Schools Spend All They Can Get

          Schools Spend All They Can Get, Study Shows

Author: Karla Dial
Published by: The Heartland Institute
Published in: School Reform News
Publication date: September 2007

In conducting a study to determine whether consolidating school districts would save Michigan taxpayers money, a researcher found evidence showing school officials spend as much money as they can.

While that didn't surprise Andrew Coulson, director of the Cato Institute's Center for Educational Freedom and author of the study, released in May, he was surprised how much that factor affects education spending.

To control for other variables in his study, "School District Consolidation, Size and Spending: an Evaluation," in order to isolate whether consolidation saves money, Coulson compared two theories on how public officials spend it.

"One was that if there's a lot of demand, they spend more, and if there's not, they spend less," otherwise known as the benevolence theory, Coulson explained. A competing theory from economics--public choice theory--says when public officials make a decision, they consult their own interests, just like a shopper would.

"What do public officials do if they're looking out for their own interests? They spend more money, because the bigger the budget you control, the more power you have," Coulson said.

Powerful Predictor

Coulson said the study showed public choice theory is 15 times more powerful as a predictor of spending than the benevolence theory.

"I thought the public choice model would explain more, but that it's 15 times more powerful as a predictor, it just blows me away," Coulson said. "It is the single most powerful indicator of how much they are spending. So that's by far the most powerful variable.

"If I wasn't already convinced that there are serious problems with the design of our public school model, this would do it," Coulson said.

Robert Enlow, executive director of the Milton and Rose D. Friedman Foundation, a national school choice advocacy group based in Indianapolis, agreed.

"It's common sense that school districts spend as much as they get, if not more," Enlow said. "We all know that, but I've never seen it proved like this before. It seems this study does a good job of evidencing that."

Systemic Problems

Michigan taxpayers spend $19 billion annually on public education, said Ryan Olson, an education policy analyst at the Mackinac Center for Public Policy in Midland. And though per-pupil spending has doubled over the past 30 years, even after adjusting for inflation, students' performance has stagnated or worsened.

"This study shows that Michigan policymakers would do well to pay attention to the finding that school officials spend as much as they're allocated," Olson said. "Spending more money just doesn't work. We should look at incentive reforms, providing more parental choice in the state."

Possible Savings

Olson noted other ways school districts can stretch funding.

"Andrew [Coulson] spoke in the study about introducing a meaningful incentive structure, but schools in Michigan are finding they can work within the system to produce savings," Olson said, citing ideas such as "competitive contracting for janitorial and food services, and competitive bidding on health insurance."

Olson said a Mackinac Center survey of Michigan school districts in 2006 showed 38 percent bid out transportation, food, and janitorial services.

"Many are realizing significant savings," Olson said. "One contracted for janitorial and busing services and is saving about $408 per pupil per year. What superintendent of a school board would turn down a $408 [per child] funding increase?"

Better Methods

Coulson called his discovery "an utterly damning finding for the system."

"It means there's nothing you can do to increase the efficiency of the system that will have an impact unless you change the incentives by injecting competition and school choice," Coulson explained. "If we don't do that, spending will continue to go up, and shuffling districts around won't make a dent in that."

As for his intended subject, school district consolidation in Michigan, Coulson found taxpayers would save more money by breaking large districts into the optimal size of 2,900 students rather than consolidating small districts. But the savings would not be worth the trouble of completely redrawing district lines statewide, he said.

Coulson plans to release a national study on his findings later this year.