Will Schools Ever Get Better?

Americans are fed up with their public schools. Businesses complain that too many job applicants can't read, write, or do simple arithmetic. Parents fear that the schools have become violent cesspools where gangs run amok and that teachers are more concerned with their pensions than their classrooms. Economists fret that a weak school system is hurting the ability of the U.S. to compete in the global economy. And despite modest improvements in test scores, U.S. students still rank far behind most of their international peers in science and math.

And the woes of public schools may be about to get even deeper. Over the rest of the decade, the nation's schools will face a financial crunch that will be far worse than almost anyone had projected. Tight budgets will mean overcrowded classrooms, less individual attention, deferred maintenance, and elimination of such "frills" as music, art, and sports. And schools will have difficulty paying for the computers and other information technology needed to prepare young Americans for the new workplace.

At the root of this school squeeze is an enrollment boom that has caught educators by surprise. Originally, the student population was supposed to rise by some 3 million students in the 1990s (chart). Instead, immigration and higher-than-expected birthrates have fueled a student rush that will add more than 7 million students to the schools by the year 2000, with more to come after that. The school population is rising as fast as it did during the baby-boom years of the 1960s.

But this is not the 1960s, and overcrowded school systems can't expect big wads of tax dollars to bail them out. There's no help in sight from Congress, where Republicans have already proposed cutting federal spending on education. And times are tight on the state and local level as well: Schools already take more than one-third of state and local spending on goods and services, and taxpayers are increasingly unwilling to pour billions more into a system that is widely perceived as having failed.

Indeed, the schools are in large part responsible for their own financial problems. Only 52% of every school dollar actually gets into the classroom in a typical large school district, according to Bruce Cooper of Fordham University, working with the accounting firm Coopers & Lybrand (chart, page 67). And the schools have frittered away vast sums without much visible improvement in student performance. Per-pupil expenditures, adjusted for inflation, have risen more than 25% over the past 10 years. "A lot of money being spent in the schools is wasted," says Eric A. Hanushek, an education economist at the University of Rochester. "What we do know is the problem of inefficient use of resources seems to be everywhere."

If there is a problem with bloated and inefficient government, public education must be a big part of it. The country spends nearly $270 billion a year on public elementary and secondary education, making that one of the largest government expenditures (table, page 66). And the 6 million people working for the public schools account for about 30% of all civilian government employment.

Schools, long used to speaking the language of education--curriculum, test scores, standards--need to start talking about the issues of cost and efficiency. U.S. corporations have become more productive by getting rid of needless layers of management and focusing instead on improving efficiency on the factory floor or the back office. In the same way, public schools have to get more of their funds to the place where the process of learning actually occurs: the classroom. "One of the key concepts shared between the best schools and the best companies is a clear focus on the customer," says Katherine M. Hudson, chief executive of W.H. Brady Co., a Milwaukee manufacturer. "In the schools, that's the student."

Public education can benefit from the hard lessons learned by U.S. corporations in recent years. For one, it's now drummed into the bones of every successful corporate manager that productivity and quality cannot be improved without accurate information about current operations. But that's a place where the schools fall down badly. The vast majority of school districts cannot answer the obvious question: How much money is actually getting to the classroom? "We keep pumping in more and more money, but we don't know where it goes when it gets into the system," says Cooper. "It's like swinging an ax in the dark."

The second lesson from the private sector is the importance of competition, which pushes schools to innovate and to break down rigid regulations and work rules. That can mean a voucher system, as in Milwaukee, where low-income parents can get money to send their children to private school. Or it can mean allowing parents, teachers, and organizations such as universities to set up "charter" schools--new public schools, but outside the existing bureaucracy. A new study by economist Caroline M. Hoxby of Harvard University shows that the availability of more school choices can lead to lower spending and higher student achievement. Indeed, competition can accomplish the goal of improving education without the need for top-down standards or rules.

BREAKING POINT. And the schools must learn to make better use of their physical and human resources, just as Corporate America has. Rather than building expensive new schools, overcrowded school districts need to consider alternatives such as shifting to year-round classes or using converted surplus office or retail space. And the almost 3 million teachers in the public school systems can be used more effectively. For example, educational research shows clearly that spending on early education can pay off big--yet high schools still have an average pupil-teacher ratio 19% lower than elementary schools. "We need to think about using those teaching resources differently," says Lawrence O. Picus, an education specialist at the University of Southern California.

Certainly, business as usual is no longer an option. The combination of soaring enrollments and tight finances means that pupil-teacher ratios are on the rise for the first time in the postwar era. And the school squeeze will hit some states harder than others. A new analysis by BUSINESS WEEK shows that the states facing the toughest school squeeze over the rest of the decade are California, New Jersey, and Maryland (chart, page 67). These are states where weak economic growth is combined with fast-growing student populations.

As enrollments rise, schools across the country will come under increasing pressure to curtail spending. Take Prince William County, Va., where hopes for a new source of tax revenue were dashed when Walt Disney Co. abandoned plans to build a historical theme park there. Student enrollments have risen by 12% over the past five years even as the county's economy has slowed, forcing the county to cut its school budget by 6% over the next three years. "We're now at the point where cuts will start to affect our instructional programs," says Robert A. Ferrebee, associate superintendent for management at the county school district. Pupil-teacher ratios have already risen, and some other cuts being contemplated include shortening the high school day, imposing user fees for high school sports, and cutting out elementary music.

"PRETTY GRIM." Some areas have become the victims of their own success. Vancouver, Wash., a largely blue-collar town of some 65,000, has become a mecca for young families, drawn by the plethora of jobs at Hewlett-Packard Co. and other high-tech plants in the area. As a result, the school population had skyrocketed, compelling the town to spend nearly $60 million in 1990 to build three new schools and renovate five old ones. By 1994, the new schools were already overcrowded, and voters approved an additional $135 million in school bonds. But with enrollment expected to rise 30% over the next seven years and the state school-construction fund running dry, that may not be enough. "Even with the financial commitment the community has already made, we can hardly keep up," says Tom Hagley, assistant to Vancouver's superintendent of schools. "We're bursting at the seams."

And a flood of immigrants is imposing enormous costs on the school system in places such as Southern California, New York City, and South Florida. For example, school enrollment in Dade County, Fla.--which includes Miami and Miami Beach--has gone up by 40% over the past 10 years, far exceeding the growth in population. The reason? The retirees who once made up a big piece of the county's population are "re-retiring" to locales farther north and being replaced by young families, including many immigrants. As a result, Dade's school budget has soared 60% since 1989.

The financial problems for the schools go far beyond the enrollment growth. Many school districts across the country have deferred essential maintenance on their buildings. According to a new report from the General Accounting Office, the U.S. would have to spend $112 billion to repair or upgrade schools. That's certainly true in Escondido Union School District in northern San Diego County, where 30% of the district's students are in portable classrooms--relocatable double-wide trailers with leaky roofs and holes in the floors. "It's pretty grim here when it rains," says Jane Gawronski, superintendent of the district. Nevertheless, on Mar. 7, Escondido voters rejected a $52.5 million bond issue that would have paid for renovations and new buildings.

In addition, schools face the expensive prospect of moving into the computer age. That includes not simply the computers--which the schools can often get relatively cheaply--but the wiring and telephone lines required to support them and the space to put them in. And as Corporate America has found, the continuing costs of software and technical support for information technology far exceed the initial investment. "It's tough enough for schools to get the initial money, let alone plan for upgrading," says Darryl Toney, who manages Oracle Systems Corp.'s educational programs.

BLACK HOLES. The school squeeze is forcing districts to make hard choices as to where to spend their money. In recent years, public policy--on both the federal and state level--has emphasized helping disadvantaged students and districts. Out of the $20 billion that the federal government provides for elementary and secondary education, the bulk goes for disadvantaged or handicapped students. And federal law requires schools to provide costly special education to a growing number of students.

Also, prodded by the courts, New Jersey, Texas, Michigan, Missouri, and others have passed reforms in school financing to bring up spending in the poorest school districts, sometimes at the expense of more well-to-do areas. For example, Michigan recently shifted from relying on local property taxes to finance schools--which favors the high-income districts--to using a statewide sales tax. The state also capped spending growth in the richer districts to give their poorer cousins a chance to catch up. Birmingham School District, one of the state's wealthiest districts, will only be able to boost per-pupil spending by 1.6% this year, while Shelby Public Schools in low-income Oceana County will be able to raise spending by 6%.

Still, while more equitable financing may be a good start, it's definitely not enough. Over the past 20 years, a virtual army of academic researchers has examined the question of whether spending more money raises student performance. The result? At best, simply throwing money at the schools has a marginal impact. The money has to be spent well for it to matter.

Indeed, many voters believe that their school dollars are going into a black hole. "Virtually all school districts lack credibility inside and outside the district," says Sheree Speakman, partner at Coopers & Lybrand.

So with money tight, the first priority is to get control of spending. As a result, more and more school districts are moving to "site-based reporting," which was first developed by Cooper of Fordham University and is now being nationally distributed by Coopers & Lybrand and the U.S. Chamber of Commerce. This accounting system shows where the money is going: instruction vs. support services, or central administration vs. individual schools (chart).

Site-based reporting has been applied to more than 50 school districts nationwide, including New York City, where it showed that out of total spending of almost $8,000 per pupil per year, only $44 was budgeted for classroom materials. And the new system gives school districts benchmarks for seeing where their expenditures are excessive or falling short.

For example, when the Nashville public schools crunched the numbers, they discovered--much to their surprise--that they were spending 24% of their budget on operations such as maintenance, compared with 18% for a typical large school district (chart). The result? A program to bring down operating costs. Now the district is using site-based reporting to help set spending policy. "We have a goal of increasing yearly the percentage of our operational budget that goes into direct instructional spending," says Edward Taylor, assistant superintendent for the Metro Nashville Public Schools.

FEW REWARDS. The new system also shows what parents have always suspected: Even within the same district, some schools do a much better job than others in using money wisely. One school may get 30% to the classroom, while just six blocks away, another school gets 80% to the classroom. With this information, "you can target the children who aren't getting the education," says Cooper. "You can do that kind of precision bombing because you know where the money is."

And the frontline production workers--the teachers--may also benefit, if the improved information is used to increase the amount spent in the classroom. That's why teacher unions are cautiously supportive of the new system. "This will get us a long way toward understanding how to be more efficient," says Jewell Gould, director of research for the American Federation of Teachers.

Certainly, current funding can be used more efficiently. For example, school districts often put up expensive new buildings when existing space could be used better. About 1,200 schools nationwide--mainly in California--now run year-round, increasing student capacity by 30% to 50%. And in Minnesota, some new charter schools are saving money by sharing facilities with the local housing authority or recreation center and by reusing existing retail space.

And teaching resources can also be directed more effectively. It's well-known, for example, that the early years of schooling are critical: A student who slips behind when reading is being taught has little chance to catch up. However, most school districts direct far more resources to high schools, with their athletic programs and specialized courses. That's why Missouri structured its aid program so that districts have a financial incentive to reduce class size in the lower grades.

And within schools, new programs are showing how to reallocate existing money to better uses. For example, Success for All, a program developed by Robert Slavin of Johns Hopkins University, uses intensive tutoring to keep students from falling behind in the early grades. Now being used in about 200 schools in 20 states, it costs about $1,500 per student--but Slavin points out that poor districts, which need the program the most, can cover most of those costs by using funds that schools already get from the federal government for disadvantaged kids.

But even when such programs work, they are hard to sustain, because they typically demand increased effort from teachers and principals and more parental involvement. Moreover, schools have few incentives, financial or otherwise, for better performance. "People who do a good job get no rewards, compared to people who do a mediocre or poor job," says Hanushek.

BUREAUCRACY BLASTERS. One possibility is to create alternatives to the current public schools and let competition create pressure for both educational and financial reform. At one extreme are vouchers allowing students to attend the private or public school of their choice. The only voucher system now in use is in Milwaukee. But five other states are currently considering similar programs, focused mainly on low-income families. "When targeted at low-income families, folks who had been wary--minorities and Democrats--have been coming out of the woodwork," according to Jeanne Allen, president of the Washington-based Center for Education Reform, a pro-voucher group.

But proposals to use vouchers often stir up enormous political opposition, as does privatization--allowing private profit-making companies to run public schools. The fear is that private schools would skim the best students off, leaving the public schools with the dregs.

Instead, an increasing number of states--including Minnesota, Michigan, and Massachusetts--are encouraging a more limited form of competition by allowing parents, teachers, and other groups to set up "charter" schools. A charter school is a public school, in the sense that it has to meet certain standards and not discriminate in admissions. Ad the same time, it's independent of the traditional school system.

Charter schools typically receive funding from the state for each pupil. But because they must attract students who are not obligated to attend, they have an incentive to spend the money in ways that will actually improve education. And charter schools also benefit by running leaner. "We can get by" on less money, says Nancy Miller, a teacher at the Minnesota Country School, a charter school in its first year in LeSeuer, Minn., "because we don't build up all the bureaucracy traditional public schools do." With no administrators, Minnesota Country School can afford to spend more on new technology.

"INCENTIVES." And charter schools can also serve as a catalyst, pushing the existing public schools to offer new programs and improve existing ones. That's what happened in Boston last year, with the passage of a state law allowing charter schools. Faced with the unsettling prospect of competition, the Boston teacher's union agreed to the creation of new "pilot" schools, free of union and school board rules. "Charter schools provide new incentives for school districts to become more responsive and entrepreneurial," says Joseph Nathan, director of the Center for School Change at the University of Minnesota.

Competitive pressure may also lead to increased teacher productivity, which is critical in light of the rise in teacher salaries (chart). That's what's happening in Wilkensburg, Pa., a suburb of Pittsburgh, where Alternative Public Schools, a private corporation, has offered to run an elementary school at the same per-pupil cost but for longer hours and more days per year. The counterproposal from the local teacher's union: They would work 10 additional days a year, without any increase in pay.

In some cases, entire school districts are remaking themselves. Take Calvert County Public Schools in Maryland, where enrollment is skyrocketing at a time when state funding is tight. The traditional school model won't work, according to William Moloney, superintendent of the district. Instead, the district plans to restructure its elementary schools: Teachers will stay with the same kids two years, and schools will strive for a climate of work, discipline, and values. "Those things don't cost a lot, but they're tremendously important," says Moloney. "These changes will bring us more education for less money."

The U.S. needs to encourage these sorts of initiatives. Is there a risk that some of these new programs will go astray? Sure. But just as beleaguered American companies were able to increase the quality and lower the cost of what they made, so, too, can the public schools learn how to provide a better education for America's children.

The Sad State of the Public Schools...And What Can Be Done

Like the private sector, the public schools need to

focus on boosting productivity and quality without raising

costs. That means:

-- Better information about how money is being spent today.

-- Shifting more money into the classroom, where learning actually takes


-- Using physical facilities and teachers more productively.

-- Encouraging the creation of charter schools and other alternatives to the current system in order to increase competition.


Before it's here, it's on the Bloomberg Terminal.