THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 578

Identifying Options for Improving the Efficiency of Mississippi’s School Districts: Phase One

Executive Summary

Introduction

Initial Request to the PEER Committee

PEER received a legislative request to identify cost savings that could result if school districts were to establish shared services arrangements for certain functions or programs. This request was prompted by the legislator’s interest in a Deloitte Research report entitled Driving More Money into the Classroom: The Promise of Shared Services.

Deloitte noted in its report that in most states, sixty percent of every dollar spent on education is used on instruction and forty percent is spent on support. Deloitte considered school districts with support expenditures higher than forty percent of total expenditures to be candidates for efficiency efforts such as shared services. According to the results of Deloitte’s research, the most efficient school districts were those with enrollments of 2,000 to 4,000 students, with some smaller efficiency gains for districts with up to 6,000 students. (This did not take into account educational outcomes such as school district performance.)

PEER hypothesized that Mississippi would have similar results and that the information could be used to identify school districts of a similar size that would be the best possible candidates for implementing shared services arrangements to improve the districts’ efficiency. Then PEER would be able to use data from the identified districts to estimate the amount of possible savings or cost avoidance that could be achieved at these particular districts through shared services arrangements.

PEER’s Reframing of the Project

Using statewide district-level data obtained from the Mississippi Department of Education, PEER could not establish the same correlation in Mississippi between school district size and efficiency that Deloitte had found in its research. Thus PEER would need a different approach to determine which school districts would be the best candidates for shared services arrangements and the amount of possible savings or cost avoidance that could be achieved. The implications of what PEER learned from its initial scoping necessitated dividing the project into two phases (see Phase Two below.).

Scope Limitations

PEER notes the following scope limitations in Phase One of this project:

• Phase One does not incorporate or determine any potential correlation of a district’s efficiency as it relates to educational outcomes such as school district performance.
• Phase One focuses primarily on the potential for reducing non-instructional expenditures (i. e., support expenditures) and does not address any potential cost savings or cost avoidance that could result from shared services arrangements for instructional functions.

Background

Shared services arrangements take a specific function and share responsibility and decisionmaking for that function among two or more school districts, whereas consolidation combines functions for two or more school districts through the creation of a new school district, which results in a loss of direct supervision and decisionmaking for persons in those districts as they existed prior to consolidation. While outsourcing typically also focuses on a specific function, the school district contracts performance of the service out to a third-party provider.

Determining Criteria for Shared Services Implementation

School functions amenable to shared services may be divided into direct functions that provide services to students and indirect functions that provide services to staff or infrastructure. Direct functions include transportation, food service and nutrition, instructional, safety and security, and health services. Indirect functions include purchasing, finance and payroll, facilities and real estate, human resources, technology services and administration.

At the district level, school districts should individually select support functions through an efficiency assessment based on the school district’s needs, such as a detailed decision tree analysis referenced within the Deloitte research study (see Exhibit 2, page 13, of the report). PEER notes that in regard to the selection of support functions for possible shared services arrangements, what is appropriate for one district may not be appropriate for another.

School districts could use one of the following mechanisms to implement shared services arrangements:

• Boards of Cooperative Educational Service--These boards could provide member school districts with the opportunity to pool their resources to advance benefits to students, taxpayers, and educators. This mechanism would need to be created in statute and should establish a separate board that supervises the shared services function(s) for member school districts.
• Regional Educational Service Agencies (RESAs)--A regional educational service agency is a group of twelve or more school districts formed to pool their collective resources in order to provide more cost-efficient services to member districts. Mississippi law already provides authority for RESAs (MISS. CODE ANN. § 37-7-345 [1972]) and six are currently operating in the state. These entities presently provide services and programs to their member districts such as professional development, instructional materials, educational technology, and curriculum development.
• Interlocal Agreements--An interlocal agreement is a contract between two or more governmental units that work together to provide services to the public by sharing their budgets to reach a common goal that they might not be able to reach separately. Mississippi law has a provision for interlocal agreements (MISS. CODE ANN. § 17-13-1 [1972]), but the agreement must meet requirements set forth in the statute.

Determining Potential Candidates for Improving Efficiency in Mississippi’s School Districts

As noted previously, the Deloitte study reported that in most states sixty percent of school districts’ expenditures are for instruction, while forty percent of school districts’ expenditure are for support functions. Using this observation as a conservative standard, if Mississippi implemented efficiency options such as shared services to achieve the goal of having at least sixty percent of all school districts’ budgets devoted to instructional support, the result could be approximately $7.3 million in funds that, depending on their source, could possibly be redirected to instruction. Efficiency goals that would drive the percentage of instructional dollars even higher could significantly increase that figure.

Based on the work completed in Phase One of reviewing the potential for use of shared services in school districts, PEER believes that an efficient and robust screening procedure could be developed to identify school districts that could benefit from shared services arrangements by looking at the percentage of instructional spending to total expenditures, the total average operating cost per student, or by reviewing the cost per student for a specific support function or functions.

Next Steps in Identifying Options for Improved Efficiency of Mississippi’s School Districts

Phase Two of PEER’s Project

In Phase Two of PEER’s project, which will commence in January 2014, PEER will:

• conduct a comprehensive efficiency review of selected school districts, basing that selection on screening criteria and methods described in this report;1
• based on the results of the comprehensive efficiency review, identify best practices that are exhibited by districts with both low support expenditures and high academic performance in order to determine what actions or efforts (i. e., shared services arrangements or other efficiency efforts) these successful districts have implemented that could be implemented by other districts with reasonable expectation of similar results; and,
• present options to the Legislature for ensuring or encouraging other school districts to improve their efficiency through the use of shared services arrangements or other efficiency efforts identified in the comprehensive efficiency review.

Potential Options for Ensuring or Encouraging Improved School District Efficiency

The ultimate goal of school district efficiencies (not just shared services arrangements) would be cost savings or cost avoidance. Depending on their source, these funds could potentially be redirected into instruction.

School districts that could most benefit from efficiency improvements should determine, based on the results of Phase Two of this project, how to achieve efficiency improvements in accordance with their needs and preferences by implementing shared services arrangements, consolidation, outsourcing, or other efficiency efforts.

Ideally, school districts would want to operate more efficiently. However, should school districts not take the initiative to bring about improvements in efficiency, a range of potential options for ensuring or encouraging participation at the school district level could include incentives, penalties, and mandates. Examples of these options could include:

• grant funding for feasibility studies on improving the efficiency of a specific function (e. g., a specific shared services arrangement for transportation services);
• grant funding for start-up costs associated with new school district projects designed to improve efficiency;
• additional state funding for schools that exhibit efficiency improvements beyond a specified benchmark;
• reduction in state funding for school districts that fall below a specified benchmark (e. g., districts that spend below a specified percentage of total expenditures on instruction); or,
• legislative mandate that a district’s instructional spending be at or above a specified percentage of total expenditures (e. g., Texas currently mandates that a specified percentage of total expenditures be spent for instructional purposes).

Recommendations Regarding Mechanisms with Which to Implement Shared Services Arrangements for School Districts

Should the Legislature choose to support implementation of shared services arrangements prior to completion of Phase Two, PEER has recommendations regarding each of the three possible mechanisms for implementation.

Prior to the completion of Phase Two and PEER’s resulting report, the Legislature could take one or more of the following steps.

• Should the Legislature support the use of interlocal agreements to facilitate shared services arrangements, it could require the Department of Education to make available on its website model agreements for shared services arrangements.
• Should the Legislature support the use of regional educational service agencies to facilitate shared services arrangements, the Legislature could amend MISS. CODE ANN. Section 37-7-345 (1972) to improve the transparency and accountability of regional educational service agencies. An example of such an accountability measure would be a requirement that regional educational service agencies provide both the Legislature and the Department of Education with copies of strategic plans, annual audited financial statements, and operating agreements entered into with respective member school districts identifying shared services provided and applicable goals or performance objectives.
• Should the Legislature support the use of boards of cooperative educational service to facilitate shared services arrangements, it should provide statutory authority that would allow two or more school districts to form boards of cooperative educational service with which to implement shared services arrangements.

1 PEER notes that the Mississippi Commission on School District Efficiency recommended a targeted efficiency review of selected school districts in its August 2013 report.

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