# Differing Cost Measures and Their Methodologies

## Overview

Ever have to explain the difference between Equalization Aid Shared Cost and Comparative Cost? Or, why the net of Comparative Revenue and Comparative Cost does not equal the change in fund balance? Are you looking for an easy example that is more than a conceptual statement?

Each of the three above-mentioned measures was developed to capture district financial data in a certain manner to serve a certain purpose. As in all financial data analysis, knowing and understanding the background of the specific measure when investigating or comparing numbers is crucial. Click the appropriate links below for more information

## Highlighting the Difference in Methodology

The easiest way to highlight the difference in methodology is to use a small set of accounts and observe how each measure is computed using the same set of numbers. For our example, we will consider the following list of revenues and expenditures from the General Fund of a sample school district. Keep in mind there are many different funds in a district’s books, and although we will just be focusing on a small section of accounts the concepts remain consistent throughout the specific computation.

Membership = 50 FTE

### Sample General Fund (10) Revenues

• Property Tax Revenue: \$190,000
• Student Fees/Fines Revenue: \$10,000
• Tuition Received from Other Districts: \$30,000 (including Open Enrollment revenue)
• State Categorical Aid Revenue: \$15,000
• Equalization Aid Revenue: \$235,000
• Federal/State Grant Revenue: \$20,000
• Total Fund 10 Revenue: \$500,000

### Sample General Fund (10) Expenditures

• Instructional Expenses: \$250,000
• Instructional Support Expenses: \$100,000
• Transportation Expenses: \$20,000
• Facility Remodeling: \$15,000
• Tuition Paid to Other Districts: \$50,000 (including Open Enrollment expense)
• Total Fund 10 Expenditures: \$500,000

Readers may find it helpful to print out their specific district of interest as they read through the following computations, drawing the parallels with their "own" district.

Explaining Differences in Comparative Cost, Comparative Revenue and Shared Cost

## Equalization Aid Shared Cost

Shared Cost was developed to be used in the Equalization Aid computation and captures ONLY certain elements of the General (10) and Debt Service (38 and 39) Funds.

Shared Cost can be defined as the district expenditures for which the district has no other revenues except for local Property Tax and Equalization Aid. So how, exactly, is this number determined? The answer for the General Fund is to start with the total General Fund expenditures and remove from those expenditures the dollar amount of all the revenues EXCEPT for Property Tax and Equalization Aid (see computation below). The formula assumes the district will use these miscellaneous revenues to offset total expenses.

Using our sample district data, this is what Shared Cost looks like:

• Total General Fund Expense: \$500,000
• Student Fees/Fines Revenue: -\$10,000
• Tuition Received from Other Districts: -\$30,000
• State Categorical Aid Revenue: -\$15,000
• Federal/State Grant Revenue: -\$20,000
• Cost Funded by Prop Tax and Equal Aid: \$425,000

After all the revenues EXCEPT for Property Tax and Equalization Aid are "netted" against the Total General Fund expenses, the result will be the expenses that need to be funded by either Property Tax or Equalization Aid. The \$425,000 is referred to as the Net Cost of the General Fund and is used in the Equalization Aid formula. Depending on the number and amounts of the other sources of revenue a district may have to "cover" its expenses, the Net Cost of the General Fund can be quite different than a district’s Total General Fund expenses.

### Other Equalization Aid Formula Components

Total Shared Cost in the Equalization Aid formula also includes two other components not discussed here:

• long-term debt payback from the Debt Service Fund; and
• the amortized amount for Fund 41.

The Debt Service Fund is treated in the same manner as the General Fund in that there is a "netting" of the non-property tax revenue against the expenses to get to shared cost (there are very few non-property tax revenues in the Debt Service fund, an example being the investment interest revenue).

The other component added to Shared Cost for eligible districts is an amortized amount for their Fund 41 expenditures. For an explanation of the amortized amount, see the "Capital Projects Fund" narrative under "Accounting Issues and Coding Examples" on the WUFAR page. The end result of this computation is referred to as the Net Cost of the Debt Service Fund.

### Shared Cost

There are a few additional minor adjustments in the Shared Cost computation, but in general Shared Cost can be defined as the sum of the Net Cost of the General Fund and Net Cost of the Debt Service Fund. See Equalization Aid for a complete explanation.

Shared Cost Per Member for our sample district data would be \$8,500 (\$425,000/50).

## Comparative Cost

Comparative Cost, on the other hand, is intended to be an overall measure that captures all district expenditures, everything from the General Fund (Fund 10) to Special Projects Fund (Fund 20) to Debt Service Funds (Funds 38 and 39) to the Capital Expansion Fund (Fund 40) to the Food Service Fund (Fund 50) to the Community Service Fund (Fund 80). The only funds excluded from this measure are the Student Activities Fund (Fund 60), Package and Cooperative Fund (Fund 90) and Employee Benefit Trust Fund (Fund 73).

### Total Spending for District Residents

This measure represents total spending for district residents. The methodology here is to aggregate total expenses for the district and then make a reduction only by the revenues received from other outside entities as reimbursement for educating their students in your programs (outside entities include other Wisconsin districts, CESAs, counties and parent-paid tuition, among others). After "backing out" the revenue received as reimbursement, the remaining cost includes just the expenditures spent on educating district residents. A district's Comparative Cost will be much higher than its Shared Cost (which uses only netted General and Debt Service Fund data). Using our sample district data, this is what Comparative Cost looks like:

• Total General Fund Expense: \$500,000
• Tuition Received from Other Districts: -\$30,000
• Comparative Cost: \$470,000

Comparative Cost Per Member for our sample district data would be \$9,400 (\$470,000/50).

### Shared Cost and Comparative Cost Methodologies

The methodologies used to compute Shared Cost and Comparative Cost are quite different due to how they are used in the school finance arena, so it is clear that their per-pupil numbers would be somewhat related but not comparable.

## Comparative Revenue

Perhaps the simplest and most straightforward of these measures is Comparative Revenue, which represents all of the district’s revenues (except the Student Activity Fund) divided into the following categories: Property Tax Revenue, Federal Revenue, State Revenue and Other Local Revenue. Revenue in Fund 73 (the Employee Benefit Trust Fund) is not included here because, technically, the trust is not owned by the district.

Comparative Revenue Per Member for our sample district data would be \$10,000 (\$500,000/50).

It's common to try to net Comparative Cost and Comparative Revenue in an attempt to get the change in a district's General Fund Balance. The Fund Balance computation uses bottom-line (non-netted) data. Comparative Cost, itself, is a netted number, so using it any further computations will yield skewed results.