USING THE CONSUMER PRICE INDEX (CPI) TO ADJUST FOR INFLATION

The Consumer Price Indexes (CPIs) represent changes in the prices of all goods and services purchased for consumption by households. Indexes vary for specific areas or regions, periods of time, major groups of consumer expenditures, and population groups. Indicators 20, 37, 38, 39, 40, 44, 46, and 47 in The Condition of Education use the U.S. All Items CPI for All Urban Consumers (CPI-U).

The CPI-U is the basis for both the calendar year CPI and the school year CPI. The calendar year CPI is the same as the annual CPI-U. The school year CPI is calculated by adding the monthly CPI-U figures, beginning with July of the first year and ending with June of the following year, and then dividing that figure by 12. The school year CPI is rounded to three decimal places. Data for the CPI-U are available on the Bureau of Labor Statistics (BLS) website (see below). Also, figures for both the calendar year CPI and the school year CPI can be obtained from the Digest of Education Statistics, 2006 (NCES 2007-017), an annual publication of the National Center for Education Statistics (NCES).

Although the CPI has many uses, its principal function in The Condition of Education is to convert monetary figures (salaries, expenditures, income, etc.) into inflation-free dollars to allow comparisons over time. For example, due to inflation, the buying power of a teacher’s salary in 1998 is not comparable to that of a teacher’s salary in 2002. In order to make such a comparison, the 1998 salary must be converted into 2002 constant dollars by multiplying the 1998 salary by a ratio of the 2002 CPI over the 1998 CPI. As a formula, this is expressed as

The reader should be aware that there are alternative price indexes to the CPI that could be used to make these adjustments. These alternative adjustments might produce findings that differ from the ones presented here. For more detailed information on how the CPI is calculated or the other types of CPI indexes, go to the BLS website (http://www.bls.gov/cpi/.)

CLASSIFICATIONS OF EXPENDITURES FOR ELEMENTARY AND SECONDARY EDUCATION

Indicators 38, 39, and 40 examine expenditures for public elementary and secondary education. Indicator 38 uses six categories of expenditures: total expenditures, instruction expenditures, administration expenditures, operation and maintenance expenditures, capital expenditures, and other expenditures. Indicator 39 uses instruction expenditures in its analysis. Indicator 40 uses two categories of expenditures in its analysis: total expenditures and current expenditures.

Total expenditures for elementary and secondary education include all expenditures allocable to per student costs: these are all current expenditures for regular school programs, interest on school debt, and capital outlay. Expenditures on education by other agencies or equivalent institutions (e.g., the Department of Health and Human Services and the Department of Agriculture) are included.

Current expenditures include expenditures for instruction, administration, operation and maintenance, and other expenditures with the exception of capital expenditures (capital outlays and interest on debt) and current expenditures for nonelementary and nonsecondary programs (see Total expenditures, above). Thus, current expenditures include such items as salaries for school personnel, fixed charges, student transportation, school books and materials, and energy costs.

Instruction expenditures include salaries and benefits for teachers and instructional aides, supplies, and purchased services such as instruction via television. Also included are tuition expenditures to other local education agencies.

Administration expenditures include expenditures for general administration (salary, benefits, supplies, and contractual fees for boards of education staff and executive administration) and school administration (salary, benefits, supplies, and contractual fees for the office of the principal, full-time department chairpersons, and graduation expenses).

Operation and maintenance expenditures include salary, benefits, supplies, and contractual fees for supervision of operations and maintenance; operating buildings (heating, lighting, ventilating, repair, and replacement); care and upkeep of grounds and equipment; vehicle operations and maintenance (other than student transportation); security; and other operations and maintenance services.

Capital expenditures include interest on school debt and capital outlays. Capital expenditures represent the value of educational capital acquired or created during the year in question—that is, the amount of capital formation regardless of whether the capital outlay was financed from current revenue or by borrowing. Capital expenditures include outlays on construction, land and existing structures, instructional equipment, and all other equipment.

Other expenditures include funds for student support (health, attendance, and speech pathology services); other instructional staff (curriculum development, staff training, libraries, and media and computer centers); student transportation; other support services, including business support services and central support services; food services; enterprise operations (operations funded by sales of products or services together with amounts for direct program support made by state education agencies for local school districts); and other current expenditures (adult education, community colleges, private school programs funded by local and state education agencies, and community services).

CLASSIFICATIONS OF REVENUE

In indicator 37, revenue is classified by source (federal, state, or local). Revenue from federal sources includes direct grants-in-aid to schools or agencies, funds distributed through a state or intermediate agency, and revenue in lieu of taxes to compensate a school district for nontaxable federal institutions within a district’s boundary. Revenue from state sources includes both direct funds from state governments and revenue in lieu of taxation. Revenue from local sources includes revenue from such sources as local property and nonproperty taxes; investments; and revenue from student activities, textbook sales, transportation and tuition fees, and food services. Intermediate revenue comes from sources that are not local or state education agencies, but operate at an intermediate level between local and state education agencies and possess independent fundraising capability—for example, county or municipal agencies. Intermediate revenue is included in local revenue totals. In indicator 37, local revenue is classified as either local property tax revenue or other local revenue.

In indicator 37, alternative local government revenue numbers for Texas were used in the calculation of the percentage distribution for the South in 1992–93 because, for that state, much of the revenue that was classified as local government property taxes was classified as revenue from intermediate sources. The alternative Texas local government property tax revenue for 1992–93 was calculated by applying the average of the proportions of the 1991–92 and 1993–94 local government property tax revenue to all local government revenue to the 1992–93 total for all local government revenue. Other local government revenue was calculated in a similar fashion.

THE VARIATION IN EXPENDITURES PER STUDENT AND THE THEIL COEFFICIENT

Indicator 39 uses the Theil coefficient to measure the variation in expenditures per pupil in regular public school elementary and secondary schools in the United States.

The Theil coefficient was developed by Henri Theil to measure the amount of information conveyed by a single message that an event has occurred. It was derived from the study of what Theil called the “information concept.” If we know an event is likely (i.e., the probability of the event is close to 1.0), then the amount of information conveyed is low (i.e., it is no surprise that the event occurred). But if the probability is low (i.e., near zero), a message saying it occurred provides a significant amount of information. Intuitively, and later rigorously proven by Theil and others, the function of the amount of information conveyed is logarithmic (i.e., h(z) = ln(1/z), where h = information function and z = probability of event).

Having developed the information function as a measure of the amount of information conveyed, Theil then suggested that this information function could also be used as a measure of dispersion. For example, if instructional expenditures per pupil in the nation are relatively close together (i.e., low disparity), then relatively little information would be provided by random draws of the districts (i.e., the 1/z_i, the probabilities, are high, but the value of the information function, the sum of the logarithms, is low). In contrast, if instructional expenditures per pupil are very dissimilar, then probabilities for drawing a given level of expenditures are lower, and the information gained from a random draw will be high. Thus, the information function can be a measure of dispersion, and a comparison of the values of Theil coefficients for groups within a set (i.e., districts within the nation) will indicate relative dispersion and any variations that may exist among them. The Theil coefficient was subsequently used to measure the trends in variation of a number of items, including expenditures per student (see NCES 2000-020 and Murray, Evans, and Schwab 1998).

The Theil coefficient has a convenient property when the individual units of observation (e.g., school districts) can be aggregated into subgroups (e.g., states): the Theil coefficient for the aggregation of all the individual units of observation can be decomposed into a measure of the variation within the subgroups and a measure of the variation between the subgroups. Hence, in the examination of the variation in instructional expenditures in the United States, the national variation can be decomposed into measures of between-state and within-state variation.

The between-state Theil coefficient, T_B, equals:

where P_k is the enrollment in state k, X{bar}_k is the student-weighted mean expenditure per student in state k, and X{bar} is the student-weighted mean expenditure per student for the country.

The within-state Theil coefficient, T_W, equals:

where T_k is the Theil coefficient for state k.

T_k equals:

where P_jk is the enrollment of district j in state k and X_jk is the mean expenditure per student of district j in state k.

The national Theil coefficient, T, is

CLASSIFICATIONS OF EXPENDITURES FOR INTERNATIONAL COMPARISONS

Indicator 41 presents international data on public and private expenditures for instructional and noninstructional educational institutions. Instructional educational institutions are educational institutions that directly provide instructional programs (i.e., teaching) to individuals in an organized group setting or through distance education. Business enterprises or other institutions providing short-term courses of training or instruction to individuals on a “one-to-one” basis are not included. Noninstructional educational institutions are educational institutions that provide administrative, advisory, or professional services to other educational institutions, although they do not enroll students themselves. Examples include national, state, and provincial bodies in the private sector; organizations that provide education-related services such as vocational and psychological counseling; and educational research.

Public expenditures refer to the spending of public authorities at all levels. Total public expenditures used for the calculation in indicator 41 correspond to the nonrepayable current and capital expenditures of all levels of the government directly related to education. Expenditures that are not directly related to education (e.g., culture, sports, youth activities, etc.) are, in principle, not included. Expenditures on education by other ministries or equivalent institutions (e.g., Health and Agriculture) are included. Public subsidies for students’ living expenses are excluded to ensure international comparability of the data.

Private expenditures refer to expenditures funded by private sources (i.e., households and other private entities). “Households” mean students and their families. “Other private entities” include private business firms and nonprofit organizations, including religious organizations, charitable organizations, and business and labor associations. Private expenditures comprise school fees; the cost of materials such as textbooks and teaching equipment; transportation costs (if organized by the school); the cost of meals (if provided by the school); boarding fees; and expenditures by employers on initial vocational training. Private educational institutions are considered to be service providers and do not include sources of private funding.

Current expenditures include final consumption expenditures (e.g., compensation of employees, consumption of intermediate goods and services, consumption of fixed capital, and military expenditures); property income paid; subsidies; and other current transfers paid. Capital expenditures include spending to acquire and improve fixed capital assets, land, intangible assets, government stocks, and nonmilitary, nonfinancial assets, as well as spending to finance net capital transfers.