Differentiating “cost savings” from “expenditure reduction”

Posted on January 11, 2012



Today, it’s time for a little School Finance 101, clarifying the difference between what is a “cost savings” versus what is an “expenditure reduction.”

Cost savings means finding ways to reduce expenditure while still addressing the same range of objectives (goals, intended outcomes) and while still achieving the same level or quality of outcomes with respect to each objective.

Expenditure reduction typically means choosing not to address some objectives, goals or intended outcomes. That is, to cut back the scope of production (drop a product line, eliminate product features, cut curricular offerings, address fewer objectives/goals). Further, expenditure reduction might also mean simply choosing not to shoot for as high outcomes on specific objectives.

Note that an expenditure reduction can also be achieved by realizing actual cost savings. But, any old expenditure reduction cannot necessarily be classified as cost savings.

Here’s an example of potential “cost savings.” If you are running a small, remote rural district and questioning whether you can continue to maintain advanced placement calculus as an in-house, district staffed course for 3 to 5 students per year, you might consider the alternative of having those students take the course online. It may just be that student outcomes, for your particular students and that particular course are not measurably adversely affected by the change and that the change results in a substantial reduction in expenditure per child on AP calculus. That is, expenditure was reduced and the outcome held constant. Cost savings were achieved.

The cost savings example above is considerably different from comparing the total per pupil expense on brick and mortar schooling and all of the programs and services included in that, with the per pupil expense needed to offer an online curriculum of core required academic courses (or any subset that differs in scope of goals/objectives).  This is the critical flaw in the interpretations and presentations of (some though not all of) the findings in the recent Fordham Institute study on the supposed “cost” of online versus blended, versus brick and mortar schooling.

One might clean up this aggregate brick and mortar to online schooling comparison by attempting to isolate the per pupil costs of offering those same courses/programs/services within the brick and mortar structure and measuring and comparing the outcomes of those same courses offered each way (in house versus online, as above with AP Calculus).[1]

In these times of tight local school district budgets and rhetoric about “stretching the school dollar” and the “new normal,” paying close attention to the distinctions above is critically important.

The recent Fordham Report on online and blended learning provides some interesting new data, but provides no insights (yet) regarding “cost savings.” Again, there’s some potentially useful stuff in there, but comparisons like those made in Figure 1, p. 4  (comparing total brick and mortar per pupil spending to the other two options) are very deceptive and do much to undermine the rest of the report.

Similarly, the “stretching the dollar” brief released last year by the Fordham Institute provides little or no valuable information regarding “cost savings” but does provide a laundry list of ideas for cutting services (with no evidence or measure of the results of such cuts), such as cutting off services to limited English speaking children after two years or cutting total funding to special education (by capping and redistributing those funds uniformly across districts). Kevin Welner and I address in greater detail the various expenditure reduction strategies cast as “cost savings” by Petrilli and Roza in the “stretching the dollar” brief in a recent NEPC report.

Further, it’s important to understand that it’s not necessarily even an expenditure reduction when a school district cuts from its budget something that it then expects someone else, such as parent, to pay for (like cutting district funding for athletic travel and either replacing it with fees, or expecting local sports booster clubs to raise the money). It may be a school budget reduction, and a reduction to the school’s expenditure, but the expenditure is still there.

I’m not saying that schools or districts should never simply cut expenditures by reducing the scope of their services, or shooting lower on some goals. Some goals/objectives may nolonger be (as) important, or may need to be traded off to use scarce resources toward other more “important” (importance being measured in any number of ways) goals/objectives.

Rather, I’m saying that if it’s an expenditure cut, it’s an expenditure cut.

If it’s really just a transfer of responsibility for the expenditure, acknowledge that.

And, if it really is an attempt at “cost savings” then it’s legit to call it that.

So, when presented with these quick and easy, off the shelf school finance solutions for supposed cost savings, please ask yourself whether the authors/presenters really have evaluated cost savings or merely expenditure reductions.

And to those authors/presenters who I’m not always sure understand the difference themselves please make at least some effort to differentiate between real “cost savings” and simple “expenditure reduction.”

 

 


[1] Alternatively, one might argue that the singular goal of any of the three options is a high school diploma, and that the different estimates are of the “costs” under each model of achieving that singular goal. However, in this case, it becomes important to evaluate the “quality” of the outcome – high school diploma – when obtained these very different ways (perhaps by evaluating preparedness for higher education, access, persistence, 6-year graduation, for otherwise similar students).

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