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The Pennsylvania State University The Graduate School College of Education OBJECT LESSONS: EXAMINATION OF SPENDING AND REVENUE PATTERNS IN PENNSYLVANIA K-12 PUBLIC SCHOOL DISTRICTS: 1998 THROUGH 2008 A Dissertation in Educational Leadership by Timothy James Shrom © 2013 Timothy J. Shrom Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy August 2013 i The dissertation of Timothy J. Shrom was reviewed and approved* by the following: William T. Hartman Professor of Education Dissertation Advisor Chair of Committee Preston C. Green III Professor of Education and Law Roger C. Shouse Associate Professor of Education Edgar P. Yoder Professor Extension Education Gerald LeTendre Department Head *Signatures are on file in the Graduate School. ii Abstract This study analyzed changes in school district expenditure spending patterns to observe how major educational policies, initiatives, and mandates translated or were reflected by school district expenditure accounting. The target population was all 501 Pennsylvania school districts from 1998 through 2008. Within that time period, district expenditure patterns were examined focused at the major Object and Function series of accounts. Object codes by design capture strong indicators of expenditure traits. Expenditures changes over time observed in each object’s share of total expenditures, the share of new funds it commanded, and the direction of share growth or decline. Mandates and state policy may have expenditure impact on districts by design, default, or by unintended consequence. Analyses revealing policy lead and lag times, as well as trend direction and strength may provide valuable insight for understanding component flows of school district expenditures. The confluence of a decade of increasing mandates, major policy implementations, and student outcome accountability measures met headlong into the great 2008 recession. There remains a tremendous amount of legacy costs facing school finance funding systems, including multi-year labor contracts, pension liabilities, contractual health care obligations, post-retirement benefit packages, debt service and capital requirements for infrastructure and major equipment needs. There is little indication that districts or states have taken time to fully analyze impact and adjust to post recession spending patterns for school funding policy. To that end, this study observed and analyzed educational expenditure and revenue trends over a decade and investigated linkages to public policy initiatives that were occurring over the time period. Understanding these past trends, inclusive of trend strength and direction, serve to provide well-grounded perspective to vision post-recession policy issues. iii Table of Contents Chapter 1. INTRODUCTION 1 A Decade past 4 Purpose of the Study 6 Research Questions 7 Logic and Rationale for Approach 9 Focus on the Object Dimension 10 Policy Impact 13 Pennsylvania Background 15 The Study Years 17 Chapter 2. REVIEW OF LITERATURE 18 Bounding 18 Expenditures 19 Major Object Dimension 19 Function Dimension 21 Account code Strings / Linkages 22 Revenues 24 Local Revenues 24 State Revenues 24 Federal Revenues 25 Other Revenues 25 General Background 25 The Governors 25 Legislation 26 Property Tax / School Reform Legislation 26 Pension Legislation 27 Charter School Legislation 31 Electric Deregulation Legislation 33 Fund Balance Legislation 34 Gambling Legislation 36 No Child Left Behind Legislation 37 Enrollment: Average Daily Membership 38 Spending Patterns and Changes 39 Policy Linkages 45 Policy overview: Expert Opinions 47 Collection and analysis of Expert Opinion 47 iv Chapter 3. RESEARCH DESIGN AND METHODOLOGY 50 Introduction 50 Approach to Research 50 Complex Systems 50 Data Specification 52 Expenditures 53 Object Dimension: Data Collected 53 Function Dimension: Data Collected 54 Revenues 56 Revenues Dimensions: Data Collected 56 District Characteristics 57 Market Value / Personal Income Aid Ratio (MVPI) 57 Calculations 59 Other Data 60 Pension 60 Major Policy / Legislative Implementation 61 Analysis of Spending Patterns 62 District Characteristics 63 MVPI 64 ADM 65 Policy Context 70 Policy Timelines 70 Interviews 71 Education Policy Makers: Review and Interpretation 71 Selection 71 Scheduling 72 Prior Provision of Data Trends 72 Method of Collection of Interview Answers 74 Organization of Interview Information 75 Analysis of the Interview Data 76 Chapter 4. DATA ANALYSIS 77 Data Analyses 77 Introduction 77 Summary of Findings 78 Object Share Trends 79 Analysis by Object 82 Salaries: 100 Object Series 83 Benefits: 200 Object Series 86 Professional Services: 300 Object Series 88 Purchased Services: 400 Object Series 90 Other Purchased Services: 500 Object Series 92 Supplies: 600 Object Series 94 Equipment: 700 Object Series 96 v Other Objects: 800 Object Series 98 Other financing Uses: 900 Object Series 100 Statewide Object Summary 102 Analysis by Function 104 Major Function Analysis 104 Sub-Function Analysis 109 Function Share Trends 113 Instruction 1000 113 Regular Instruction 1100 114 Special Education 1200 114 Vocational Education 1300 115 Support Services 2000 117 Non-Instructional & Facilities Improvement 3000 120 Facilities Acquisition, Construction & Improvement 4000 121 Other Financing Uses 5000 122 Statewide Function Summary 123 Revenues 124 Revenue Share Trends 126 School Characteristic: Object analysis 132 Average Daily Membership 132 ADM Sub-Group Year-over-year Trend 134 Market Value / Personal Income Aid Ratio 139 MVPI Sub-Group Year-over-year Trend 144 Interviews 146 Summary 149 Chapter 5. PATTERNS REVEALED, TRENDS EMERGED, AND CHANGES OBSERVED OVER TIME 152 Object Expenditures 155 100’s Salary 155 100’s Summary and Linkages 159 200’s Benefits 162 200’s Summary and Linkages 166 500’s Other Purchased Services 168 500’s Summary and Linkages 170 900’s Other Financing Uses 173 District Characteristics 176 Size of District 176 Wealth of District 179 Characteristic Summary 180 Key Events and Policy Impacting Trends 181 Pension Policy 182 Fund Balance Policy 184 Debt and Borrowing 185 vi Charter Policy 186 Tax Reform 188 Administrations 189 Other Events / Non-Events 192 Revenue 193 Implications 195 Lack of Policy 196 The Next Five Years 198 Future Studies 199 Summary 200 Appendix A: Figure Listing by Page 204 Appendix B: Table Listing by Page 208 Appendix C: Miscellaneous 210 Appendix D: Object / Function Definitions and Policy Diagram 213 References 218 vii Chapter 1 Introduction In the post-recession era, Pennsylvania school finance structures for K-12 public education remain unsettled and without clear policy direction. Pennsylvania is not unusual as across the United States daily reports abound of school funding cuts, state deficits, staffing furloughs, growth in court and legislatively mandated programs, and losses in revenues attributed to the recession. (e.g. Aaron 2008, districts cut back on busing and seek ways to save energy; and Lewin and Dillon 2010, districts warn of deep teacher cuts; and McNichol, Oliff & Johnson 2011, states continue to feel recession’s impact). Meanwhile, Pennsylvania school districts and states increasingly face growing costs from a battery of areas including underfunded pension funds, unemployment deficits, infrastructure replacements, Medicaid and health care costs, special education placements, energy, supply, and equipment costs (Davare 2008). Federal allocations for school entitlement programs as well as accountability measures of No Child Left Behind (NCLB) remain at the center of major national debates for reauthorization of federal education funds. A significant force behind school districts’ efforts the past decade remains the drive to meet requirements of NCLB and associated state standards for student outcomes. Concurrently, over the last decade, public K-12 education faced many challenges, including increased federal and state mandates, policy directives, and increased service demands for accountability from constituency. While it is the most important aspect of education, instruction is not the only area in which schools must function. Non-instructional areas, such as instructional support functions, 1 facility operations, administration, transportation, and capital improvements are important areas to address in achieving the educational goals of the entire enterprise. A build-up of a decade of increasing mandates, major policy implementations, and student outcome accountability measures met headlong into the great 2008 recession. There remains a tremendous tail of legacy costs facing school finance funding systems, including multi-year labor contracts, pension liabilities, contractual health care obligations, postretirement benefit packages, debt service and capital requirements for infrastructure and major equipment needs. There is little indication that districts, or state for that matter, have taken the time to fully analyze impact and needs of school funding policy as we move forward in the post-recession era (Hess and Downs, (2010). Public education finance takes place within increasingly complex systems and ever changing policy directions. Complexity in this educational environment has grown in areas such as funding allocation formulas, school choice/competition initiatives, political priorities, legal and labor arenas, school governance and referenda, student testing requirements, staff certification criteria, and a host of mandated special education requirements. Along with the increasing quantity