Using Per Unit Cost to Make Difficult Budget Decisions

Earlier this week, the American Enterprise Institute (AEI) and the Thomas B. Fordham Institute hosted a research conference entitled “A Penny Saved: How Schools and Districts Can Tighten Their Belts While Serving Students Better.”

Marguerite Roza, a researcher at the Center for Reinventing Public Education, presented her paper, Now is a Great Time to Consider the Per Unit Cost of Everything in Education, where she discusses the benefits to school districts of breaking down education costs to the per unit – in most cases per pupil – level. This is particularly relevant as school districts struggle to make ends meet in difficult economic times.

For example, Roza points out that – even for a “numbers junkie” like herself – it can be hard to put numbers in the millions and billions into context. Proposals to cut $698 million from New York’s public K-12 budget, or for New York City to spend $81 million on a data system are relatively meaningless without some perspective.

To overcome this obstacle, Roza breaks each of these expenditures into its per unit cost. The $698 million budget cut in New York doesn’t sound as drastic when we see that it amounts to $256 per student – only about 1.2 percent of the $15,546 the state spends per pupil. Spending $81 million on New York City’s Achievement and Reporting Information System (ARIS) seems much more reasonable when we learn that the cost is $81.17 per pupil – or less if the program runs for several years.

Breaking budget cuts, expenditures, or investments down into per pupil dollar amounts can help school leaders communicate with stakeholders and the public about proposed changes to education budgets.

School leaders can use per unit analysis to better describe the options for stakeholders, like teachers, when considering budgeting options. Roza provides an example from a hypothetical district requiring a 5 percent spending cut, and describes different scenarios that would accomplish this by making cuts and reductions in various areas.

Teachers can use information like this to better understand their options when dealing with potential salary cuts and/or layoffs. (For more on this topic, see Ed Money Watch’s earlier post on the topic or Roza’s July 2009 report, The Tradeoff Between Teacher Wages and Layoffs to Meet Budget Cuts.)

While analyzing budget cuts and other education expenditures in per unit terms does not in and of itself create savings, it allows education leaders, teachers, and the public to better understand how money is being spent. It effectively highlights inefficient or over-the-top spending, clarifies tradeoffs in different budgeting scenarios, and emphasizes the impact of various changes in terms that are easily comprehended.

States and school districts are facing challenging budget decisions due to a difficult economic climate. Federal stimulus funds from the American Recovery and Reinvestment Act (ARRA) have allowed many to avoid deep cuts thus far. But with ARRA funds set to expire at the end of fiscal year 2011 and an economic crisis whose effects are likely to last well beyond that time, education leaders must find innovative ways to make cuts while maintaining services to the extent possible.

Per unit cost analysis is only one way of looking at education costs in a new light, and it is currently only used in a handful of school districts. This and other out-of-the-box budgeting devices may help school leaders come out of the economic crisis in the best possible shape.