Schools need more financial transparency
According to a 2015 Gallup poll, only 55 percent of American adults own stocks, meaning that only about half of them have a vested interest in the finances of public corporations. Yet the responsibility of paying for public education extends to nearly all taxpayers, so almost all taxpayers have a vested interest in the finances of public schools. Why, then, do public corporations have stricter financial reporting requirements than public school districts?
All publicly traded companies in the United States are required to publish financial reports regularly. These reports are monitored and aggregated by the Securities and Exchange Commission.
SEC requirements create uniformity, so reports look basically the same for companies in each industry. This standardized reporting makes research and investigation incredibly straightforward. In fact, SEC reports are so easy to digest that I was able to download financial information and build a complete financial model of PepsiCo after taking one eight-hour class on a Saturday afternoon during my sophomore year in college.
Colorado has begun to bring similar transparency to our public schools. The enactment of HB 10-1036 required local education providers to disclose their budgets, annual and quarterly financial statements, salary schedules and accounts payable records. HB 14-1292 expanded on that good work by mandating a template for these reports and establishing a state-run website that will, by summer 2017, aggregate the data for public review.
On paper, these requirements seem similar to financial standardization and transparency requirements in the private sector. In reality, they couldn’t be more different.
I made this discovery while attempting to determine how districts are currently spending their money. Specifically, I was interested in examining how much funding actually goes to students. I thought this would be fairly straightforward exercise, but I quickly discovered I was wrong.
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.
Taxpayers, parents and policy-makers deserve to know how money is being used in Colorado schools — and how much of that money is making its way to classrooms. HB 10-1036 and HB 14-1292 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 policy-makers to discern how money is allocated. Additionally, the state should ensure that HB 14-1292’s required financial transparency website provides adequate access to this information for citizens.
Only once we have basic financial transparency can we begin to solve the puzzle of how to improve public education.
Evan Yoo is an education policy intern at the Independence Institute, a free-market think tank in Denver. He majors in finance and business economics at Miami University in Ohio.
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