The Real Cost of Choice: Do Portfolio Districts Spend Money More Efficiently

Written by: Amy Auletto

Primary Source: Green & Write, February 2, 2016

Note: It has long been speculated that Detroit Public Schools may transition to a portfolio management school district model. What is a portfolio management district and what does the research say about the effectiveness of this type of model? Check out Green & Write all week for new posts on what we know and what we can learn from the portfolio management model. 

By Amy Auletto

Portfolio districts have been touted as a way to save money and deliver education more efficiently. A portfolio management model is one that offers families a variety of educational options provided by different vendors. It also places an emphasis on giving individual schools wider discretion over their budgets as compared to schools in traditional district arrangements. As more districts move towards a portfolio model, it is worth examining just how financially efficient this type of management might actually be.

How Portfolio Districts Are Saving…

Portfolio management models (PMMs) are financed based on per-pupil funding, with the idea being that most funding should follow students to whatever school they attend, rather than allowing districts to siphon some of these dollars away for their own operational expenses. Since portfolio districts grant more autonomy to individual schools, the argument is that central offices no longer need to divert as much money towards compliance and other operational logistics. Rather than diverting up to 40% of their funds to central office operations, districts give schools more discretion over their spending (here). In this way, some schools may choose to invest in blended learning models and technology while others might focus on after-school programming. An additional feature of this per-pupil funding model is that weights can be assigned to students based on their individual needs. With weighted per-pupil funding, students are assigned a baseline dollar amount and additional money may be granted to students living in poverty, English Language Learners, or those receiving special education services (see here for more information about how New York City has implemented this strategy.)

A report issued by the Center on Reinventing Public Education provides three examples of PMMs with novel funding strategies:

  • The Louisiana Recovery School District uses per-pupil funding weights for special education students that take into account the true costs of their educational needs.
  • Under the control of former Chancellor Joel Klein, New York City gave school principals control over 70% of their schools’ funding.
  • In Denver, only 5% of funds are used for central office expenses. 73% of funds go directly to schools and the remaining 22% goes to school service providers.

… and Wasting Money 

Photo Courtesy of dhendrix73

Photo Courtesy of dhendrix73

While portfolio management models may be effective in cutting central office expenditures, other unexpected costs might arise. For example, an underlying premise of the portfolio model is that families can select from a variety of educational options. Rather than attending a neighborhood school within walking distance of their home, students may opt for another program on the other side town. As seen in the Louisiana Recovery School District in New Orleans, this variety of options can create significant transportation costs. Currently, school transportation is a major expense across the nation. Over half of all students use publicly funded transportation to get to and from school, at a total annual cost of $17.5 billion (or $700 per student). Prior to Hurricane Katrina, the average New Orleans student traveled 1.9 miles to school. This increased to 3.4 miles in 2011-12, and today, only 14% of students in New Orleans attend the school closest to their home. This means that annual transportation costs (even in light of shrinking enrollment) have increased from $18 million to $30 million since the district moved to a portfolio management model. While the geography of New Orleans presents additional transportation challenges, the issue of transportation expenses is something that all portfolio districts face.

Dependency on Philanthropists

The Governance & Finance blog has previously examined the role that private foundations play in shaping education reform (read more here and here), and these foundations are playing an important financial role in the establishment and operation of PMMs as well. In their book Strife and Progress: Portfolio Strategies for Managing Urban Schools, Paul T. Hill, Christine Campbell, and Betheny Gross discuss the critical role that philanthropy plays in supporting the shift towards portfolio districts. Cities such as New York, Washington, Chicago, New Orleans, and Los Angeles are receiving millions of dollars from private foundations to fund this type of model. While in the grand scheme of things these donations account for only a small fraction of total K-12 spending, they have been critical in funding the startup costs associated with PMMs. The authors suggest that portfolio districts may become unsustainable if this private support were to ever dry up.

An Uncertain Financial Future for Portfolio Districts

Portfolio districts are still a relatively new phenomenon. While one benefit of this management model is the potential to more efficiently spend limited resources, other unanticipated expenses, such as increased transportation costs, must be taken into consideration. Currently, private donors are showing their support for portfolio districts, but there’s no guarantee that this support will last. Thus, moving forward, it will be important to continuously monitor how these districts spend their money and from where they obtain their revenues. The long-term financial effects of PMMs are still very much unknown.

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Amy Auletto
Amy Auletto is a doctoral student in Educational Policy. She is interested in the impact that equitable funding and access to effective teachers have on the educational outcomes of disadvantaged student populations. Prior to beginning her studies at Michigan State University, she taught middle school math in Detroit. Amy earned her bachelor’s degree in psychology, master of Social Work, and MA in educational studies from the University of Michigan.