What Is Adequate?: Operationalizing the Concept of Adequact for New York

1. Thomas Downes Department of Economics Tufts University March 2004 What Is Adequate?: Operationalizing the Concept of Adequact for New York

2. Introduction • Motivation • CFE v. State – trend towards adequacy mandates • What lessons can be gleaned from research on methods to determine adequate spending? • Organization • Critical review of alternative methods for estimating adequate spending • Comparison of adequacy estimates for NY • Cross-cutting issues in adequacy estimation • Concluding remarks

3. What Level of Spending Is Adequate? • Working Definition of Adequacy • State standards determine adequate level of spending • Must account for cross-district variation in costs • Two-step process for determining adequate spending for each district • Determine adequate spending in a benchmark district • Adjust to account for variation in costs

4. Geographic Cost Variation Approach • Input-based approach • Not linked to performance standard • Second step must use an input price index rather than a cost-of-education index • Digression: Calculating an input price index • Chambers (1997) v. Duncombe (2002) • Should estimation method only account for costs that cannot be manipulated?

5. Empirical Identification Approach • Logic of the approach • Problems with the approach • The selection problem – Are successful districts valid benchmarks? • How should costs be adjusted? • Example: Regents' Proposal on State Aid for 2004-05

6. Professional Judgment Approach • Logic of the approach • Problems with the approach • Absence of budget constraint and of incentives to compromise • Limits of personal experience of panel members • Self-serving behavior • Concerns about external validity • Example: AIR/MAP study for NY

7. Cost Function Approach • Logic of the approach • Problems with the approach • Difficult to explain • Data requirements • “Black box” nature of method is unattractive: Should the method used to determine adequate spending provide more guidance on resource use? • Example: Duncombe/Yinger estimates for NY

8. Comparing Estimates for NY • Barriers to comparing estimates • Differences in standards used • Lack of availability of disaggregated estimates (AIR/MAP results) • What comparisons can be done? - Figure 1 • Similarly of distributions implied by Regents' Proposal and cost function (Duncombe/Yinger) • Sensitivity of results to cost adjustment

10. Crosscutting Issues • The Incentive Problem • Theory: Only compensate for costs that cannot be manipulated so as to avoid perverse incentives • Reality: Almost any cost determinant can be manipulated. • Solutions: Use of averages to determine adequate spending and of evidence on incentives • Are Results Normative? • Updating the Adequacy Calculations

11. Concluding Remarks • Need to draw on strengths of the various methods to develop a unified method that is defensible and understandable • Suggestion: Cost function combined with professional judgment • Success of similar approach in California • Importance of getting things right – the cost adjustment problem