The Power of Financial Transparency (and Interns)

The last few days have been relatively quiet on the education news front, which means we don’t have a lot of really heavy stuff to discuss. That’s probably a good thing after yesterday’s enormous post on some recent voucher research finding negative academic impacts for participating students.

Still, we should never let a good blog post go to waste. There’s always good policy meat to chew on. And as it turns out, the Independence Institute Education Policy Center has been plenty busy doing exactly that despite the summer doldrums. Today we’ll play a little catch up and cover some fantastic work on the part of one of the Institute’s summer interns, who decided to tackle a critical but often ignored aspect of education policy in Colorado: financial transparency.

Education Policy Center intern Evan Yoo recently published his first-ever opinion piece in the Greeley Tribune. The column discusses financial transparency in Colorado schools and school districts in a unique way by comparing public school transparency requirements placed on publicly traded companies. This novel perspective was so popular that major daily papers in Pueblo, Glenwood Springs, and Westminster also picked it up.

Evan is a junior studying finance at the confusingly named Miami University in Ohio. He’s spent a lot of time researching the finances and business models of private corporations, and has grown use to the relatively high degree of financial transparency required of publicly traded companies.

Given his background, Evan naturally found himself drawn to the complex world of school finance in Colorado. He assumed (with good reason) that a taxpayer-funded enterprise the size of public education would be held to equal or higher standards as publicly traded companies, and that finding answers about how to streamline public education would be as easy as looking up the right reports. He was wrong.

After my policy friend Ross Izard—who has often been heard murmuring about his irritation with the inability or unwillingness of most schools and districts to produce the kind of financial information needed to make good decisions—explained that it is incredibly difficult to find detailed information about how money is spent in Colorado’s public education system, Evan decided to check for himself. What he found disturbed him. From his op-ed:

I found that spending in school financial reports is often lumped into broad categories that convey little in the way of useful information. For example, Jefferson County Public Schools reported $440,423,884 in “General Instruction” expenses in 2015. This category most likely includes salaries, benefits, supplies and materials, equipment and other instructional expenses, but there is no way to tell how much of the total was spent on each of those categories.

Another example is the $6,417,280 in expenses Thompson School District recorded under “Central Supporting Services.” I thought initially these expenses could be related to administrative functions, but according to the document expenses related directly to and in support of principals, assistant principals, secretaries, the superintendent, board of education staff and financial managers are accounted for elsewhere.

The problem of broad categories was compounded by the lack of standardized terminology. Each district has different names for the same expenses, making comparison even more difficult.

It was at this point that my comparisons of the financial reporting requirements of public corporations and public schools became more philosophical. There is no compelling reason that public corporations should have stricter financial reporting requirements than a taxpayer-funded government enterprise — especially a government enterprise the size of public education in Colorado, which in 2013-14 brought in more than $9 billion in total revenue according to the Colorado Department of Education.

As Evan says, these aren’t peanuts. We’re talking about a lot of money in an enormous government enterprise—an enterprise that we trust to educate roughly 900,000 students per year. Yet we often can’t see how much money is actually making its way to those students, or at least to services that support their learning. Instead, we have to squint in consternation at incredibly broad categories that provide very little information about how money is actually spent. Meanwhile, we are constantly bombarded with the highly questionable assertion that funding levels are catastrophically low. The answer? More money, of course.

It’s sort of like my dad giving me $50 in allowance, then receiving a report informing him that I spent it all on “childhood enrichment.” In my case, that would probably mean ice cream and video games, but he could just as easily assume that I put it toward piano lessons or books. I would then inform him that $50 dollars was woefully inadequate, and that I would require significantly more the following month. One hopes that school districts would be a bit more discerning with their money, but we can’t tell with such broad categories and generic names.

In some cases, you can barely piece the currently available information together thanks to frustrating formatting decisions. I dare you to try to decipher the sprawling columns and rows in Thompson’s most recently published comprehensive annual financial report (CAFR) without frowning in irritation at least three times. And even if you figure that one out eventually, you can bet you’ll have to start all over with the next district you’d like to examine. And the next 176 after that. It’s a real problem.

Evan concludes with some commonsense suggestions for how to increase financial transparency and, by extension, financial accountability in Colorado public schools:

Taxpayers, parents and policymakers deserve to know how money is being used in Colorado schools — and how much of that money is making its way to classrooms. HB1036 and HB1292 were a step in the right direction, but comparison remains difficult and transparency remains minimal under those bills’ requirements. Further action is needed.

Districts should be required to more uniformly report their revenues and expenses. Specifically, they should be required to use templates with more granular and easily understood expense categories that will allow taxpayers, parents and policymakers to discern how money is allocated. Additionally, the state should ensure that HB1292’s required financial transparency website provides adequate access to this information for citizens.

In other words, we should make sure the information we have on school finance in Colorado is a) detailed enough to be worthwhile, b) consistently conveyed in such a way as to be comparable across schools and districts, and c) made easily accessible to the public. I couldn’t agree more.

You’d better keep an eye on this Evan fellow. I suspect we may see him again one day.