What is Costing Out?

A costing-out study determines the actual amount of money needed to provide every child a reasonable opportunity to meet state education standards by, first, identifying the specific resources and conditions necessary and, then, systematically calculating the amounts necessary to fund each of these prerequisites. In recent years, many states have undertaken costing-out studies, including Alaska, Illinois, Maryland, Ohio, Oregon, Kansas, Montana, New Hampshire, and Wyoming --- in some cases as part of the development of a new funding system ordered by a state court.

How is Costing Out done?

Although a variety of methodologies have been devised in the states that have already performed cost-based funding studies, these approaches tend to fall into two main categories: "successful schools" (Empirical) and "professional judgment."1 In Maryland, costing-out studies were performed using both the successful schools and professional judgment methodologies. The studies relied on costs in 59 successful schools and on panels of experienced educators. A Maryland commission on education finance reviewed the studies and used results from both methodologies in its recommendations to the legislature to restructure the state's school finance system.

The empirical method. The empirical approach seeks to identify those school districts that have actually achieved a specified level of student performance, such as meeting state standards. The average actual level of expenditures in these districts is then used to estimate the level of expenditure that would be required to achieve a similar level of student performance in other districts throughout the state. Typically, differences in cost of living and in the numbers of students with extraordinary needs are also taken into account in these calculations.

The empirical approach is best illustrated by a system devised by a panel in Ohio in response to the initial trial court order in De Rolph v. State. 2 In its basic iteration, the Ohio methodology chose its sample of successful school districts by reference to six specific measures of student achievement, and eight input measures such as pupil teacher ratio and average class size.3 Another example of the empirical methodology is the approach used in a report prepared for the New Hampshire Adequate Education Costs and Municipal Grant Distribution Commission. It offered four alternative ways of identifying well-performing districts based on various combinations of input and output factors. One of these alternatives uses "efficiency factors" that eliminate from the pool of model school districts those which provide services beyond a specified maximum level.4 An inverse variation is the model proposed by the Council of Great City School Districts that bases the adequacy amount on the total per pupil expenditures of the 10% highest achieving districts in the state. 5

The professional judgment method. The judgmental approach accepts as its premise that the determination of an adequate cost basis will involve a large number of judgments; it seeks to establish a process that will comprehensively review the range of judgmental factors involved and ensure that those judgments are made openly, fairly, and independently. Typically this is done by assembling panels of educators to identify the specific instructional components deemed necessary to meet state standards and then having economists determine the price of each of the identified components.

The professional judgmental approach was first developed by Jay Chambers and Thomas Parrish for the states of Illinois and Alaska in the early >80s in order to develop cost-based adjustments to the education funding allocations school districts received from the state.6 Its most well-known recent application was the model utilized by James Guthrie and Richard Rothstein in Wyoming, in response to the court order in Campbell v. State.7 The Wyoming model involved extensive meetings of groups of local Wyoming educators and then of educators from surrounding states who were asked to identify all of the specific components of an instructional system that could deliver an adequate education. Once the expert panels had identified such "a basket of education goods and services," economists determined the cost of obtaining those good and services for Wyoming school districts through a series of market pricing analyses.8

Professional judgment was also the methodology used by the Oregon Council on the Oregon Quality Education Model in constructing its funding model. There, the Council, a 23- person body of legislators, educators, business leaders, advocates, and other community representatives, appointed an expert staff and four separate subject-area work groups who devised prototype elementary, middle, and high schools. For each prototype the Council set forth a detailed list of "program elements," such as core staff, program staff, additional instructional time for students to achieve standards, and district administrative overhead. "Tangible assumptions" having a direct relation to cost, such as class size, age of building, and numbers of computers per pupil were then determined and specific cost assumptions for each prototype school calculated. 9

Historical Background for the New York Adequacy Study

On January 10, 2001, Justice Leland DeGrasse of the New York State Supreme Court issued a decision in favor of the plaintiffs in CFE v. the State of New York, declaring the state education finance system at the time unconstitutional. The State had until September 15, 2001 to come up with a new system. The "threshold task" for developing such a new system, the Court held, is a determination of the actual costs of providing a sound basic education in districts around the State.

Historically, most state education finance systems, including New York's, have purported to establish, as their basic building block, a "foundation amount" that presumably would guarantee sufficient funding for each child to obtain an adequate education. In its first incarnation, state aid to local schools took the form of a flat state grant for each school child. But, because of the inequity of providing the same amount of funding for students in both poor and wealthy districts, during the 1920s many states began adopting "foundation" programs. These required local school districts to levy taxes at a rate aimed at generating enough revenue to fund a basic education, with the state supplementing the amount actually raised by poor districts when their tax base did not yield the predetermined "foundation level." 10

From the beginning, however, no real methodology was used to determine what the foundation amount should be. Instead legislatures tended to establish the foundation based on the amount of funding they were willing to allocate for educational services with little regard for actual needs. Moreover, the base amounts that initially were established eroded dramatically over time because of budget pressures, competing political priorities, and inflation. Thus, in New York State, the current foundation amount is about $3900, even though the average district expenditure is over $ 9800 and the lowest spending 10% of all districts in the state spend about $7700. 11

Costing Out in New York State

The Court's decision invalidated the state education finance system at the moment and required the State to develop a new costs-based system that ensures that every school in the state has sufficient resources to provide the opportunity for a sound basic education to all of its students. CFE immediately called on the Governor and the Legislature should immediately appoint an impartial panel of education and economic experts to promptly develop such a system using an objective costing-out methodology, either the empirical or the professional judgment approach.

A subcommittee of the State Education Department's State Aid Group had, in fact, had undertaken a preliminary costing-out analysis for New York State, utilizing the empirical approach. They defined a successful district for modeling purposes as one in which 80% or more of the students passed the Regents Examinations in five subjects. There were 66 districts in the State of New York that met this definition. The average instructional cost of these districts was then adjusted by regional cost factors and by weightings for the extra costs of educating students who are limited English proficient, low income, or from sparsely populated areas to come up with specific estimates of the actual cost of providing an adequate education in the different areas of the state.12

The expert panel should further assess and develop this empirical approach. Or, if the panel believes that the professional judgment approach is preferable, it should convene appropriate panels of educators and community representatives to deliberate on the specific resources and conditions needed by New York State students to meet the standard for a sound basic education set by the Court. Before making its final decision, however, the panel should organize a series of public meetings in various areas around the state to explain its preliminary perspectives and to obtain input from all interested parties on these critical issues. The panel's final report should be submitted to the Governor and the Legislature for prompt action.

1 A third approach is a statistical modeling methodology that attempts to determine through analyses of performance measures and cost indices how much a given school district would need to spend, relative to the average district, to obtain any given performance target. See, e.g., William D. Duncombe and John M. Yinger, "Performance Standards and Educational Cost Indexes: You Can't Have One Without the Other," in Equity and Adequacy in Education Finance: Issues and Perspectives (Helen F. Ladd, Rosemary Chalk and Janet S. Hansen, editors, 1999); Andrew Reschovsky and Jennifer Imazeki, Achieving Educational Adequacy Through School Finance Reform (CPRE Research Report, Oct. 2000). Because these models are based on a variety of theoretical assumptions that have not actually been implemented in any states, a detailed account of this methodology has not been included in the text.
2 No. 22043 ( C.P Ohio Perry County July 1, 1994).
3 See Kern Alexander et al, Proposals for the Elimination of Wealth-Based Disparities in Public Education, Report to the Ohio Legislature (July, 1995). A subsequent iteration of this model prepared for the legislature two years later, eliminated the input variables and changed the achievement standard from a norm-referenced a criterion-referenced measure (based on the percent of students achieving minimum competency levels). See John Augenblick, Recommendations for a Base Figure and Pupil-Weighted Adjustments to the Base Figure for Use in a New School Finance System in Ohio (1997 ).
4 John Augenblick, John Myers and Justin Silverstein, Alternative Approaches for Determining a Base Figure and Pupil-Weighted Adjustments for Use In a School Finance System in New Hampshire (1998).
5 See, e.g., Council of Large City School Districts, Adequate State Financing of Urban Schools: An Analysis of State Funding of the Buffalo Public Schools (1999).
6 See Jay Chambers and Thomas Parrish, "State Level Education Finance in Advances in Educational Productivity: Cost Analysis for Education Decision: Methods and Examples" ( W. Steven Barnett, ed., 1994).
7 907 P.2d 1238 (Wyo. 1995).
8 The complex methodology actually used to carry out these tasks is summarized by James W. Guthrie and Richard Rothstein, in "Enabling 'Adequacy' to Achieve Reality: Translating Adequacy into State School Finance Distribution Arrangements," 225-226 in Equity and Adequacy, supra, note 5 . A related approach is the model utilized in the State of Washington to cost out a "basic education" in response to the Court Order in Seattle School District No. 1 v. State, 585 P.2d 71 ( Wash. 1978). The legislature, using the average statewide cost of educating "the normal range ability student" as its standard, defined the costs of a basic education by reference to ratios of teachers and other employees per 1,000 students, in accordance with a state salary scale, plus additional compensation for non-employee-related costs such as books, supplies and utilities. See Diane W. Cipollone, Defining a "Basic Education": Equity and Adequacy Litigation in the State of Washington (CFE Studies in Judicial Remedies and Public Engagement, 1998).
9 Legislative Council on the Oregon Quality Education Model, The Oregon Quality Education Model: Relating Funding and Performance (June, 1999).
10 The idea of the foundation program originated with a proposal to a New York State Educational Finance Inquiry Commission. George D. Strayer and Robert M. Haig, Financing of Education in the State of New York 173-74 (1923). See also, James W. Guthrie, Walter I Garms and Lawrence C. Pierce, School Finance and Education Policy : Enhancing Educational Efficiency, Equality and Choice 133-137 (2d ed.1988).
11 The State Education Department, New York: The State of Learning, A Report to The Governor and the Legislature on the Educational Status of the State's Schools (2000). (Figures are for 1997-98, the latest audited school year reported by SED.)
12 Equity and Adequacy Subcommittee, State Aid Work Group, Preliminary Approaches to Estimating the Cost of Adequacy (Draft, May, 1999).

NY Adequacy Report Press Release - March 30, 2004 | NY Adequacy Study Proposal and Methodology | NY Adequacy Study Final Report | Council on Costing Out

Additional Resources:

Final Report of the Governor's Commission on Education Reform (Zarb Report)
S&P's Resource Adequacy Study for the Governor's Commission on Education Reform