Cost-of-Education Index Study Presentation to the Joint Committee on Public School Finance January 24, 2002

How to account for variations in the costs of education beyond the control of district officials? In other words, How can we address the fact that districts must pay different amounts to provide the same educational services? The Central Issue

Senate Bill 4 “…conduct a study of variations in known resource costs and costs of education beyond the control of a school district… [and] make recommendations to the 77th Legislature as to methods of adjusting funding under Chapter 42, Education Code, to reflect variations in resource costs and costs of education.” SB4, Section 1.42 (76th Legislature)

Issues to Consider  Prices versus costs: addressing intensity of use.  Approach: cost of living versus cost of education.  Perspective: willingness to pay versus willingness to accept.  Strategy: identify relevant factors, measure their impact.  Single index versus separate indices for urban and rural.  Controllable versus uncontrollable costs.  Data limitations: availability, accessibility, quality.

The Cost-of-Education Index  Texas uses the CEI to adjust for uncontrollable variations in the costs of education.  Every district is currently assigned a CEI value between 1.00 and  The existing CEI affects the distribution of about $1.23 billion a year – roughly 13 percent of state aid to school districts.  The existing CEI has not been updated since 1990.

The CEI and Tier I Adjusted Allotment per ADA ($2,831 avg.) = Small and Mid-Size Adjustment x Cost of Education Index ((CEI-1) x.71) + 1 x Basic Allotment per ADA $2,537 Adjusted Allotment is used to calculate funding for: Regular Program Special Education Career and Technology Compensatory Education Bilingual/ ESL Gifted and Talented Public Education Grant

The CEI and Tier II The CEI interacts with Tier II in the way that Weighted Students in Average Daily Attendance (WADA) is calculated: Total Tier I Allotments - New Instructional Facilities Allotment - Transportation Allotment - 50% of the effects of the CEI Adjusted Tier I  $2,537 WADA

The Existing (1990) CEI Factors Included in Study by the Legislative Education Board

The Existing (1990) CEI

The 2000 Cost-of-Education Index Study  Replication study: updating the existing CEI.  Study of price variations revealed in patterns of teacher salaries.  Study of cost of living revealed by variations in wages of financial and service industries.  Study of cost variations revealed in school district expenditures.

The 2000 Cost-of-Education Index Study Findings

2000 Update of Existing (1990) CEI

Updating the Existing CEI: Issues to Consider The existing CEI only includes uncontrollable factors that were correlated with differences in teacher salaries in Are there other factors that might be relevant today?

Teacher Compensation Index Factors Included in Essentials Model

Effect of Benefits on Teacher Compensation Index

Teacher Compensation Index: Stable Over Time

3-Year Salary and Benefits Index

 Important factors may have been omitted.  Distinguishing controllable from uncontrollable costs.  Wages are only one part of uncontrollable cost variations. Teacher Compensation Index: Issues to Consider

Using Cost of Living to Adjust District Funding: Texas Wage Index Like educators, bank tellers, nurses, and accountants demand higher wages in high cost-of-living areas. This suggests that: Systematic variations in local wages will reveal local variations in the cost of living.

Texas Wage Index

Texas Wage Index: Issues to Consider  Clearly focuses on uncontrollable costs.  Illustrates costs of funding schools so they could compete with other service industries.  No district-level variations in costs.  Contains a broader range of values than other models, so potentially expensive.

Cost Function Estimation Student Characteristics/ Shift Factors District size in terms of ADA Percent economically disadvantaged students Percent of students “at risk” (under NCES definition: single parent and in poverty) Percent limited English proficient students Percent special education students Percent of students in high school Distance to nearest major metropolitan area Outcomes TAAS performance Percent of students taking advanced courses Percent of students above critical level on SAT or ACT Prices Average salaries for teachers with five or fewer years of experience Factors Included in Cost Function Estimation

Cost Function Index: Issues to Consider  Very complex model.  Captures the fact that some districts must use resources more intensively.  Highlights the interaction between scale and student characteristics.  Provides useful information for revising current finance formulas.

 Texas needs a CEI - there are substantial cost variations.  The existing CEI is out of date.  There is no one best strategy.  All of the strategies have winners and losers.  Large changes must be considered in the context of the whole school finance system.  Investments in data quality and collection are worthwhile.  Texas is the leader on these issues. General Observations

For copies of the full report, visit under “Research and Policy.”

Database Construction: Limitations  6 percent of the teacher files and 49 percent of the nonteacher files were excluded because we could not resolve inconsistencies in salary and experience data.  Over half of the teachers in 57 districts were excluded because of data problems.  The problem records disproportionately come from small, rural districts.