What Is Adequate?: Operationalizing the Concept of Adequact for New York Thomas Downes Department of Economics Tufts University March 2004

Introduction ● Motivation – CFE v. State – trend towards adequacy mandates – What lessons can be gleaned from research on methods to determine adequate spending? ● Organization – Critical review of alternative methods for estimating adequate spending – Comparison of adequacy estimates for NY – Cross-cutting issues in adequacy estimation – Concluding remarks

What Level of Spending Is Adequate? ● Working Definition of Adequacy – State standards determine adequate level of spending – Must account for cross-district variation in costs ● Two-step process for determining adequate spending for each district – Determine adequate spending in a benchmark district – Adjust to account for variation in costs

Geographic Cost Variation Approach ● Input-based approach – Not linked to performance standard – Second step must use an input price index rather than a cost-of-education index ● Digression: Calculating an input price index – Chambers (1997) v. Duncombe (2002) – Should estimation method only account for costs that cannot be manipulated?

Empirical Identification Approach ● Logic of the approach ● Problems with the approach – The selection problem – Are successful districts valid benchmarks? – How should costs be adjusted? ● Example: Regents' Proposal on State Aid for

Professional Judgment Approach ● Logic of the approach ● Problems with the approach – Absence of budget constraint and of incentives to compromise – Limits of personal experience of panel members – Self-serving behavior ● Concerns about external validity ● Example: AIR/MAP study for NY

Cost Function Approach ● Logic of the approach ● Problems with the approach – Difficult to explain – Data requirements – “Black box” nature of method is unattractive: Should the method used to determine adequate spending provide more guidance on resource use? ● Example: Duncombe/Yinger estimates for NY

Comparing Estimates for NY ● Barriers to comparing estimates – Differences in standards used – Lack of availability of disaggregated estimates (AIR/MAP results) ● What comparisons can be done? - Figure 1 – Similarly of distributions implied by Regents' Proposal and cost function (Duncombe/Yinger) – Sensitivity of results to cost adjustment

Crosscutting Issues ● The Incentive Problem – Theory: Only compensate for costs that cannot be manipulated so as to avoid perverse incentives – Reality: Almost any cost determinant can be manipulated. – Solutions: Use of averages to determine adequate spending and of evidence on incentives ● Are Results Normative? ● Updating the Adequacy Calculations

Concluding Remarks ● Need to draw on strengths of the various methods to develop a unified method that is defensible and understandable Need to draw on strengths of the various methods to develop a unified method that is defensible and understandable – Suggestion: Cost function combined with professional judgment Suggestion: Cost function combined with professional judgment – Success of similar approach in California Success of similar approach in California ● Importance of getting things right – the cost adjustment problem Importance of getting things right – the cost adjustment problem