Double, Double, Toil and Trouble

Shakespeare Society Monument in Tulsa’s Woodward Park, ID’d by Ryan Mahoney

If a carpenter built your new stairs with each step a different height, you’d never use him again.  If a doctor prescribed you a new drug that caused clotting when interacting with one of your existing drugs, without reviewing your current prescriptions, you’d never use him again.  If an oil change shop used brake fluid instead of motor oil in your car’s engine, you’d never go there again.  If your husband failed to unhook the boom of your sailboat before raising the mainsail, thus leaving you without control in the middle of San Diego Harbor, you’d never sail with him again.  These are just a few analogies comparable to the silliness practiced by Byron Schlomach in his April 2017 “Policy Analysis” for the 1889 Institute titled “Saving Money:  School District Consolidation vs. Breaking Up Big Districts”, about which I say, “If a PhD economist analyzed expenditures of Oklahoma districts and distorted their individual totals by double counting capital project/debt expenditures, you’d never believe the stated conclusions from his analysis.”  The point of this blog post is to explain why I don’t and you shouldn’t, and why Byron should be ashamed of himself.

In my early life I graduated with a bachelor’s degree in economics, including a minor in mathematics, scholarship offers from Wisconsin and UCLA to their graduate economics programs, and a Vietnam draft number in the upper twenties which, absent connections like our current President enjoyed, meant I was clear and present draft material within weeks.  The minor in mathematics saved me because the Philadelphia Public Schools were desperate enough for math and science teachers that the Pennsylvania state draft board was handing out occupational deferments.  The district’s recruiters asked me to commit to teaching at least two years (the average new teacher did not return for a second year, if they managed to finish the first).  Thankful I was not part of the awful carnage in Vietnam and aware of the privilege my educational status afforded me and not others less fortunate, I happily spent the next four years teaching high school mathematics at West Philadelphia High School and West Philadelphia Community Free School, after which with a one-year-old beside us, Linda and I headed back to Tulsa.  I gave up my academic dream of graduate study in economics and settled for law school, including two graduate economics courses, and eventually teaching economics for 11 years at Tulsa Junior College.

So I both admire and envy those, like Byron, who were able to realize my academic dream.  That is why I hold him to a higher standard than the Limited Thinkers at the Oklahoma Council of Public Affairs I’ve reviewed in previous posts.  He should know better than to put out the kind of drivel I reviewed in Miserables Love Company and Later, Sooner, and he certainly knows better than to double count as he has done in “Saving Money:  School District Consolidation vs. Breaking Up Big Districts”.  I dug out a copy of Paul Samuelson’s introductory text Economics, the 12^th Edition; I studied freshman economics with his 6^th Edition in 1965-66.  On page 108 of about 900 pages is several paragraphs following the subtitle “The Problem of “Double Counting””, so I know this is not a new concept for Byron—it’s just one that it’s not convenient to concern himself with because it interferes with the conclusion he reached before he did his “analysis”.  Most shameful and hard to believe donors pay for such sloppy work from the 1889 Institute unless the donors are only interested in pushing a preconceived narrative instead of sponsoring real economic analysis of our state’s public education system.

What is double counting?  Here’s a personal finance level example.  Say we wanted to determine how much Byron expends on transportation in a year.  Clearly, we need to attribute some expenditure amount towards the car he drives.  Let’s say at the beginning of the year he bought a new car for $20,000, which he financed through his credit union with a loan that requires monthly payments of $400 for five years.  Over the five years Byron will pay a total of $24,000 in car payments with $4,000 of that being interest.  Now depending on what we’re trying to determine there are several ways to answer the question.  One answer might be $20,000, the purchase price of the car.  Then the next year, and thereafter, the amounts would be zero since the car is paid for.  Or we might say it is 12 times $400, a year’s worth of car payments, being $4,800.  Or we might consult an accountant and get sucked in to some kind of annual depreciation schedule, dividing $20,000 by the ten-year life expectancy of the car and make it something like $2,000.  All of these or some version might be defensible.  What is not defensible would be to add any two of them together, such as the $20,000 purchase price plus $4,800 in the year’s car payments.  That, economists and any informed analyst familiar with such questions, would say is double counting.  However we get there, in my silly example, the value that should be counted is only the $20,000 one time for the car and the $4,000 of interest over the life of the loan which is the value of the “service” by the credit union in providing Byron a loan (note to credit union loan officer:  next time check the numbers on his loan application for double counting his income sources).

Here’s how Byron double counts in his silly “Policy Analysis”:  he includes all reported school district “expenditures” from “all funds” that districts are required to report, which means both their Bond funds (purchase of the car in my example) and their Sinking funds (making the car payments), are part of his totals–indisputably a case of double counting.  Bond expenditures for all districts statewide were $647 million, almost 10% of the $6,712 million in total “all funds” expenditures, so Byron’s double counting potentially skews his results (but doubt it changes his conclusion since he had reached that before he started).  Avoiding double counting is standard practice by anyone serious about analyzing school district expenditures on an “apples to apples” basis.  Here is the data source description from the Oklahoma Office of Accountability that compiles district and school profiles reports statewide:

District Expenditures (ALL FUNDS) There are many different “Funds” in which a school district may deposit revenue and from which it may make expenditures. The Profiles reports revenues and expenditures using “ALL FUNDS.” ALL FUNDS excludes Trust & Agency Fund and Bond Fund. Also, note that Debt Service, which is the major component of the Sinking Fund, has been accounted for separately to not adversely affect expenditure percentages in other areas. The expenditures are reported in two ways. First, expenditures in each category are reported as a percentage of the total expenditures and second as the actual dollars spent per ADM (See Appendix C in this report and the State Profiles for a further description of district finances). 

Here is an example of their report format:  Tulsa District Profile; and statewide numbers from the same year:  Statewide Expenditures Profiles

Notice that their “All Funds” initially excludes both bond and sinking (debt service) funds expenditures.  They exclude bond funds to avoid double counting.  They exclude sinking/debt service fund expenditures to allow comparisons focused on operational costs.  If Byron were to do some real research here’s what I think it would show:  districts with growing student populations (ADM) will have larger sinking fund/debt service expenditures per student than other districts because, duh, they are building additional schools to keep up with their student growth.  Here’s another brilliant thought, districts that have been growing in student population for many years, like Edmond, Jenks, Broken Arrow, Norman and Union are also going to find their way into the largest ten school districts about which Byron is so concerned.  These districts’ bond and debt service expenditures are virtually all classified as “non-instructional” and, if Byron would do the analysis, will likely explain why their per ADM non-instructional costs are so much higher than other districts.

So what’s his point that is so important he tosses his economist credibility out the door?  Here’s how he explains it:

Diseconomies come from districts getting so large that they are unwieldy to manage. Feedback to management is more difficult. School board members become more answerable to district employees (who vote) than to the wider public and parents. Consequently, large districts, as reflected by the numbers, become much less efficient and more costly.

Or, using data that is not double counted and recognizes the greater capital needs of growing districts, we might say this:

“The greater per student costs associated with many of Oklahoma’s largest school districts are a direct result of local voters, especially parents who have chosen the district because of its quality schools, having supported local bond issues to expand and improve school facilities.  Many of these parents, frustrated with the continued lack of support at the state level, see supporting local bond elections as a way of demonstrating how much they value public education.”

He cites no evidence for his conclusion that “School board members become more answerable to district employees (who vote) than to the wider public and parents.”  I suspect he has none.  It is of interest that Tulsa shows also as a district with “non-instructional” spending way above the state average, even though it has not been growing student population.  What it has been doing, supported by many of us without children in school, is reconstructing its aged facilities.  There are many of us in Tulsa who understand the importance to our community of investing in quality public education, even if it doesn’t directly benefit our family.  If Byron would only look past the message and conclusions his 1889 Institute’s funders pay him to proselytize, he might find data that would support that conclusion instead.

You see the mission of “think tanks” like the 1889 Institute and the Oklahoma Council of Public Affairs is not to do real research (show me the real research and I’ll reconsider), but rather to push the narrative that government spending needs to be cut because it wastes the money it spends, and the number of public employees needs to be greatly reduced because they vote to increase government programs.  It’s discouraging to see that both the World and Oklahoman have published articles today about Byron’s report without doing any fact checking on its validity—hence the birth of another alternative fact.

Lunch on me for the first to ID the photos location.