What is the truth about per-pupil spending in Oklahoma?

The state's most powerful labor union, the Oklahoma Education Association (OEA), says we spend $7,615 per pupil in Oklahoma. The union gets this number from the National Center for Education Statistics. But I have conducted a comprehensive examination of public education spending in Oklahoma for the 2007-08 school year (the latest year for which actual data are available), and I estimate the real number is $10,257 per pupil.

My study was designed to measure every cost involved in funding and operating the public education system. Instead of arbitrarily selecting or excluding a cost, I used common-sense guidelines with an independent referee-the Governmental Accounting Standards Board (GASB).1

I considered every step in the process, beginning with the collection of the funds necessary for education and following them to their end use in the system. I then isolated the local or state entity or entities that perform the function and calculated those costs.2 This allows citizens to see every cost incurred in the provision of public education.

The first function in funding public education is collecting the money. After all, money doesn't magically leave the pockets of Oklahomans and suddenly appear in the coffers of local school districts. Just as any business has to include the cost of the cashier in its expenses, I have included this essential function. In the case of public education, the main "cashier" is the Oklahoma Tax Commission; it collects and disseminates funds to the state Department of Education to pass through to the schools. In addition, the Commissioners of the Land Office, the Oklahoma Horse Racing Commission, and the Oklahoma Lottery Commission also send part of their revenues to public education. The cost to collect the money for public education at the state level is $58,431,694.3

Next I examined the administrative function, which would be the rough equivalent of the management functions in private business. Oklahoma's system of public education has several state agencies that perform some part of the management function for the state's public school districts. For example, the Department of Education distributes the collected funds to the school districts and provides administrative support for those districts. The Oklahoma Commission for Teacher Preparation certifies teachers and manages part of the continuing education of teachers. The Oklahoma Teachers' Retirement System provides the retirement benefits for public school teachers, administrative staff, and support staff. The operating costs of these agencies total $177,119,121.

Now that we have the money collected and distributed, let's look at the school districts' direct operating expenditures. The Department of Education allocated directly to the state's public school districts a total of $4,253,240,734 in the 2007-2008 school year.4 However, several other agencies spent money educating public-school students, money that is not included in this total.

CareerTech spent the most, with $144,390,039 on direct local secondary school support.5 "Most of Oklahoma's career and technology education students at the secondary level are enrolled in CareerTech programs in their local schools," according to the agency's website. "In FY08, a total of 1,405 CareerTech teachers in 400 comprehensive public school districts served a total enrollment of 142,972. These students are in Grades 6-12 and are enrolled in one-period CareerTech programs including family and consumer sciences, agricultural education, marketing education, business and information technology education, trade and industrial education and health occupations education." Moreover, another 17,000 high school students are "enrolled in Oklahoma's technology centers. Most attend approximately three hours per day, either in the morning or the afternoon. Due to increased graduation requirements, centers are adapting schedules and pursuing other avenues to provide students with the flexibility they need to attend."6

Despite the fact that a large number of students are served and significant resources are being spent directly on public education, it appears that none of these numbers are counted in the per-pupil expenditure.

Several other agencies also have expenditures directly in the classroom. The Department of Agriculture spent $149,000 and the Oklahoma Arts Council spent $631,000 on classroom instruction services.7 The Oklahoma School of Science and Mathematics spent $7,369,730 educating a small number of students and providing some online instruction for other high-school-age students.8

And let's not forget about buildings. The current period expense of these school facilities is largely in the depreciation that the buildings incurred in the 2007-08 school year. Though depreciation is a "non-cash" expenditure, it is important to include it in the yearly costs. It represents the dollar amount of that asset-in this case the school building-that is "used up" each year, leading to the eventual need to spend money to repair or replace the structure. Most citizens probably assume this "depreciation expense" is being paid for in the regular bond issues they are subjected to. Depreciation is only reported on the individual financial statements of each of the 500-plus school districts, which tend not to be issued on a timely basis and which are difficult to acquire for every district. In fact, Oklahoma's largest school district, Oklahoma City, was described as recently as 2003 as being "in such disarray that auditors issued a rare disclaimer that the district's annual financial statement is unreliable."9

Given the unreliable nature of these reports, one is forced to make an estimate in order to include this important expenditure. As it happens, in 2006 the OEA teamed up with three school districts to bring an "adequacy and equity" lawsuit against the state, and that lawsuit claimed that the unmet, immediate capital needs in Oklahoma exceeded $3 billion. If one just takes these "unmet" needs, representing assets which have been "used up," and applies an average depreciation life of 20 years (which is a conglomerate of short-term assets like furniture and long-term assets like buildings), then the depreciation expense was at least $150,000,000 per year, and that's a very conservative estimate.

Moving on to the next item, it is obvious that state expenditures to provide retirement benefits on behalf of teachers and support personnel are a part of the costs of operating the schools. Yet the "official" per-pupil costs don't include the costs of the Oklahoma Teachers' Retirement System (TRS), nor do they include the hundreds of millions of dollars of taxes paid directly to TRS to provide retirement benefits for teachers, school administrators, and a whole host of ancillary personnel. Most Oklahomans don't realize that five percent of the individual income, corporate income, sales, and use taxes go directly to TRS. I calculated the amount that is attributable to public education for 2007-08 and found the amount conveniently left out was $206,370,073 of Oklahomans' tax dollars.

Additionally, TRS's archaic defined-benefit plan typically adds debt every year which will have to be paid for at some time in the future. This debt would appear on the financial statement of a private entity, but is conveniently excluded from the per-pupil costs of public schools. This debt increased by $1.4 billion in 2007-08 alone, bringing the total unfunded debt that Oklahoma taxpayers are saddled with to $9.09 billion.10 I have only included the current period expense of $1,083,057,328, which represents the portion attributable to public education.11 Ignoring this additional debt in per-pupil calculations is the equivalent of saying that any credit card debt you might incur in one year but not pay off in that year was actually not an expense in that year.

Once all these expenditures are tabulated, one must define the number of students that will be used to calculate the per-pupil expenditure. One might think that Average Daily Attendance, or actual students served, would be the only acceptable figure for calculating per-pupil costs. However, the State Department of Education uses several different numbers-including Average Daily Attendance, Average Daily Membership, and an even more fascinating Weighted Average Daily Membership-to show school usage. For my calculation I use Average Daily Attendance (ADA). This makes the most sense since it is the number of students that show up on an average day and does not include dropouts. Average Daily Membership (ADM) counts all students that are considered enrolled, but considering that the Oklahoma City and Tulsa districts have dropout rates in the neighborhood of 50 percent, it is questionable how many of these students are actually in school on a given day. The ADM approach gives schools a perverse sort of reward for having a large number of non-attenders.

There are many other costs I did not include even though it would have been defensible to do so. For example, millions of dollars of public school costs-such as the costs of teacher education and the costs of remedial instruction-show up in Oklahoma's higher education budgets. Nor did I include the interest paid during the 2007-08 school year, even though this would have been a substantial number. School bond issues and the resultant debt generate potentially hundreds of millions of dollars of debt annually. These amounts are nearly impossible to obtain and I could not find a reasonable way to make an estimate of these amounts. In addition, there are revenues and services that flow from a multitude of sources, including groups like the Parent Teachers Association (PTA), that are used to educate public school children. These are largely unreported, so I could not include them in this study. There are also many other smaller expenditures on public school children that can be found in the budgets of higher education, juvenile affairs, and many other agencies. Suffice it to say my per-pupil estimate of $10,257 is actually low.

In any case, it's clear that government officials owe Oklahoma's taxpayers more sunshine and transparency than they're currently getting. The financial statement on the following page is a valuable and useful tool, but the only reason it exists is that a private think tank devoted the time and resources necessary to produce it. Taxpayers deserve better from their government.

Endnotes

1. If anyone would like to discuss my methodology or results, I encourage you to write to me at fincpatax@hotmail.com.

2. Since much of this information is not required to be reported, these expenditures can only be gathered by reviewing records from a variety of different sources. I used the state's Open Books website (openbooks.ok.gov) for many of the individual agency expenditures; however, local payments to schools and some ancillary benefit payments had to be traced to the entity that provided the funds. When gathering data I used Governmental Accounting Standards Board (GASB) guidelines to assess what is a current period expense and how it should be valued. If no source was available, I attempted to approximate the current period expenses using techniques that are discussed within the section of this article dealing with those costs. Some costs I did not include if their valuation was too difficult to yield reliable data; those are noted in the appropriate section.

3. This number is actually slightly low: the federal government and local entities also collects some funds for public education, but I did not include the cost of all federal and local collections.

4. http://sde.state.ok.us/Finance/StAid/pdf/AnnualReport08.pdf

5. http://www.okcareertech.org/newsroom/AnnRpt08.pdf

6. http://www.okcareertech.org/measuringup/SysOverview/DeliverySys/DeliverySys.html

7. http://www.ok.gov/OSF/documents/bud10hd.pdf. Some of these direct expenditures on classroom instruction do not include the administrative costs resulting from those expenditures. I have calculated these costs from the individual agency's financials and included them in the administrative costs of the total system.

8. http://openbooks.ok.gov

9. Richard Williamson, "Oklahoma City Schools' Fiscal Statement ‘Unreliable,'" The Bond Buyer, April 4, 2003.

10. http://www.ok.gov/TRS/documents/2008%20Actuarial%20Valuation.pdf

11. I did not include the portion attributable to other teachers, such as college professors and CareerTech teachers who don't instruct high-school students.

Steve Anderson (MBA, University of Central Oklahoma) is an OCPA research fellow and a Certified Public Accountant with more than 20 years of experience in private practice. He spent two years as a budget analyst in the Oklahoma Office of State Finance, and was formerly a state-certified teacher with 17 teaching certifications.