Cutting Education Costs, Not Education

A few promising approaches to finding cost savings without cutting student services.
January 26, 2011 AT 11:00 AM
Cutting Education Costs, Not Education
Bill Eggers
By William D. Eggers  |  Contributor
Executive director of Deloitte's Center for Government Insights

In 2008 education spending consumed 29.1 percent of all state and local spending, a total of $826 billion dollars, according to a U.S. Census report. Given the fiscal crunch, states and school districts are under increasing pressure to reduce education costs -- without sacrificing student learning.

How can states and school districts respond to today's unprecedented fiscal pressures without cutting student services? Here are some promising approaches that policymakers should keep in mind when looking to tighten education budgets:

Begin by placing a greater emphasis on the correlation between education dollars and outcomes. Policymakers have tended to focus too much on inputs without paying enough attention to efficiency, or to ensuring that educational dollars are delivering value. Politicians often point to their generous funding as proof of their commitment to education, rather than highlighting results boosting reforms.

The first place savings seekers should look is outside the classroom. Currently, 40 cents of every dollar spent on education is utilized for non-instructional purposes. One promising cost-saving approach is greater sharing of services across school districts. Arrangements can be made with other school districts, among schools within large school districts or with outside entities to share services across a range of functions from transportation and food service to facilities and real estate.

In a study conducted last year, Deloitte found that potential savings across the country from shifting just a quarter of non-instructional services to shared services could potentially yield savings in the range of $9 billion.

Oregon's Reset Cabinet Report estimated the state could save more than $40 million a year if school districts shared certain services, and recommended that the Legislature mandate a shared services model for districts by 2012. The New York State Commission on Local Government Efficiency and Competitiveness report similarly urges legislative changes to promote shared services for school districts.

Pooling purchasing power can yield substantial savings for school districts and their partners by reducing operating expenses for such items as utilities, equipment, services and supplies. Middlesex County, N.J., runs a shared services program that supports towns by providing a way to reduce daily operating expenses through cooperative purchasing. The program began in 1998 by offering towns aggregate natural gas purchasing, resulting in a five percent savings on electricity for public buildings during the first year of the program. The municipalities now share services for water and wastewater programs, and the purchasing of natural gas, electricity, equipment, services and supplies.

Pennsylvania's Common Cents Shared Services Initiative looks to cut costs through several shared services for school districts, including energy efficiency. Forty-nine districts in the Commonwealth participated in the initiative. The Pennsylvania Department of Education estimates $14.4 million in potential savings for the 49 Common Cents districts, including, for example, one district that saved 55 percent on copiers.

Partnering with businesses can help school districts tap into underutilized assets too. For example, in exchange for land, private partners have provided some school facilities with fitness centers that are used by students during the day and by private clients outside school hours.

Common public-private-partnership models include the sale of development rights on unused property, and sale-leaseback or lease-leaseback arrangements. In these solutions, school districts sell or lease surplus land to a developer who builds a school and leases it back to the district. In 1996, the Houston Independent School District used a lease-leaseback arrangement with a private developer to obtain two new schools, $20 million under budget and a year earlier than originally planned.

One of the more controversial cost-savings reforms: Consolidating school districts. Maine consolidated 260 school districts into 80, saving $36.5 million. Meanwhile, a Mississippi task force found the state could save roughly $13 million annually by consolidating 18 school districts. Critics of this approach note that some of the most troubled districts in the nation are the largest -- a fact that may be due more to the distressed urban populations they serve than their size.

The advent of low-cost computing technologies, such as netbooks and broadband, presents opportunities for states to save money by switching to eTextbooks. Traditional textbooks cost California $350 million annually. By transitioning to online textbooks, the state hopes to encourage students' participation in virtual learning while radically reducing textbook costs. The future of eBooks and eTextbooks is coming fast with the growing popularity of affordable tablet platforms such as Nook, Kindle and the iPad.

More ambitious are nascent efforts to augment online learning, as with the Florida Virtual School. Online classes are increasingly part of the offerings at colleges and universities, such as MIT. Blended learning, making much greater use of online instruction, offers much promise for delivering curriculum for learners in a more cost-effective manner.

Another cost-squeezing option: Get school districts out of the business of providing their own IT. Kentucky is partnering with Microsoft to allow all schools access to a suite of online applications -- potential savings is estimated at $6.5 million. Meanwhile, Oregon will save an estimated $1.5 million annually by partnering with Google to offer the state's schools cloud-based computing. The initiative provides Oregon's public schools with the ability to transition e-mail, calendars, online documents, video conferencing and website creation to Google's Apps for Education services.

Education will rightly remain a top public priority during these tight budget times. But pressure to find cost savings will put education under greater scrutiny. The good news is that opportunities exist to change business practices to improve efficiency, reduce costs and limit educational spending without negatively impacting students.

This article is adapted in part from his new book (with Robert Campbell III and Tiffany Fishman) Letting Go of the Status Quo: A Playbook for Transforming State Government.