Executive Compensation in Public and Private Schools

Superintendents of public school systems are an easy target when it comes to their compensation packages. It is easy to create public outcry simply by making out-of-context comments about superintendents’ whopping “six figure” salaries.  The past year has finally seen some similar outcry regarding exorbitant executive compensation in “private” sector industries which have also sought sustenance through public taxpayer subsidy. Indeed the average taxpayer still does not make six figures and many may still lump together in their minds, the $100,000 to $300,000 salaries of public school district superintendents with the $10 to $30 million dollar annual gross compensation of many corporate executives, this despite the distance between the average taxpayer salary and the superintendent salary is much narrower than the distance between the superintendent salary and the corporate executive salary. This is not to suggest that coporate executes are appropriately compensated or that superintendents should be similarly compensated. Rather, some context is in order.
What is most interesting about superintendent compensation is that it does not seem to compare rationally across sectors within regions or across regions. In my recent work, I’ve been evaluating the finances of private schools in comparison with those of public schools. On average, I have found that private schools spend more than public schools, but have slightly lower teacher salaries, and much higher administrative expense. Among other things, in New Jersey in particular, private independent school headmasters earn, on average, about $215,000 per year (in 2006-07) while big city superintendents in New Jersey earn just under $200,000 on average. Note that the average private school in this sample has about 700 students, compared with large city school districts having over 40,000.

Interestingly, in the New York metropolitan area alone, there appear to be some significant variations in public school administrator salaries. While few, if any New Jersey administrators have been earning in excess of 300,000 per year, many administrators in New York state earn in excess of 300,000 and in some cases many within the same school district.  http://www.nytimes.com/2006/04/23/nyregion/nyregionspecial2/23weadmi.html?fta=y&pagewanted=all. Ford Fessenden of the New York Times has followed this issue in the past.

In Illinois, primarily in the Chicago metro area, 10 administrators exceeded the 300,000 mark – most working in affluent suburban districts. http://www.championnews.net/salaries.php. In Texas, the top 4 superintendents in 2007-08 were compensated over 300,000 in base salary.

This brings me to yet another recent Kansas Liberty article, which points out that Kansas school district administrators and not teachers have reaped the benefits of the massive increases in funding to Kansas schools. Setting aside the fact that those massive increases in overall funding simply do not exist (see my previous posts), let’s take a closer look at the Kansas Superintendent salaries mentioned, and implied as exorbitant in the Kansas Liberty article. The Superintendent of Wichita Public Schools, enrolling about 45,000 kids, is paid most at approximately $278,000 and Blue Valley, enrolling over 20,000, second at about $275,000.
http://www.kansasliberty.com/liberty-update-archive/2009/12jan/administrators-not-teachers-reap-rewards-of-increased-school-spending/. [SEE COMMENTS BELOW, WHERE MY WELL INFORMED COLLEAGUE MIKE SLAGLE PROVIDES CORRECTED FIGURES FOR BLUE VALLEY. SURPRISE, SURPRISE – KANSAS LIBERTY PROVIDED DECEPTIVE NUMBERS. THEY DID SEEM HIGH TO ME. I HAVEN’T BEEN OUT OF KANSAS THAT LONG]
In the past I’ve used two comparison bases. First, how do these stack up against other superintendent salaries elsewhere in the country and second, how do these stack up against private independent school headmasters.  Well, there aren’t many exclusive private independent schools in Kansas or in the Kansas City metro area, and for those in Kansas (including Wichita Collegiate and Topeka Collegiate), salaries are on the order of $150,00 according to recent non-profit financial filings, while those in the Kansas City metro approach and exceed $200,000 (Barstow and Pembroke Hill) for 2006 (2007 tax filings – IRS 990). Unlike New Jersey superintendents, whose base pay is much lower than private school headmasters, these Kansas Superintendents are making out okay.
So what about the comparisons to Illinois and Texas Superintendents. A $275,000 salary would put a superintendent into the top 20 in Illinois and top 15 in Texas. But, to do this right, one really needs to adjust for regional cost differences. In this case, as in others, I look to the regional wage variation factor published by the National Center for Education Statistics (http://www.nces.ed.gov/edfin/adjustments.asp). In 2005, Wichita is assigned a wage factor 1.0731 and the Kansas City metro (for Blue Valley), 1.2092 (meaning that Kansas City had average wages – controlling for age, education level, occupation and industry) that were about 13% higher than Wichita. As such, to compare the Wichita Superintendent and Blue Valley superintendent, we take:
$278,000/1.0731 =$259,000 in year 2000, regionally adjusted dollars
$275,000/1.2092 = $227,000 in year 2000, regionally adjusted dollars
[Note that the inflation adjusted component of the NCES ECWI is only updated through 2005, so the inflation adjustment of these 2007 and 2008 salaries is imperfect. But the relative comparisons of these salaries across these labor markets is reasonable]
So, with regional adjustment, the Wichita superintendent makes much more than the Blue Valley Superintendent. But, how do these compare to salaries in Chicago or Texas. The average comparable wage index for the Chicago Metro is 1.3873, for Dallas, 1.389 and for Houston, 1.354.
So, that would mean that the Wichita salary of $259,000 in year 2000, adjusted dollars would be equivalent to a salary of:
1.3873 x 259,000 =$359,301 in the Chicago area
1.389 x 259,000 =$359,751 in Dallas
1.354 x 259,000 =$350,686 in Houston
And the Blue Valley salary of $227,000 in year 2000, regionally adjusted dollars would be equivalent to:
1.3873 x 227,000 =$314,917 in the Chicago area
1.389 x 227,000 =$315,303 in Dallas
1.354 x 227,000 =$307,358 in Houston
The superintendent of Dallas ISD was paid $327,600 to run a district of 158,000 kids in 2007-08, and that was tops in the state of Texas. The Wichita Superintendent was paid significanlty more for a district less than 1/3 the size. The Houston Superintendent was paid $314,500, for a district of 200,000 students, about the same as the Blue Valley Superintendent for a homogeneous, middle class white district only about 1/10 the size. In a more parrallel comparison, the Plano superintendent was paid $263,025 – for a more homogeneous suburban district, but still twice the size of Blue Valley.
The Newark, New Jersey Superintendent (2006-07) was paid about 250,000, in a labor market with an ECWI of 1.4669. The Kansas salaries would translate to 227*1.4669 = $333 thousand and 259*1.4669 = $380 thousand.
In this particular case, I might have to agree with the Kansas Liberty general critique  – though the rhetoric or the framing of it – that some Kansas superintendent salaries may in fact be slipping out of line, especially in a state where teacher salaries continue to hang around 40th nationally, as they have for quite some time.
Going back of the napkin today (spreadsheet and statistical software free) so I may have blundered on a calculation or two. Links to data are above. Enjoy and correct if necessary. Thanks.
Cheers.

State Rankings, Small Businesses, School Quality and Economic Productivity

On a daily basis, in print media and on talk radio, I read and hear a lot of bombastic rhetoric about state rankings of small  business competitiveness  – the most frequent references of late to the Small Business Survival Index (SBSI).

Click to access sbsi%202008%5B1%5D1.pdf

Nearly every component of this index deals with the tax and regulatory environment imposed by states. That is, it is assumed that the major reason one would want to start a business in one location versus another – New Jersey versus North Dakota – is the favorable state tax policy and regulation (minimum wage, etc.).

It would seem to me that this is a relatively limited if not utterly useless perspective. Indeed, among bordering states and within commutable regions at state boundaries such comparisons might be relevant. An individual who wishes to live in a particular region and/or recruit employees with specific skills that may be obtained within that region, might choose to open shop a few streets or miles away in the more favorable state.

However, from a broader, national perspective, issues such as access to human capital, intellectual and cultural environment are critical to at least some if not many small business and entrepreneurial endeavors.

Let’s consider, for the moment, the relationship between 3 different measures –

1. Small Business Survival Index

2. Gross State Product per Capita

3. The Percent of High Schools Achieving a Silver or Gold Rating from U.S. News

Across states, the correlations between these figures look like:

GSP and SBSI (higher is bad) = .1662

A weak correlation, but a positive one, suggesting that on average, states more “hostile” to small business have higher gross state product per capita. Hmm… how can that be?

GSP and % of High Schools Gold or Silver = .4406

A reasonable positive correlation and statistically significant.  Indeed states with more resources may be able to allocate more resources to providing high quality schools. That means taxes. Alternatively, and related, states with highly educated and productive adult populations may emphasize the importance of high level education to their children leading to not only higher participation but higher success rates on AP and IB tests (the underlying elements of the U.S. News HS Rankings).

SBSI and % of High Schools Gold or Silver = .3554

This is also a reasonably positive and statistically significant correlation, indicating that states with more high-end high schools have, on average, less favorable tax policy for small business.

Now… If I’m thinking of starting a small business that relies on intellectual capital and/or creative energy, and if I’m unlike most people and can choose to locate that start-up business anywhere in the country, then I get to make the trade-off decision as to whether I prefer favorable tax climate or intellectual capital and creative energy.

I may be wrong, but it strikes me that the latter is far more important to building a successful business. One might argue that the heavier tax burden is, in part, a premium one pays in order to be in a region with the creative, intellectual work force I need.

Further, if I want to recruit and retain an adult workforce that is going to stick with the business, I need to be recruiting them to work in an area where they feel comfortable raising their children and sending them to school.

In other words, I’m picking Massachusetts, New Jersey or California before South Dakota or Nevada, in spite of the wisdom presented by the authors of the Small Business Survival Index. Quite simply, small business survival is far more contingent on the quality (relevant qualities) of one’s workforce than on the marginal differences in tax policy.Small Business Surival and Educational EffortEducational Effort and % of HS Achieving Gold/Silver (US News)Small Business Survival Index and % Gold/Silver HS

KS Liberty Cluelessness…

I almost hate to waste so much time dealing with such utterly absurd and ignorant rhetoric as appears daily in “news” outlet Kansas Liberty. But, they’re at it again:
https://www.kansasliberty.com/liberty-update-archive/22dec2008/salina-comes-back-for-more-money#1229435964
Again, they raise the point that it has now been proven that the massive infusion of cash over the past 10 years has led to no improvement in results. See my post below where I explain that there was no massive infusion of cash.
In their latest story, the raise two new points:
Regarding the lawsuit filed by Salina and Dodge City in 1999, eventually found in their favor, they note in the most recent article:
“The suit gave the Kansas Supreme Court the opportunity to order the  Legislature to provide substantial funding increases for schools.”

This phrasing suggests that the court was simply waiting to be fed such an opportunity. In fact, the initial response of the trial court was to dismiss the case on the grounds that the same formula had been found constitutional in 1994 (USD 229 v. State). The Supreme Court did accept plaintiffs argument that enough things had changed since that time that a trial was warranted. Neither the trial court nor supreme court seemed enthusiastic to address the issue at the time, since it was still relatively soon after all of the 1990s reforms and court rulings.

They also note that the huge increases in funding are now responsible for the state budget situation:

“The increases are widely blamed for being the primary culprit in creating the state’s growing financial crisis.”

… or could it just be the economy… stupid. States are facing large budget deficits. That’s just how it is right now.

Now, the states facing the biggest deficits are those most dependent on income tax revenues to fill their general fund budgets and support public services. Those facing the biggest problems in education funding are those most reliant on state general funds to support education. This is because income tax returns drop off more quickly than sales tax returns, and property tax revenues are the most stable of the mix.

So, why is this relevant? Well, Kansas’ difficulties with education funding and the impact of education funding on the state budget are largely a function of the reductions in the statewide general fund mill levy from 35 mills to 20 mills in the late 1990s. The legislature created an imbalanced revenue portfolio for itself at that time, leading to the difficult school funding circumstances from 2001 to 2003, and again now. Had the legislature not cut this more stable revenue source from the system, they’d be much better off right now. Yes, unlike the 2001-2003 downturn where only income tax revenues declined, this downturn is hitting other revenues, even potentially property tax revenues. That said, property tax revenues are still more resilient (less elastic).

I’m simply mind-blown by the level of ignorant rhetoric I see in this supposed news outlet.

KS Liberty revisionist history…

The same KansasLiberty article I addressed yesterday also included the following quote:

“The court’s only evidence was a discredited school audit that had been dismissed by the Legislature, which had commissioned it, as impractical and dangerously expensive. The audit’s figures had been compiled by asking school administrators how much money they would like to receive to achieve a range of outcomes.”
http://www.kansasliberty.com/liberty-update-archive/08dec2008/study-shows-huge-education-funding-increases-have-had-no-impact/
Wow… that’s one twisted interpretation. While the Augenblick report was far from stellar research by any stretch, it was, as you note the report that had been commissioned by the legislature. It was pursued on recommendation from a Governor’s Task Force (which also included legislators). Further, the charge of the report was specifically linked to the constitutional language which had also been referenced in the Task Force recommendation. And while the report had been shelved by the legislature, they never criticized it openly until after the case went against them in the lower court. It had not been discredited by legislators when the case went to trial and it was not discredited by any of the experts at trial.

Most of the evidence cited by Judge Bullock as basis for determining the constitutionality of the school finance system was unrelated to the Augenblick study. It was evidence related to disparities in funding across districts, which harmed certain populations and were associated with large persistent disparities in educational outcomes. The Augenblick study was cited primarily as an option for achieving constitutionality – a guideline – the legislature’s own guideline – one possible guideline for achieving constitutionality. It was the only one on the table. Would you have preferred the Judge to make up his own? Seems logical and fair to use the legislature’s own target.

Further, when the legislature was granted a do-over in 2006 by the Supreme Court, they commissioned two additional studies overseen by the Division of Post Audit. From these studies they got roughly the same answer they had gotten previously, and once again chose to ignore the findings.

Eventually, the court let them off the hook after a modest (and still inequitable) infusion of some additional funding, dismissing the case while leaving open the question of whether the system is actually constitutional.

For a thorough review see:

Click to access kprv27n2.pdf

Kansas Study Finds Huge Infusion of Cash Didn’t Help Schools

Today, the self-proclaimed non-partisan news outlet KansasLiberty.com reported that a scholar at the University of Kansas Business School has come to the brilliant conclusion that the massive infusion of funding that went into Kansas public schools from 1997 to 2006 has led to no substantive improvements in student outcomes. The author of this report presents a handful of graphs and a few crude regression models of the relationship between spending change and outcome change between 2004 and 2006 for test scores and 1997 to 2005 for “persistence” measures.

Click to access TR08-1205–EducationSpending_Neymotin.pdf

Setting aside academic nitpicking over the absurdly crude statistical analysis provided by the author, lets take a look at the basic question of whether there even was a massive infusion of funding to Kansas schools from 1997 to 2005.

Data on unified K-12 school districts from the Fiscal Survey of Local Governments – Public Elementary and Secondary Education Finances suggest otherwise – In fact, Kansas fell further and further behind national averages during that very period. And, any court ordered funding that went into the system, did so after the period investigated.

year Nation Kansas Gap
1990 $ 4,422 $ 4,105 $ 316
1991 $ 4,683 $ 4,252 $ 431
1992 $ 4,779 $ 4,536 $ 243
1993 $ 5,072 $ 4,944 $ 128
1994 $ 5,242 $ 5,157 $ 84
1995 $ 5,415 $ 5,261 $ 154
1996 $ 5,568 $ 5,436 $ 132
1997 $ 5,751 $ 5,550 $ 201
1998 $ 6,020 $ 5,786 $ 234
1999 $ 6,336 $ 5,946 $ 390
2000 $ 6,722 $ 6,243 $ 479
2001 $ 7,191 $ 6,547 $ 644
2002 $ 7,525 $ 7,048 $ 477
2003 $ 7,854 $ 7,291 $ 563
2004 $ 8,123 $ 7,519 $ 604
2005 $ 8,530 $ 7,706 $ 825

Okay… so let’s take a second look. Here’s Kansas versus the nation after adjusting simultaneously for regional differences in labor costs and for inflation in labor costs, using the National Center for Education Statistics, Comparable Wage Index. Now… Kansas is higher than the national average, because Kansas is a very low cost state.  But, notice that Kansas current spending has been pretty much flat over the period after controlling for changes in competitive wages.

year National Kansas
1998 $ 6,558 $ 7,251
1999 $ 6,579 $ 7,102
2000 $ 6,609 $ 7,041
2001 $ 6,801 $ 7,078
2002 $ 6,748 $ 7,238
2003 $ 6,858 $ 7,277
2004 $ 6,851 $ 7,290
2005 $ 6,987 $ 7,328

So why does this matter? Let me connect the dots here. If there was no massive infusion of cash into Kansas schools, one could not possibly measure an effect of such an infusion on educational outcomes. There must be a shock to the system to measure the effects of that shock on the system. Pretty simple. Further, even if funding had crept incrementally upward across all districts while outcomes simultaneously crept incrementally upward, one could not distill statistically a relationship between the two – Certainly not over a period from 2004 to 2006, only a few years later. Interestingly in this case what we have are outcomes drifting upward with resources staying constant (with respect to competitive wage growth) or negative with respect to education spending growth nationally.

One earlier, more rigorous, peer reviewed study in the Economics of Education Review, addressing the infusion of funding to Kansas schools during the 1992 reforms, found via fixed effects (change over time) regression:

“Using panel models that, if biased, are likely biased downward, I have a conservative estimate of the impact of a 20% increase in spending on the probability of going on to postsecondary education. The regression results show that such a spending increase raises that probability by approximately 5%.”
Deke, J. (2003). A Study of the impact of public school spending on postsecondary educational attainment using statewide school district financing in Kansas. Economics of Education Review, Volume 22, Number 3, June 2003 , pp. 275-284(10).

Other studies on Massachusetts, Kentucky and Vermont have produced similar findings following major structural changes to aid formulas. I’ll gladly share the citations for those interested.

Cheers!



NOTES from a School Finance Curmudgeon

On my daily commute today I had the pleasure of listening to a talk radio discussion about the option for providing tuition tax credits in New Jersey to be used for sending talented elementary and high school students from poor urban New Jersey school districts to either affluent suburban public schools or to urban catholic schools.

As is standard fare in any heated political debate, many “facts” and “figures” were thrown around by the show host in an effort to support the move toward tuition tax credits.

Here is a quick synopsis of the facts and arguments presented, along with my response:

The host noted that Abbott districts (poor urban districts that won a lawsuit against the state legislature) spend $25,000 per kid per year.

Fact Check: The average current operating expenditure per pupil in Abbott’s in 2007-08 was $15,584 with a range of about $12,000 to $22,000. Current operating expense is the most relevant figure to compare. http://www.state.nj.us/education/guide/2008/abbott.pdf

The host also suggested that Abbotts spend much more on administration than other districts.

Fact Check: Both Abbotts and non-Abbotts spend about $1,000 per pupil on administration with Abbotts slightly outpacing non-Abbotts by less than $100 per pupil. Abbotts spend a smaller share of their budgets on administration (7.5% as opposed to 8.8%), which is probably the most relevant comparison. Using NJDOE comparative spending guide (2007-08) definitions (indicator 9). http://www.state.nj.us/cgi-bin/education/csg/08/csg9.pl

The host also argued that we might save money by sending kids to Catholic schools which “cost” about “$3,500 per kid (as the host opined).” The $3,500 figure comes from nowhere (It is a relatively standard figure tossed around, but I’ve yet to really track any legitimate source for it). Further, if this was even near the tuition price that tuition price would not represent the actual cost of schooling that child, even in the private catholic school – which relies heavily on church subsidy.

Few good analyses exist on the actual total per pupil costs of private schooling. One of my doctoral students a few years back went into 4 private Catholic high schools and detailed out their cost structure finding them to be somewhat lower than area public schools in Kansas City (spending about $6,046 per pupil in 2004). These findings are reported in the school finance textbook I authored (Financing Education Systems, Merrill-Prentice-Hall). Salaries are somewhat lower and class sizes slightly larger (catholic compared to public) leading to a slight reduction in cost. The change in student body composition (relative to poor urban schools) allows them to accomplish this without substantially compromising outcomes.

But… Let’s say Catholic schools in this area actually cost about $10,000 to $12,000 per pupil to run. If we gave $6,000 vouchers to kids to go to Catholic schools we would be asking the Catholic Church to cover $4,000 to $6,000 of their cost. For 10,000 kids we’re now expecting an additional 40 million to 60 million in church sponsored (or additional) philanthropy in addition to corporate philanthropy which generated the voucher amount. As the program scales up, the additional philanthropy required to meet actual cost simply can’t be achieved. To make something like this scalable, you have to willing to pay the full cost, not tuition rate. That might be feasible for Catholic schooling, at roughly break even (a) setting aside additional transportation and program management costs and (b) assuming sufficient supply of catholic schooling.

Regarding actual private school expenditures for private schools that are required to file an IRS form 990. Here’s how the numbers shake out in New Jersey.

Public schools by their District Factor Groups

DFG Total Current Exp. PP (2006-07)
A $14,524
B $12,247
CD $10,481
DE $10,520
FG $11,068
GH $11,894
I $11,826
J $12,179

Private schools by affiliation (IRS 990 2007, for 2006)

Independent Private $21,929
Hebrew/Jewish Day Sch. $17,130
Christian (AACS, ACIS) $5,902

Based on a sample of 45 private day schools, serving over 18,600 children (2006-07). Includes “program expenditures” and “administrative expenditures” as reported on form IRS 990 (www.guidestar.org). By comparison, Charter schools served approximately 13,000 and DFG J districts approximately 50,000.

Sadly, Catholic schools which are the largest group do not report their finances. We do know from regional and national data that the conservative christian schools that are members of AACS and ACIS, at their relatively low expenditure, actually have salaries that are over $5,000 per teacher lower than catholic school teachers at same degree and experience level, and comparable assignment (in the Norheast, in 2003-04 based on the National Center for Education Statistics Schools and Staffing Survey). It stands to reason that Catholic school expenditures are somewhat higher than AACS and ACIS schools. 4 years ago, in Kansas City (a much cheaper labor market), Catholic high schools spent over $6,000 per pupil.

We also know that conservative christian day schools have the academically weakest pool of teachers (high shares from the least competitive colleges and very low shares from the most competitive colleges – typically a much weaker pool than in public schools) and lowest student outcomes (corrected for student characteristics). You get what you pay for – though most who attend these schools are buying religious separation – not academic advancement. Catholic schools have teaching staff quite similar to public schools in terms of qualifications, and adjusted test score outcomes that are about the same (acknowledging that “adjusted” is not what matters to individual children. As much as anything, it’s about getting kids into a setting with different kids).

In addition, private school headmaster salaries outpace both big city superintendents in NJ and the superintendents of the mainly affluent suburban districts where those private schools exist – this despite the fact that these private schools serve total school enrollments of 300 to 1100 students. That’s what the free market for non-church subsidized private schooling supports.

Big City Supts. $196,039
Headmaster Mean $214,309
Host Supt. Mean $184,802

Note: Private school headmaster compensation from Guidestar.org, IRS 990 for 2006. Local Superintendent compensation for district that is geographic home to private school. Supt. Comp based on 2006-07 (1 yr later than Headmaster Comp.). Headmaster and Supt. Comp. include salary and cash-basis benefits (not health-care, retirement contributions, etc.). Big City Supts. Includes Newark, Camden, Jersey City, Paterson and Trenton.

Here’s the distribution of private school enrollment slots in NJ:

Type Enrollment
Catholic Schools 100,562
Other Schools 17,453
Christian Schools 11,939
Independent Schools 9,598
Special Emphasis 5,249
Jewish/Hebrew Schools 4,996
Friends Schools 1,480

Data Source: NCES Private School Universe Survey. Note that there appears to be substantial under-reporting of private independent schools in this survey.

I could go on… But I need to actually get some other number crunching done today.

Cheers!

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