Public Education 'Beast' Wastes Money
By John T. Wenders
Perspective. Volume 12, Number 11 (November 2005) (A Public Policy Journal from the Oklahoma Council of Public Affairs)
In an article published last month in the Edmond Sun, University of Central Oklahoma economist Mickey Hepner analyzed OCPA's recent study which used generally accepted accounting principles to estimate the true cost of Oklahoma's public education system.
"While the objectives of the report are laudable, I fear that too many will misinterpret the findings," Hepner wrote. "The report, 'Education in Oklahoma: The Real Costs' uses the same accounting practices that businesses employ to estimate the true costs of providing public education in Oklahoma. According to the report's estimates, Oklahoma governments spend more than $11,250 per student - far greater than the $7,200 reported by government officials with the National Center for Education Statistics.
"Why the difference between the government figures and the accounting figures? Because governments generally ignore certain expenses that businesses do not. Virtually all of the discrepancy is explained by the fact that the government figures ignore the contributions to the Oklahoma Teacher Retirement System (OTRS), the unfunded liabilities of OTRS, and depreciation on school buildings. Businesses (and accountants) generally would consider each of these to be an expense."
Hepner continues, "My concern is not with the report's methodology or the findings (I'll leave that to the accountants). My concern is that too many may misinterpret the findings as evidence that public education already receives too much funding in Oklahoma. ... Our policymakers and our citizens should know the true costs of educating our students. And for helping shed light on this issue, I praise the folks at OCPA. But we must be careful. A careful reading of the OCPA report finds little support for the argument by some that our schools are wasteful."
Now when I first saw the title of Hepner's essay - "Public Schools Are Worth the Costs" - I expected to find therein a careful assessment of public education that showed that the benefits exceeded the costs. Instead, I was disappointed to find a very non-economic analysis that in effect concludes: Whatever the costs, public schools are worth it.
This is the stuff of unsubstantiated opinion and assertion that is the antithesis of thoughtful economic analysis.
Above is a photo of an African Buffalo, a heavy, ill-tempered beast that often weighs nearly a ton. You'll notice this one has a bird perched contentedly on its head. If you wanted to take issue with my characterization of this beast as "heavy," you could raise the issue of the bird. To be sure, this bird does contribute something to the buffalo's weight. But how much?
Similarly, when looking at the vast evidence presented by OCPA showing that private education is far cheaper than comparable public education, Hepner responds by saying: "But private schools are very different." He intends that to be a thought-stopper. My response is: How much do these differences matter? How much, if anything, do the issues raised by Hepner contribute to the observed spending differential in the OCPA study? You can't just raise the issue and stop; you have to show that they, quantitatively, make a difference.
Hepner raises the bogeyman of special education, and makes a big deal of it. As part of a recent study I did comparing the cost of private and public education, I analyzed in some detail the burden on public schools of special education. Here's a summary of what I found.
A recent President's Commission found the total cost of a special education student to be $12,474 nationwide in 1999-2000, or about 1.7 times the total per pupil cost of $7,340. The latter figure includes special education expenditures. With special education students accounting for about 11.8 percent of the total, applying a little algebra reveals that the estimated cost of a non-special education student was about $6,653. Thus, public school costs are about 10.3 percent higher ($7,340/$6,653) than they would be without the burden of special education. This means that, instead of private education's per pupil cost being about 57.3 percent of the comparable cost in public education, when the full inflated special education burden is taken into account, private education's comparable per pupil costs rise about 10.3 percent - to 63.2 percent of those in comparable public education. Thus, even taking into account the extra cost of special education to the public schools, private education is still much cheaper than public education.
But this result undoubtedly over-states the true cost burden of special education on the public schools. There is ample evidence that children are over-classified in having Special Learning Disabilities (SLD), a subjective classification that may mean the student has simply fallen behind others, possibly as a casualty of poor teaching. As Jay Greene and Greg Forster pointed out in the January 2003 issue of Perspective, "The funding system used in Oklahoma and most other states, which some education officials candidly refer to as 'the bounty system,' pays school districts more for each additional student diagnosed with a disability. This provides a perverse financial incentive for schools to diagnose more students."
Students classified with SLD rose from 1.8 percent to 6 percent of all students nationally from 1976 to 2000. If one assumes that the special education students classified as having SLD remained the same proportion of the total as they did in 1976, this produces a total in special education enrollment of 7.6 percent in 1999-2000. Using this adjusted percentage to account for the additional burden of special education on public school costs, private education's per pupil costs relative to those in comparable public education increase only 6.1 percent - from 57.3 percent to 60.8 percent of public school costs, a trivial difference.
In short, even taking into account the extra cost of special education to the public schools, private education is still much cheaper.
Likewise, Hepner raises the bogeyman that "private schools rely heavily on support from private organizations (like religious organizations, endowments, etc.) to help finance education expenses."
Heavily? Let's look at the largest source of private education in the United States --Catholic schools. The latest count shows that Catholic schools had 2,511,040 students in 1999. The consolidated income/expense statement of U.S. Catholic parishes shows they spent $919 million on schools in 2004. This comes to $365.98 per student. Other, earlier, studies show higher subsidies - about $700-$800 per student.
Even allowing for an increase due to declining Catholic school enrollment between 1999 and 2004, a subsidy of $400 to $800 per student, again, comes nowhere near closing the observed gap of more than $4,000 per pupil between observed private school tuition and national public school current costs. Further, the observed private school tuition found by OCPA and elsewhere undoubtedly overstates the actual average per pupil tuition paid by parents, due to the discounts to the tuition "sticker price" in the form of financial aid and scholarships and which are usually simply price-discounting techniques.
In sum, nationally, raw private school spending per student -- not tuition -- is between 55 and 60 percent of the spending of public schools. Special education considerations raise this to roughly 61 percent. Considering the higher proportion of elementary students in private schools, where costs are roughly half of secondary school per pupil costs, raises the ratio of private to public schools' per pupil costs only to about 64 percent.
Now, Hepner may still believe that a public education system that wastes at least 36 percent of its spending is "worth the costs." He is entitled to believe what he wants. But surely he can't show that public school education is superior to private. Obviously, private school parents don't think so, or they would not be willing to shoulder the additional burden of the private education their children get, on top of being saddled with paying for the much higher cost of the public education they don't get.
As we contemplate what to do about the well-documented high cost of Oklahoma's public schools revealed in OCPA's recent study, we can safely ignore the bird on the buffalo's head. Instead of trying to rationalize the facts with convoluted, unquantified explanations, Oklahoma policy-makers should face the truth --private schools are more efficient -- and deal with public school appropriations with that in mind.
Dr. Wenders (Ph.D., Northwestern University) is professor of economics emeritus at the University of Idaho. A more detailed discussion of some of the issues discussed in this article can be found in his article "The Extent and Nature of Waste and Rent Dissipation in U.S. Public Education," which appears in the Spring/Summer 2005 issue of the Cato Journal.
Perspective. Volume 12, Number 11 (November 2005)
A Public Policy Journal from the Oklahoma Council of Public Affairs