Education Cost and Effectiveness

October 15, 2023

The Intricate Dance of Funding and Educational Outcomes in the Wake of a Pandemic

In the realm of education, the allocation of resources has always been a topic of fervent discussion. Per Pupil Expenditures (PPE) and, by proxy, teacher salaries often serve as a
barometer for gauging educational investment within the political discourse. However, the question that looms ever larger is whether an increase in PPE invariably leads to enhanced
educational outcomes. This debate has gained even more traction in the wake of the COVID-19 pandemic, which introduced the pressing issue of “learning loss.”

The Cost of Focusing on Cost

It’s a seemingly straightforward equation: more funds should equate to better resources, leading to improved education. With a boost in PPE, schools, in theory, can employ more adept
educators, reduce class sizes, and invest in state-of-the-art technology. Yet, by and large, statistical evidence suggests little to no relationship between increasing educational funding and
measurable benefits to educational outcomes for children.

An interesting example is the district-level spending afforded by the monies in the American Rescue Plan’s Elementary and Secondary School Emergency Relief Fund (ARP ESSER). A
recent working paper published by NBER observed no statistical significance to the effect of ARP ESSER funding categories on the year-over-year changes, positive or negative, in testing
proficiency for both the English Language Arts (ELA) and mathematics. This could be for one of two reasons: the programs are near-universally ineffective, or the programs are near-universally “theoretical,” i.e., unimplemented beyond what was initially required to receive funding.

The observations in this study echo long-standing and oft-replicated research bringing into question the argument that good educational outcomes are a function of high education
spending. Although some spending, whether done publicly or privately, is certainly required to fund any service, the question remains: does increasing funding lead to better outcomes?
Considering the penultimate growth in education funding in contrast with the mild and, at times, inverse progress made in educational outcomes, the answer is, most assuredly, no.

As indicated by NBER’s working paper, the pandemic has added a layer of complexity to this subject. Schools, particularly Virginia schools, face considerable gaps in those foundational
skills children must have to succeed in the modern world. A scorecard tracking education recovery produced collaboratively by Stanford and Harvard Universities provides a record of the
gains or losses in education suffered since the epidemic began. Virginia’s students have suffered more than most other states, with nearly every district behind by approximately 1.5 years in ELA and mathematics by the end of the 2022 school year.

While additional expenditures can potentially address some of these gaps for some kids, the relationship between funding and outcomes is neither linear nor particularly significant. While
we continue to wait to see exactly where the ARP ESSER funding has landed in each district, it is important to recognize that past performance, parental involvement, and teacher autonomy are going to play a comparatively outsized role in whether or not the current generation of students ever recover from the learning loss foisted upon them by poorly considered pandemic

Money makes the world go-‘round, but not particularly well.

But why isn’t there any consistent correlation between additional funding and increased outcomes? The answer here is simple; funding does not necessarily equate to more resources,
better teachers, or greater opportunities for learning. Funding only guarantees some resources, some teachers, and some opportunities without any consistent assurance of quality.

The key to quality is fundamentally about group incentives. Several key identities are involved in the education system, each operating under dissimilar needs. Teachers may be socially or
morally incentivized to endeavor to become excellent at their job, but collectively, their number one incentive is compensation. Teaching is the way in which they care for their own families,
after all. Administrators are much the same, but as the perceived arbiters of quality control in public and private education, they have an added incentive to avoid regular (or any) interaction
with “abusive” or hyper-involved parents. Teachers’ unions are incentivized to collect more and higher dues. To accomplish this goal, they must be perceived as effective representatives of the
teachers’ interests with their employer. In the case of public instruction, this means an effective apparatus for lobbying the state and tweaking public opinion.

Students are broadly incentivized to graduate, but there is probably a much more disparate series of incentives for students than any other group, given the conventional challenges of maturing in a modern first-world society. Finally, parents, as a group, have the strongest incentive to see real and positive outcomes from their children’s education. Cynically, this might be attributed to a desire for their children to move out as soon as possible or a hope that their children will supplement their care in their old age. More reasonably and charitably, however, parents do genuinely love their children and care very much about their future.

Oddly, the American public school system has successfully divorced the incentives of educators from that of parents as the only interested party with an inherent and near-universal collective
desire for positive educational outcomes. This is, of course, not what we see from other goods and services we utilize for the benefit of our children. Summer camps, tutoring services, toys,
and even snack foods all tend to be provided exactly within the spectrum of quantity and quality that different families are hoping to consume. This is because the incentives of the providers of these goods and services (e.g., to receive compensation and avoid complaints) align directly with the desires of their target consumers (e.g., family-friendly fun, education, enjoyment, or

To simplify, third-party payers disconnect the service provider’s incentives from the consumer’s needs. If teachers and administrators rely on the government for the food on their tables, they
have little intrinsic need to perform services to the standards of the average Joe sending their child to school.

What’s going on today?

Of course, effectively zero percent of the American public wants to revisit the decision to have a public education system. Even parents who educate their children at home hope their local public school continues operating as it has. People do, by and large, trust in the good faith efforts of their local teachers and school administrators, and that’s certainly a good thing. But all the outstanding data suggests we could, and should, be doing much better. This said, several interesting experiments being performed around the country have provided additional education
opportunities outside the traditional model with promising levels of success – Education Savings Accounts, tax credits, and Virginia’s own EISTC program, for example. Governor Youngkin’s
recent efforts to provide access to ARP ESSER funding in the form of “learning recovery” grants, directly providing one-time funding to get extra educational help for children who need it,
is a positive step or at least a well-intentioned and considered step, bearing in mind the operational difficulty the program has faced at its outset.

These experiments, although politically challenging to enact regardless of the partisan makeup of a state, stand to provide massive amounts of data and numerous opportunities to refine and
reinvent American education for the better. As anyone who has truly considered the miracles of the internet, Amazon, or even a simple grocery store in the context of world history will know,
choice and accessibility are nearly always the cure for widely divergent beliefs and needs in a civil society. The challenge is that it is much easier for political leaders to see a one-size-fits-all
solution as a viable and necessary option, even when we all recognize that one size doesn’t ever really fit anybody.

Another more concrete difficulty is how the balance of the $2.2 billion ARP ESSER funds has been used or may be used. Although annual reporting was a requirement for receiving federal
funding, the Commonwealth and its districts have reported only how much of the grant has been spent, about $1.7 billion as of the end of the 2022-2023 school year. Virginia does not, however, provide any detail as to what the funding has been used for other than the state and local plans initially submitted to receive the funding. Nor does the state or its various localities seem to indicate whether the activities, personnel, goods, or services purchased have been delivered. As far as fiscal accountability is concerned, the federal government, the average Virginian, and possibly even the state government have been left in the dark.

With the noted exception of Governor Youngkin’s highly visible grant program, the Commonwealth’s rather nonchalant disinterest in public transparency compounds the challenges
that Virginia is facing regarding education, broadly, and learning loss, more particularly. Without the ability to track the use of this money, there is no way to determine what local efforts worked and which did not. If we cannot replicate or reject educational programs based on measures of outcomes in the context of cost, then all the programs are simply moot.

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