DETERMINING THE BASE COST OF EDUCATION: AN ANALYSIS OF OHIO SCHOOL DISTRICTS

JOHN RUGGIERO [*] The Ohio Supreme Court recently ruled that Ohio's elementary and secondary public school financing system violates the state's constitution. It was estimated that an additional $1 billion is necessary to overhaul the current system. These costs are based on a report that defined the base cost of an adequate education using an overly simplified and flawed approach. This article recognizes that variations in spending arise from differences in outcomes provided, in the cost of providing a given level of outcomes, and in the efficiency of outcome provision. The study also critiques the approach used to determine the base cost of providing an adequate education. (JEL C29, C61, I21) I. INTRODUCTION The system of financing public education in the state of Ohio was ruled to be unconstitutional in March 1995. It was argued that Ohio has not lived up to the promise of providing public education in a "thorough and efficient" manner due to the large disparities in district wealth that existed. In particular, the amount of aid received under the Foundation Program was not related to the actual cost of providing education. As a result, the Ohio Supreme Court determined that a complete overhaul of the public school financing scheme was in order. The court identified for elimination the operation of the School Foundation Program and the emphasis of the system on the local property tax. [1] In cooperation with the Ohio Department of Education, Dr. John Augenblick issued a report in 1997 to determine the base cost of an "adequate" education. Augenblick, a Denver-based consultant for the Ohio Department of Education, modified the approach used by a "panel of experts" in a 1995 report to identify a broad base of school district experience that would serve to identify an appropriate level of base expenditures for each district. The approach consisted of identifying successful school districts according to arbitrarily defined standards. After reducing outlier districts identified as being relatively poor or relatively rich or had unusual patterns of sub-categorical (e.g., administration, operations, and pupil support) spending, Augenblick identified 102 districts. The base cost per pupil was then measured as the average base expenditures per pupil (weighted by the average daily membership). Apparently, this methodology has served as the basis for increased funding: The base cost per pupil should be sufficient to provide an "adequate" education for Ohio school children. Conceptually, school district expenditures per pupil will vary for three reasons. First, an increase in outcomes will require additional expenditures, ceteris paribus. Increasing the quality and quantity of inputs (teachers and computers, for example) should lead to increased student performance. Hence, additional expenditures that are spent properly will lead to increased performance. Second, holding outcomes constant, expenditures will vary depending on environmental factors. For example, districts in a high-wage area will incur higher labor costs. Environmental costs will also vary with socioeconomic conditions. The cost of providing a given level of educational outcomes will depend, therefore, on the needs of the pupils. School districts with a higher percentage of students in need, perhaps defined by the percentage of students that are economically disadvantaged or handicapped, will have higher costs. Finally, expenditures will vary depending on the efficiency with which resources are used. One limitation of the report issued by Augenblick is the failure to recognize these variations. First, Augenblick identified 102 successful districts that provided an adequate education. It will be shown in this article that these districts have more favorable socioeconomic conditions. Thus, it is possible and likely that the success of these districts arise because of their favorable operating environment. Consequently, a biased sample was used to identify base cost. …