New York School Districts 287 Performance-Based Aid System with Direct Cost Indices Class of District No Expenditure Actual Endogenous Efficiency Exogenous Based Outcomes Efficiency Index Efficiency Aid System S*
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From page 288... ...
The second column of Table 8-4 presents results for a performance-based foundation plan with a required minimum tax rate and endogenous efficiency. The performance increases above their existing levels are most dramatic for large, upstate central cities.
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, and school aid programs based on estimated cost indexes are presented in Ratcliffe et al.
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In the case of performance-based foundation plans with a minimum tax rate, however, additional state aid has no such effect. Somewhat ironically, in fact, additional state aid
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As a result, the increase in the state budget shifts the burden of financing education from local governments to the state, with no change in the amount of revenue available for education and, in the process, makes school districts a little less efficient. This drop in efficiency results in a small drop in performance.~9 CONCLUSIONS An extensive literature establishes that both school district and student performance depend not only on factors that school officials control, such as the student/teacher ratio, but also on factors that are outside their control, including input prices, such as regional wage rates, and environmental factors, such as concentrated poverty.
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6. The 1996 New York State aid formulas are described in State Aid to Schools (State University of New York, 1996~.
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(1995~. In the long run, enrollment in a school district may also be influenced by the decisions of school officials, as parents make residential choices and choices about private school based on school quality and property tax rates.
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The state aid formulas are described (State University of New York, 1996~.
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1978 Educational cost differentials and the allocation of state aid for elementary and secondary education. Journal of Human Resources 13:459-481.
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Yinger 1990 The fiscal condition of school districts in Nebraska: Is small beautiful? Economics of Education Review 9:81-99.
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1981 The cost of education index: Measurement of price differences of education personnel among New York state school districts. Journal of Education Finance 6:485-504.
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