Where Do Our Education Dollars Go?

The education efficiency audit initiated by Governor Tomblin has attracted a great deal of attention in the state, and will likely be a major part of the upcoming legislative session. The audit was produced with two goals for the state: 1) producing the best possible outcome for its students, and 2) receiving the highest return on the educational dollars it spends. But in order to properly achieve goal 2, you need to first understand where the state spends its education dollars.

After noting that the state ranks 8th in education spending as a percent of personal income, the education audit identifies five state level areas where five-year savings of $115.7 million could be found, or an average of $23 million per year. According to the U.S. Census Bureau, in 2010, education spending in West Virginia totaled $3.27 billion, so state level savings from the audit amount to less than one percent of total spending. (A review of a sample of local  districts identified an additional $5 million in savings, which, if the results were replicated statewide, would result in savings of $70 million, bringing total annual savings of $93 million, or 2.8 percent of total spending.)

The table below shows the five function areas and their five-year savings identified by the audit. (Note: Human Resources was identified as a function area, but did not have a dollar amount of savings.)

Education Spending in West Virginia

The savings proposed by the audit are premised on the fact that West Virginia is ranked 8th in education expenditures relative to income, and 7th in salaries exclusive of benefits, and that the state, “cannot be said to stint on education spending.” But spending relative to income is a little misleading, because as a poorer state with relatively low income, West Virginia will typically skew high when making comparisons relative to income. The audit notes that West Virginia ranks ahead of rich states like Massachusetts on education spending as a share of personal income, where as on a per pupil basis, Massachusetts outspends West Virginia by more than $2,000.

So on a per pupil basis, West Virginia ranked 17th in 2010, spending $11,527 per pupil, compared to the national average of $10,600, a difference of $927 per pupil. While not quite a top 10 ranking, it’s still above average (and the audit seems to imply that a rank of 32, which is the state’s rank relative to income when adjusting for the pay-down of the unfunded pension liability, is also high). Using census data, you can get an even clearer view of West Virginia’s education spending, by breaking down per pupil spending by function. The following table breaks down per pupil education spending into 11 categories, comparing West Virginia to the national average, as well as West Virginia’s rank in each category.

Where is West Virginia Education Spending High?

As the table shows, West Virginia’s per pupil education spending is in the middle of the pack for most categories. While Instruction salaries and wages are the biggest area, accounting for one-third of total spending, West Virginia ranks 32nd, spending $455 less per pupil than the national average. And while the audit finds major administrative savings, West Virginia ranks right in the middle at 25th, spending only $27 more per pupil on general administration than the national average.

There are two notable exceptions, the most obvious being instruction benefits, for which West Virginia ranks 3rd, spending over $1,000 more per pupil than the national average. But as the audit acknowledges, this is a current anomaly due to the pay-down of the unfunded liability of the Teachers’ Retirement System. According to the audit this amounts to an average of $333.6 million per year. If you exclude that anomaly, West Virginia’s rank falls to 8th, with the difference between WV and the national average falling to $689 per pupil, which, while still high, is mostly offset by lower spending on salaries and wages. It is also important to remember that the state ended the retiree health benefit benefit for teachers and school service personnel hired after January 1, 2010 and that the state capped the retiree subsidy for those currently in the system.

The audit does address the other function where West Virginia ranks highly, transportation. The audit found $10 million in savings over five years for transportation, and West Virginia ranks 3rd highest in per pupil transportation spending, spending $366 more per pupil than the national average.   But the $2 million per year in savings recommended by the audit would account for less than 1% of the $231 million spent on pupil transportation, which suggests that rather than inefficiencies, there are structural challenges that are hard to avoid that are driving costs.

The same is true for another area that in which West Virginia ranks highly. West Virginia’s operations and maintenance spending, which includes spending on heating, electricity, air conditioning, property insurance, and care and upkeep of grounds and equipment, ranks 13th, with $145 more per pupil spent than the national average. The audit identifies $34.8 million in facilities savings, or about $7 million per year, but this only accounts for about 2% of the $321 million spent on operations and maintenance in 2010.

West Virginia also ranks high in the other functions category, but low in the other services category, with the per pupil differences canceling each other out, which suggests there’s likely discrepancies among the states in reporting other services versus other functions, and taken as a whole, West Virginia’s “other” spending in right at the national average.

What does this all suggest? That the savings found in the audit aren’t necessarily the areas that are driving education spending in the state. Instead it’s the factors like the past under-funding of pensions, transportation costs, utilities costs, and the upkeep of our aging schools that are inflating education costs in the state. And there is little the state can do to control many of these factors, as the meager savings found by the audit in these areas proves. And, absent these areas, West Virginia’s education spending isn’t all that high compared to other states, and, in fact, is closer to the bottom than to the top in many aspects.

UPDATE

Here’s another look at education spending, this time comparing how much each category accounts for total spending in West Virginia and nationally.

Again, this shows the biggest difference between WV and the national average is in spending on benefits. Instruction benefits spending accounts for 22% of education spending in WV, compared to 14% nationally, while spending on salaries and wages accounts for 33% of WV spending, compared to 40% nationally. These discrepancies nearly cancel each other out, as overall instruction spending accounts for 61% of education spending both nationally and in WV.

The other major difference is again, transportation, which accounts for 7% of WV spending, but only 4% of spending nationally. All other spending categories are within 1 percentage point of each other.