School Districts in Deficit are Top Heavy

Although still the exception, it’s not unusual to see public school districts spending more during the year than the amount of tax revenues they expect to collect from local, state and federal sources. The reasons are many and include severe enrollment declines, rising labor costs mandated by union contracts, an obsolete “defined-benefit” pension system, and general local, state and national economic conditions.

But looking at the 41 school districts that currently have a deficit (out of 550 districts overall), one common factor stands out: high spending on administration. According to fiscal data provided by the Michigan Department of Education, these 41 districts spent an average of $1,594 per pupil on administration in 2010. This is a whopping 43 percent more than the statewide average of $1,116.

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Moreover, the relationship appears to get stronger the more a district’s administration spending exceeds the state average. Not counting districts with fewer than 500 students, 10 of the 15 districts that have the state’s highest per-student administration costs are in deficit. (Districts with fewer than 500 students have disproportionately higher per-pupil administration costs.)

On average, spending on administration made up about 12 percent of school district operational spending in 2010, so in most cases it’s unlikely that a district facing fiscal calamity could save itself by trimming this line item alone.

That said, above average administration expense may be a “canary in the coal mine” signaling hardship to come. It may reveal a failure by school leaders to “right-size” in response to enrollment declines, or an administration unwilling to lead by example. Whatever the explanation, high per-pupil administrative spending appears to be a danger sign taxpayers should not ignore.

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