Return on Educational Investment: Background Info

Background information for "Return on Investment," a district-by-district evaluation of U.S. educational productivity.

Interactive | Report | Findings | Recommendations | Glossary | Background | Methodology and Data | FAQs

Read the full report (pdf)

In education, spending does not always equal success. Countless studies have shown that how a school system spends its dollars can be just as important as how much it spends. But our country’s education system lacks the proper incentives, support, and accountability structures to ensure that resources deliver the most efficient results. This section explains how we arrived at this point and what we must do to reform. We also detail our methods of evaluating educational productivity.

A brief history of educational productivity reform

Attempts to improve the nation’s educational productivity date back at least to the 19th century, when towns and cities were the major funders of public schools. As states increasingly took responsibility for local education systems, they often tried to organize schools around business ideas in vogue at the time, such as applying “scientific management” theories to increase labor productivity.

Education leaders have since tried a variety of reforms to inject greater efficiencies into the nation’s education system, from creating school districts to mandating instructional spending as a budget priority. But for the most part, these initiatives have focused on improving administration and operations, and so they typically require a one-size-fits-all solution that ultimately limits a school’s ability to creatively deploy resources. And the data suggests that the strategies have had little effect on improving overall productivity. Academic achievement per school dollar dropped by as much as 65 percent from 1971 to 1999. Despite our large annual education expenditures, the United States gets far less for its dollar than do other industrialized countries.

In many ways, the issue boils down to the school system’s long-standing focus on inputs instead of outcomes, and states for many years were reluctant to even outline what students should learn before graduating from high school. There has been significant recent progress in this area, however. In the last two decades, every state has adopted academic standards that describe what students should know and be able to do. States have also created assessment programs that hold schools and districts accountable for their performance against those standards.

“We need to see the possibilities. When there is an outlier in the district—an upward outlier— that means the bar is raised and others can do it,” said Susan Parks, superintendent of San Gabriel Unified School District near Los Angeles, which received high marks on our productivity metrics.

The development of academic standards has important implications for advocates of educational productivity. Standards make it far easier to evaluate productivity because all school systems within a state now work toward a common educational goal. The measures also allow educational management systems to better hold schools and districts accountable for their results.

Some education experts remain hesitant about judging schools by how much achievement they produce relative to their spending. They are concerned that it is difficult to adjust for all the factors outside a district’s control. For example, the way some states currently count students in special education programs doesn’t reliably separate students with severe disabilities from those with less debilitating conditions. That makes it hard to know how much additional effort or money educating a student with special needs might entail.

Another concern is that a focus on productivity might inspire policymakers to reduce the already limited funds that schools receive. This concern is particularly acute with regard to schools with large enrollments of low-income and minority students, many of which already receive far less than their fair share of federal, state, and local dollars. Indeed, many states still have regressive funding systems in which high-poverty districts get less money than wealthier ones. In New Hampshire, for instance, a district with a 30 percent poverty rate receives about two-thirds the money per student than a district with no student poverty. Other federal and local fiscal policies exacerbate the problem, and on average, the highest poverty districts receive $825 per student less in revenues than the most affluent districts.

The Center for American Progress has long advocated for greater fiscal equity across schools and districts, and we’ve gone to great lengths in this study to level the playing field and adjust for differences among districts with different populations of students. But equity and efficiency are not mutually exclusive, and our nation’s school system should aspire to be both fair and productive. Moreover, there are unambiguous examples of schools with high concentrations of lowincome students that have significant resources but fail to make reasonable academic progress, and if there are not productivity reforms made to the nation’s education system, it’s clear that low-income and minority students will continue to be harmed by the ways in which schools and districts are funded.

What we don’t know: A blind eye to educational productivity

In many ways, the nation’s educational productivity problem is an educational management problem. Our school system lacks a performance-focused set of practices and policies that ensure that dollars are spent efficiently. The problem manifests itself in ways both big and small. There are the examples of straightforward waste, of course: overpaying for food services by not considering outside providers; students being taught the same material twice because of poorly organized educational programs; central offices becoming bloated and broken due to operational neglect.

The bigger issue is that state and local school operations don’t provide educators with the tools, skills, and incentives to connect spending to outcomes and reorganize inefficient programs. For instance, many states use seat-time requirements to determine whether a student is ready to graduate from high school. While such a requirement may have made sense at one time, it divorces inputs from outcomes and prevents educators from trying more productive ways to make all students college- and career-ready.

Local leaders also have little autonomy to spend dollars in ways that they believe will bring the most results. In most areas, the district oversees the school’s budget and has the final say on spending decisions. Teacher salaries are also often set at the state level, preventing educators from linking teacher salary to effectiveness. And there’s striking uniformity about how districts budget their dollars; the vast majority allocate about 60 percent to student instruction.

The nation’s haphazard approach to school finance exacerbates the problem, with few states and districts structuring their spending programs to make them as efficient as possible. States often have dozens of different funding programs, and each of these spending initiatives usually has its own set of specific rules and regulations. Take California, which earmarked more than $41 million in 2009 to hire additional gym teachers to combat childhood obesity. This despite there being no shortage of gym instructors in the state, or any evidence that increasing the number of gym teachers reduces obesity. Worse, the grants are not even targeted at schools with large percentages of overweight students.

Many states and districts don’t even bother to collect data on program effectiveness. A recent study found that Philadelphia spent $162 million on professional development in 2008, or about $6,000 per teacher. But more than six different offices oversaw the investments, and there was no systematic effort to measure the need for the initiatives. Such a lack of data makes it difficult to pinpoint specific inefficiencies. It also underscores the degree to which the nation’s educational system lacks the accountability structures needed to ensure that resources deliver results.

What we do know: The relationship between money and results

The relationship between school funding and academic achievement is a subject of much debate within the education policy community. Some experts maintain it’s possible to cut education funding without lowering achievement, while others argue that only an influx of more money can bring the achievement boost our schools so desperately need.

The research does make a few things clear. First, the literature strongly calls into question the notion that simply investing more money in schools will result in better outcomes. At least above some threshold level, the research suggests that if policymakers allocate additional education dollars without any clear controls on how the money is spent, the funds do not appear to have a significant impact on achievement. But the literature also makes plain that school spending can make a difference in achievement; a large body of research shows that certain inputs such as teacher quality can significantly impact student outcomes. One series of studies showed that students who have three or four highly effective teachers in a row will succeed academically, while those who have a sequence of weak teachers fall further behind. Another study found that raising teacher wages by 10 percent could reduce high school dropout rates by more than 3 percent.

The bottom line: Additional dollars make a difference only if the funds are well spent. As Stanford University economist Eric Hanushek said in a recent interview: “In some places, you put money in and you get results. In other places, you put money in and you don’t get any results. It’s not that money can’t matter, and it’s not that it doesn’t matter in some circumstances. It’s just that if you do what the courts talk about, what legislatures often talk about, which is a helicopter drop of large amounts of money into districts with no expectations for how well it will be spent, you don’t see much coming out the other end.”

The research also offers clues to why the nation’s school productivity remains so low. The problem is that U.S. academic achievement has remained largely flat even as educational expenses have been skyrocketing, with inflation-adjusted per student spending increasing 60 percent since 1985. Part of the issue is that schools employ far more people than ever before, and the teacher force has increased at more than double the rate of enrollment. The cost per teacher has also been escalating because of the rising expense of pensions and health care, and the costs of total benefits rose from 25 percent of teacher salaries in 1999 to almost a third in 2006.

The bottom line: Additional dollars make a difference only if the funds are well spent.

To be sure, school systems have by no means wasted the additional dollars that they have spent over the past four decades. Some of the cost increases, like health care expenditures, were beyond the control of schools and districts, and a number of states, such as Massachusetts, have shown that strategic spending can make a large and significant difference in student achievement. Additional funds also appear to have helped narrow the achievement gap between minority and white students, and from 1973 to 2008 the math scale scores of African-American 4th graders jumped by more than 30 points, or roughly three grade levels. Still, despite massive increases in expenditures, overall student outcomes have remained largely stagnant, and achievement gaps remain wide in many areas. American taxpayers, in other words, have seen only a small return on the dollars they’ve invested in the nation’s school system over the past 40 years. This can and must change.

The case for focusing on educational productivity now

The economic downturn has dramatically changed the fiscal climate for schools and districts, and our education system is about to enter a time of profound fiscal austerity. Schools will be pressed to stretch their education dollars further for years, perhaps decades. Budget shortfalls have forced more than 30 states to make significant reductions in education spending since the recession began. Colorado rolled back school spending last year by $260 million, a nearly 5 percent decline from the previous year, in cuts amounting to more than $400 per student. Sagging revenues at the local level have further compounded the problem, with more than two-thirds of superintendents reporting firing staff in 2010 and some 90 percent anticipating having to do so in 2011.

The budget situation will get worse before it gets better because property-tax valuations typically lag behind actual property values. The full impact of the housing market collapse, therefore, has yet to hit many state and local budgets. Many states and districts have also failed to meet rising pension costs, leading to a nearly $500 billion teacher pension funding shortfall. And the federal stimulus that helped many districts get through the worst of the recession will soon dry up. States will have $38 billion less in stimulus funds in 2012. By the end of the same year the federal funds will essentially be gone.

“Rather than jumping from bandwagon to bandwagon, enough time is spent on initiatives to see the results,” said Donald Beaudette, superintendent of Norwell Public Schools in Massachusetts.

School and districts have a lot riding on their response to the economic crisis. The public was showing impatience with the slow pace of school reform even before the recession began, and outcomes remain low. Most fourth and eighth graders are not performing on grade level in either reading or math. Three out of every 10 students fail to finish high school with a diploma. At a time when states are projecting more than $100 billion in budget gaps, educators need to be able to show that education dollars produce significant outcomes, or the public might begin to see schools as a bad investment. Put differently, if education systems don’t deliver maximum results for the dollar, public trust in public education could eventually evaporate.

But the economic pressures also offer opportunity, and many forward-looking educators have been using the bleak fiscal situation to experiment with more efficient educational approaches. Some school systems have begun offering online classes, which offer courses in specialized fields often at lower cost. Others have rolled back inefficient policies, and the Los Angeles’ board of education recently approved a landmark settlement that limits the traditional practice of laying off teachers strictly on the basis of seniority. Texas last year released a study looking at how schools and districts spent their money to raise student achievement.

A lasting transformation of the nation’s school system will require more than a few islands of dedicated reform, however. For our nation to dramatically increase its educational productivity, we must fundamentally rethink how we organize, manage, and fund schools. The challenge for reformers, then, is to create smarter, more productive school management systems that encourage all educators to seek out new ways to improve educational efficiencies and outcomes.

Read the full report (pdf)

Interactive | Report | Findings | Recommendations | Glossary | Background | Methodology and Data | FAQs


The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.