Cato report inflates school spending by double-counting capital costs

Contact:  William J. Mathis, (802) 383-0058, William.Mathis@colorado.edu

BOULDER, Colo. and TEMPE, Ariz. (May 5, 2010) - A review released today of They Spend WHAT? The Real Cost of Public Schools finds that this Cato Institute report's claim that public education is overpriced strongly overstates those costs by counting capital expenditures twice.

Vaughn Altemus, an adjunct professor of the University of Vermont Graduate College, reviewed the Cato report for the Think Tank Review Project. Altemus is the education finance manager for the Vermont Department of Education and has spent the last 13 years collecting, reporting and analyzing school district financial data.

They Spend WHAT?, written for Cato by Adam B. Schaeffer, purports to offer a "real" per-pupil cost for public education after examining figures provided by school districts as well as by the National Center on Education Statistics.

Because neither source is designed to be truly comprehensive, the report includes its own calculations. For 18 school districts in six urban areas, the report finds a "real" per-pupil cost exceeding that reported by the respective district by anywhere from 3 percent to 151 percent.

The report pairs its calculations with survey data showing that members of the public guess that education spending is lower than actual figures and thus concludes that voters approve "overspending" because they are ignorant of "actual spending levels."

The Cato report has several flaws, however, says Altemus. In assuming that voters could press for cost-cutting, it ignores the fact that many expenditures, such as debt service, pension contributions and federally mandated special education costs, "are beyond the ability of local districts and voters to change." Further, it doesn't engage the fundamental debate over what constitutes "adequate" spending on public education. And it provides only weak data purporting to show private-school, per-pupil spending is lower - while ignoring a recent comprehensive examination of private school spending.

But the report's most egregious error is the double-counting of capital costs and debt service. As Altemus explains: "Most capital construction expenditures are not paid with taxpayer dollars. They are paid with proceeds from bonds. Taxpayer dollars then service the debt. This is key. The cost of a house bought with a loan is not the purchase price plus the cost of the loan. For a school district, what taxpayers are paying for in any year is debt service in that year."

When that error is eliminated, the report's argument collapses. "The result is a double counting that substantially distorts the total for districts engaged in capital construction projects," Altemus writes.

The report's usefulness is, accordingly, limited at best, the reviewer concludes. "In the end, we are left with a manufactured controversy arising from a misunderstanding of the relationship between capital construction and debt service, amplified by the report's unwillingness to consider the reasoning underlying more traditionally disseminated numbers."

The Think Tank Review Project (http://thinktankreview.org), a collaborative project of University of Colorado at Boulder's Education and the Public Interest Center (EPIC) and the ASU Education Policy Research Unit (EPRU), provides the public, policy makers, and the press with timely, academically sound reviews of selected think tank publications. The project is made possible by funding from the Great Lakes Center for Education Research and Practice.

Find Vaughn Altemus's review on the web at:
http://epicpolicy.org/thinktank/review-they-spend-what

Find They Spend WHAT? The Real Cost of Public Schools, by Adam B. Schaeffer and published by the Cato Institute, on the web at:
http://www.cato.org/pub_display.php?pub_id=11432

CONTACT:
William J. Mathis
Managing Director
Education and the Public Interest Center (EPIC)
University of Colorado at Boulder
(802) 383-0058
William.Mathis@colorado.edu

The Education and the Public Interest Center (EPIC) at the University of Colorado at Boulder and the Education Policy Research Unit (EPRU) at Arizona State University collaborate to produce policy briefs and think tank reviews. Our goal is to promote well-informed democratic deliberation about education policy by providing academic as well as non-academic audiences with useful information and high quality analyses.

Visit EPIC and EPRU at http://www.educationanalysis.org/

EPIC and EPRU are members of the Education Policy Alliance
(http://educationpolicyalliance.org).

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