Augenblick perhaps cheap by comparison

Augenblick Perhaps Cheap by Comparison
By Bob L. Corkins, Freestate Center for Liberty Studies
August 29, 2005

Billions of dollars are riding on the outcome of the state’s two education finance studies, one by the Legislative Division of Post Audit, the other by the national firm of business analysts at Standard & Poors. The Kansas Supreme Court is putting great reliance on the results of these studies in deciding how to resolve the behemoth Montoy v. State K-12 finance litigation.

By threatening to close public schools, the Court forced the Legislature this summer to increase K-12 spending by a record-setting $293 million enhancement. However, the Court said this did not end the lawsuit and pointed to the 2002 study by education consultants Augenblick & Myers when declaring that at least another $580 million more may be necessary. The high price tag of A&M’s recommendation may be reaffirmed, the Court reasoned, by the new Post Audit and S&P studies to be completed by January. The Post Audit study is so important to the Court’s ultimate ruling, in fact, that the Court ordered changes to the study to accommodate all of the Court’s legal concerns.

S&P to Finish First; Not a Cost Study

In February of this year the private Kansas City based Kauffman Foundation gave the state of Kansas a $400,000 grant to pay for an education finance study to be performed by S&P. Governor Sebelius’ office then contracted with S&P to define the scope, method, schedule, and other details of the work S&P would perform.

Overseeing much of the state’s interests in this project is Duane Goossen, the Governor’s Budget Director. Goossen emphasized, and the terms of the contract confirm, that S&P will not perform an education “cost study” for Kansas as many have expected and as S&P has done in other states. Rather, S&P will complete a “best practices” analysis that is in some ways is more thorough, but less extensive overall.

Although there are many details, we can summarize the contract study process. S&P uses state-provided data to analyze all USDs and identify those that are “resource effective”. The state, in consultation with S&P, will select four USDs from the resource effective list. S&P will then conduct site visits to those four USDs to conduct various detailed interviews. All that input is used by S&P to write a “resource management study” that will include examples of effective practices that other USDs may emulate. The projected publication for S&P’s study is early November.

Post Audit to Employ Syracuse Experts

At the Supreme Court’s insistence, the Post Audit study will conduct an “outcomes-based” analysis of K-12 costs in addition to an “input-based” approach. The primary question the input approach will answer is: “What should it cost for regular K-12 education to deliver the curriculum, related services, and programs mandated by state statute?”

Future reports by the Freestate Center will examine particular parts of the S&P study as well as Post Audit’s. For now there is one feature of the Post Audit’s outcomes-based project that merits special attention. The primary question Post Audit will address in this chore is: “What should it cost for regular K-12 education to meet the performance outcome standards set by the Board of Education?” To help answer that question, Post Audit has contracted with two professors – William Duncombe and John Yinger – from Syracuse University in New York for their expertise in education finance.

Authority for outside consultants was granted by HB 2247 during the regular 2005 legislative session and by SB 3 during the special session. The relevant language from both bills provides that “In conducting such cost analysis study, the legislative post auditor may enter into contracts with consultants as the post auditor deems necessary.” Although this gives discretion to Post Audit in deciding upon consultants, another part of the statute specifies that “the cost study analysis shall be conducted as directed by the legislative post audit committee.”

Criticisms of Duncombe and Yinger

Perhaps the best insight into what Kansas can expect from these researchers is found in their own published material. The state of New York was sued for allegedly failing to provide a constitutionally “adequate education”. In that litigation that’s now before a group of special masters, Duncombe and Yinger jointly filed a brief on September 17, 2004. Some highlights of their court brief are:

(1) For the New York City school district alone, which currently spends about $10.8 billion, D&Y recommended an increase of $7.2 billion as “the best available current estimate of the annual cost of achieving the 160 adequacy standard”;

(2) A large factor affecting D&Y’s recommendation was teacher wages. D&Y criticized as being “implausible” another study’s conclusion that teacher wages in New York City averaged only 10% higher than the state average. D&Y’s own method, which additionally adjusts for teacher working conditions such as their share of students eligible for a free lunch or with limited English proficiency, estimates that “wage costs are 54% above the state average in New York City and 13% above the state average in downstate suburbs.”

(3) D&Y are critical of cost studies done by Standard & Poors. D&Y wrote “The S&P report also includes extra weights for the share of students in poverty or with limited English proficiency, but these weights are neither estimated nor drawn from the scholarly literature. All of the calculations in the [S&P] report, including the estimated cost of reform, are based on the same unrealistically low weights for disadvantaged students.”

We also look to how other scholars view Duncombe & Yinger. A February 2004 review of various education cost studies was published by economics professor Thomas Downes of Tufts University. Downes observed that Duncombe uses the “cost function” approach and that there are “three main problems” with that method: (1) It is the least intuitive to non-economists and the least understood, requiring complex statistical techniques which are difficult to explain; (2) The data quality must be extremely good, since the entire model is based on real historical data; and, (3) It is sometimes called a “black box” method, since researchers do not say how funds should be spent, but simply how much should be spent. Downes also remarked in general that “.seemingly small methodological differences can translate into dramatic differences in spending distributions.”

A national review panel in 1999 compared D&Y to Augenblick and suggested that D&Y would exacerbate inefficient school spending. The National Reseach Council’s Committee on Education Finance wrote: “William Duncombe and John Yinger.are highly skeptical about whether schools with concentrations of low-income children, especially in urban areas, can realistically succeed with an amount of money that Augenblick’s model would provide. Given the complexity of the Duncombe and Yinger methodology, many will wonder to what extent they really have taken into account only costs that are beyond the school or district’s control and not allowed past spending inefficiencies to determine how much future revenue a school or district ought fairly have.”

Freestate Commentary

A few observations flow from our review of this information:

(1) Had D&Y performed the cost analysis for Kansas in 2002 instead of Augenblick & Myers, it is quite possible that D&Y would have recommended more than that study’s $860 million increase for K-12.

(2) Why did the state not want S&P to do a cost analysis? S&P’s “best practices” study will be different and more thorough than what S&P has done for any other state. Consider its timing. The S&P details were agreed upon early in 2005 before legislation required Post Audit to undertake any similar project. Was the Administration aware last spring, when it contracted with S&P, that Duncombe and Yinger disapprove of S&P’s methodology?

(3) Even if for no other reason than timing, it’s very unlikely that Post Audit will cancel its contract with D&Y. Still, the Post Audit Committee has authority to direct the conduct of the study and perhaps insist on additional consultants. It might be cost effective for Post Audit to hire other national experts to evaluate D&Y’s conclusions without duplicating their work.

Future Freestate Center bulletins will report on additional news about the pending state K-12 studies. All relevant findings will eventually be published in a Freestate Center study to be completed later this year.

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Bob L. Corkins is executive director of the Freestate Center for Liberty Studies. The Freestate Center is a nonpartisan, not-for-profit, Topeka based research institute for advancing the Constitutional principles of limited government, individual liberty, free enterprise and traditional family values. Freestate is organized under IRS § 501(c)(3).

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