I had one of those Wow! moments a few weeks ago when I came across a new policy analysis by Adam Schaeffer at Cato. The analysis took a close look at actual school district budgets from the nation’s five largest metropolitan areas and the District of Columbia. Schaeffer found that, on average, these districts spend 44% more than officially reported.
In addition to the fact that the official reports are so wrong, two things are striking about this study. First, the variance across metro areas is huge. For instance the DC schools spend over $28,000 per student, Chicago about $16,000, and Phoenix around $12,000. (The actual and reported numbers for the LA schools are shown in the figure below.)
Second, how in the world does one spend $28,000? Suppose I were an educational entrepreneur and were given $28,000 per student. I could start a school for 400 students with the following lavish annual expenses:
* A $10 million dollar building with a 5% mortgage
* 1 teacher per 20 students at $100,000 each
* 5 special needs teachers/counselors at $100,000 each
* 1 aide in each class at $50,000 per class.
* A principal at $200,000
* 10 additional staff members at $50,000 each.
* Medical/pension package for all employees equal to 45% of salary
* A material budget at $2,500 per student (those would be some kickin’ textbooks and lab materials)
* A maintenance budget of $1 million
* Utilities of $500,000
* A $2,000 transportation allowance per student
* Free lunch for everyone!
Every teacher and student in the state would want to go to this school—and I would still reserve 15% of my revenues for profits of over $1.7 million! My budget surely leaves things out, but there is enormous wiggle room here to cover any hidden expenses.
No wonder the education establishment doesn’t want to face market competition.