Is 65 Percent the Solution?

The Speaker’s call for administrative savings in Kansas schools may make you wonder about the “65 percent solution,” a proposal that had some currency a while ago to make 65 percent of school spending to be devoted to “instructional” purposes.

Good idea or bad?

Frederick M. Hess of the Brookings Institution offers some perspective:

  • The 65 percent figure (or indeed, any figure) is arbitrary.
  • It has no demonstrated relationship to efficiency in spending.
  • The proposition “ focuses attention on dubious input measures.”
  • Creative forms of problem-solving, such as new forms of tutoring. may be inhibited.
  • Education reform should give teachers and administrators flexibility and hold them accountable for results. The 65 percent solution focuses on inputs.
  • There is still some discretion as to how school districts classify a given expenditure, and this requirement could mean yet more money spent on accounting to ensure compliance.

Then there’s this interesting piece:

In fact, reformers might wind up wishing that schools would cook the books. After all, the easiest ways to fulfill the mandate is to give teachers an across-the-board raise or go on a teacher hiring binge. Experience offers little reason to believe that such expenditures are an efficient use of funds. In fact, easy money has allowed teachers unions to avoid tougher teacher evaluation methods, performance-based pay and other efforts to modernize the profession. While the unions have been skeptical of the measure, no one should be surprised if they ultimately turn out to be its biggest winners.”

Meanwhile, Jeanne Allen, of the Center for Education Reform, had this to say in the center’s newsletter of February 7, 2006:

65 PERCENT SHELL GAME. It is an enticing proposal: 65 percent of all money in the public school system must be spent on what is classified as “direct classroom expenditures.” Governor Sonny Purdue of Georgia is just one of the governors pushing the legislation, which on its face would assure that money go directly to students’ education and not get lost in bureaucracy. However, the term “direct classroom expenditures” leaves a great deal of wiggle room. Bureaucracies love wiggle room. One argument, offered by Tom Crawford in the Atlanta Journal Constitution, notes that ‘direct classroom expenditures’ include activities such as field trips, athletics, music and arts, but not building maintenance, transportation, media centers, teacher training and guidance counselors. Under the 65 percent solution, “this means that uniforms for the football team would by law be a higher priority for school spending than nurses to treat ailing students, buses to bring students to school.” A deeper problem is that mandating any amount of money in the classroom doesn’t address the single biggest challenge the US faces – low student achievement. CER president Jeanne Allen calls it the politician’s equivalent of a chicken in every pot: sounds great, but has little impact on the real problem. But with the very successful entrepreneur and founder of Overstock.Com, Patrick Byrne, behind the initiative, it is a natural elixir for any politician.

Fair enough.

Our friend at the Independence Institute, Ben DeGrow, offered a warning about administrators working around any requirement:

Yet little could stop most school districts from merely hiring another bureaucrat to reconfigure the chart of accounts or rename job titles to meet the mandate.

A reader who browses through the Colorado Department of Education’s thick chart of accounts can get an idea of how easily school budgets can be manipulated.

Of course, it is possible that some school boards actually would eliminate some administrative staff positions (many of which were created to comply with federal regulations) in order to hire more teachers. They also might offer salary bonuses to their existing faculty or buy more textbooks and classroom computers. Maybe they would cut non-instructional costs through competitive contracting for services like maintenance or trash removal.

Regardless of what a school board might do in response, no connection has been found between the percentage spent on “classroom instruction” and the resulting student achievement.

DeGrow also calls the idea a symbol rather than a solution.

Should schools spend less on administration and more on classrooms? Ideally, yes. But the 65 percent solution is an arbitrary response to a real problem–rising costs and stagnant performance–baked into today’s political approach to education. Efficiency in any enterprise (think of Wal-Mart’s legendary logistics) best comes through the discipline of customers who can take their dollars anywhere, not a government fiat.

It’s better, at this point, to step back and consider how we cut costs in other areas of life. In the last decade, businesses across industries have worked hard to cut costs. Banks have replaced tellers and bricks-and-mortar branches with ATMs and online banking. Gas stations have gone self-service, except in two states where it’s illegal. Wal-Mart has become so good at wringing out costs through its exceptionally smart and powerful logistics system that some economists credit that single company with being a substantial reason why inflation has been kept in check lately.

In each of these cases, the organizations have saved money because it’s in their financial interest to do so. These and other innovations have not come about because a government agency convened a panel and said to the business “save money or else.” No, companies have become more efficient because it’s good for their business: It makes their products and services cheaper and thus more attractive, increasing the top line of revenue as well as the bottom line of profit. In short, the market has been at work.

But what about government? Can we expect a government organization to use the power of the market? In fact, some already do, though imperfectly. The food stamp program isn’t flawless, certainly–fraud is always a concern–but it is a good example of how markets can help governments save money. Think about how it uses the market versus how it might use politics.

If we used a political approach to hunger, legislatures would establish government-run grocery stores in each county. Each store would have a director and various assistants. Before long, you might hear someone call for a study commission to look at reducing the number of people who direct government-owned grocery stores.

Thankfully, we don’t have to deal with that situation. That’s because we give money directly to the poor, and they spend the money in the same grocery stores that the rest of us use–stores that, due to competitive pressures, are always on the lookout for cost-saving measures. Let parents control how education dollars are spent, and that change will do much more to drive down overhead than any legislatively-imposed accounting standard.

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