State Auditor varies from Dept of Ed by $87.5 million
Auditor report on Minnesota schools differs on student count as well;
Uses the wrong inflation period; some schools counted twice, others not at all

SAINT PAUL – State Auditor Patricia Anderson’s widely publicized report on Minnesota schools, released last June, varies from figures published by the Minnesota Department of Education and has problems in its analysis, said Rebecca Otto, the DFL endorsed candidate for State Auditor.

Problems with the data

“What is going on in State Government? How can we have two state agencies releasing financial reports on the same subject within 2 months of each other that vary this widely?” said Otto. “Within $87 million is just not close enough.”

The Minnesota Department of Education data shows total school revenue for 2005 was $8,648,241,495,1 but the State Auditor’s report lists school revenue for the same period of $8,735,709,448 or $87,467,953 more.2

Otto said the state auditor report also lists 1,675 students less than the Department of Education does for the same time period. When taken together, Otto said these factors make it look as though enrollment declined at a greater rate, and that there is $125 more available per student, than the Department of Education data indicates.3

“The State Auditor’s report says it is based on an analysis of Department of Education data. It appears as though her numbers do not match the Department of Education data. If the Department of Education has made an $87.5 million error, then the State Auditor should tell them, so they can change it, like they did when I informed them of a $12 million error in an education revenue report. If the report varies for some other reason, then it needs to explain why.”

Problems with the analysis

Some schools counted twice, others not at all
“The report skips 32 charter schools entirely, even though they had hundreds of students and millions of dollars in revenue over the four year time period,” says Otto, “while it accidentally counts 5 other charter schools twice.” 4

Wrong inflation period is used throughout
Otto said the report miscalculates inflation. “Schools run on a fiscal year from July to June,” said Otto, “and the State Auditor’s report uses the FY (fiscal year) notation. But the State Auditor calculated inflation on a calendar year basis.5  This accounting error amounts to roughly $62 million and it skews many of the numbers and conclusions of the report.”

Otto and others disagree with use of CPI over IPD
The current Auditor chose to use CPI as the inflation index for the analysis in this report. Last year, she did not appear to use the CPI, but an index that showed much higher inflation than the CPI. “These reports should be consistent from one year to the next,” said Otto.

Otto said the CPI is “not the most appropriate measure in this case because it tracks prices of what consumers purchase, not what governments purchase.” Even Dan McElroy, Governor Pawlenty’s former Chief of Staff, and a current member of the Pawlenty administration, said "I would urge people not to use the consumer price index to judge the cost of government. There's a more complicated measure of inflation called the implicit price deflator for state and local government services.”6

Otto, who co-chaired a school finance committee and served on the school board in Forest Lake, said the Supplemental Truth in Taxation law requires schools to use the Implicit Price Deflator for state and local government purchases (IPD), not the CPI .7  Otto says the CPI is allowed by statute in certain circumstances, but IPD is better in this case, and was also used in the Governor’s recent levy limits proposal.

Switch to CPI inflates school revenues by $258 million
“By switching to the CPI as the inflation index, the Auditor’s report makes school revenues appear to have grown by $243 million more than inflation,”8 says Otto, “but if IPD is used, school revenues have fallen $15 million behind inflation.” Combined, Otto said, the choice this year to switch to the CPI makes schools look $258 million better off.

And the difference is even wider if using Department of Education numbers with IPD inflation. Then schools have fallen not $15 million, but $66 million behind inflation, or $309 million less than the State Auditor’s report indicates.9

Correcting for inflation
Calendar Year inflation 2001 to 2005 based on CPI:  10.294% (Auditor’s report rounds it to 10.3%)
Fiscal Year inflation 2001 to 2005 based on CPI:         9.492% (School finances run on a fiscal year)
Fiscal Year inflation 2001 to 2005 based on IPD:       13.649% (Schools use  IPD for Truth in Taxation)

The bottom line
“The bottom line is that the State Auditor’s report influenced public perception of our schools,” said Otto. “The Auditor’s office is there to provide accurate information,” Otto said. “So which number is right?”

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Footnotes

1. http://www.osa.state.mn.us/default.aspx?page=rptGid05SchoolDistrict    return

2. See Rebecca Otto’s comparison analysis of MDE Profiles Data published to Web May 5, 2006 to Auditor’s Report Data published June 26, 2006 at http://www.rebeccaotto.com/downloads/Rebecca_Otto_Schools_Analysis.pdf    return

3. Auditor’s report says revenue per ADM is $10,458. MDE published data says it’s $10,333. Who’s right? See Otto’s comparison analysis.  return

4. State Auditor’s data Table 1 double counts Eagle Ridge Academy Charter School, Dakota Area Community Charter School, Beacon Academy, Prairie Seeds Academy, and Team Academy charter schools, while it skips 32 others that the Department of Education lists revenue data for. See Otto’s analysis and comparison of districts. The data tables are archived at http://www.rebeccaotto.com/downloads/schooldistrict_05_tables.zip     return

5. Calendar Year inflation 2001 to 2005 based on CPI was 10.294%. Auditor’s Report rounds it to 10.3%. See Otto’s inflation analysis at http://www.rebeccaotto.com/downloads/Rebecca_Otto_Inflation_Analysis.pdf    return

6. On MPR, 1/24/05  return

7. The "supplemental truth-in-taxation" law states: It [the supplemental TnT statement] may include only information regarding: (1) the impact of inflation as measured by the implicit price deflator for state and local government purchases; (2) population growth and decline; (3) state or federal government action; and (4) other financial factors that affect the level of property taxation and local services that the governing body of the county, city, or school district may deem appropriate to include. [Emphasis added.]   return

8. Auditor’s 2001 school rev of $7.7 billion x 3.15% (13.45% growth-10.3% CPI) = $243 million  return

9. Auditor’s 2001 school rev of $7.7 billion x .2% (13.45% growth-13.65% IPD) = ($15 million); MDE data using IPD puts shortfall at $66 million   return