A few readers wrote to me asking for further clarification on the differences between investment and operation expenditures. For example, should a one-to-one initiative be classified as an operation or investment expenditure. This short post helps answer such questions.
After reading Rethink District Budgeting Part I and Part II, it is apparent that all the new “budget dance” moves start with differentiating between operation and investment expenditures. While Table 1 can be readily applied to make the distinction for most expenditures, there are cases where the distinction is not that clear cut. For certain expenditures, people may have genuine differences in opinion regarding whether they are necessities without which the district cannot provide the mandated or expected services, or options selected by the district among many choices to target certain areas for improvement.
For example, some people believe a one-to-one technology initiative is a must-have to equalize the digital divide as well as help students become prepared for the new economy and society where digital literacy and citizenship are key. In the eyes of others, it might be perceived as one very expensive investment option for increasing student academic achievement through expanding access to resources and extending learning to outside school hours. As another example, people might not be able to reach consensus regarding whether class size reduction is operational in nature or an investment by choice.
Fundamentally, there is no absolute separation between operation expenditures and investment expenditures. Where to draw the line is fluid and conditional, depending on political, cultural, historical, and economic contexts in general and idiosyncratic situations in particular. Historically, principals were first introduced as “experiments” in western metropolitan areas of the United States to “ascertain the most efficient organization of large schools and also for groups of schools” during the late 1800s (Pierce, 2018). Counseling was not established as a school service until the beginning of the 20th century to help students with their development in response to the Industrial Revolution (Schmidt, 2008). These positions are now considered essential operation expenses but probably would have been classified as investments as they first emerged.
Reversely, expenses used to be treated as operational necessities can become investment choices. After the Indiana Supreme Court ruled that school districts are not required by the state constitution to provide transportation for students (Kardish, 2015), transportation becomes a choice district leaders in Indiana weigh against other spending options for delivering return on student outcomes. Another example is school resource officers (SROs). SROs first began in the United States in the early to mid-1950s and became more widely adopted following various school shootings in the 1990s (Weiler & Cray, 2011). With racial equity becoming a prominent focus of school reforms, however, some districts no longer consider SROs indispensable and are looking into reinvesting the resources in other strategies such as restorative practices (Kopsa, 2022).
This conceptual switch from classifying a spending item as operation to investment and vice versa, albeit implicit, is often evidenced by the questions we ask about that expense. Generally speaking, efficacy is not a major concern for operation expenditures but at the center for investment expenditures. It is unknown whether questions were raised about spending money on principals or counselors back in those early days, but now we don’t doubt their value and necessity. When computers were first introduced into the classroom, many questioned whether they are effective in helping students learn. With computers becoming almost ubiquitous in American schools nowadays, no one seems to be interested in that question anymore.
In contrast, SROs have been either assumed or believed to be the solution for school safety until people started to question in recent years whether they are truly necessary for making schools safe given their impact on disproportionality and school culture. Facing dwindling budgets, districts in Indiana are asking themselves whether spending on transportation or spending on staff would give a bigger bang for the buck for their students (STN Editor, 2014). Instead of being problematic, this at-times ambiguity and fluidity in classification of expenses afford leaders flexibility to manage financial resources differently, depending on whether they want a spending item scrutinized and its funding based on the results and alignment. For example, if a program classified as investment is found to consistently produce expected return after two to three investment cycles, it can be re-classified as an operation expenditure and thus no longer subject to EOC reviews. Reversely, converting a legacy program into an investment expenditure can compel and foster improvement with renewed attention, strengthened theory of change, better coordination and support from other departments, together with accountability pressure. In a similar vein, a spending item classified as an operation expenditure due to its political necessity can be re-classified as an investment after the political clout is no longer present. In this way, these programs are provided an opportunity to prove or improve their value and their discontinuation due to lack thereof can be less controversial and disruptive.
Kardish, C. (2015, June 22). What Happens When Schools Stop Providing Buses? Governing: The Future of States and Localities. https://www.governing.com/archive/gov-indiana-school-bus-ruling.html
Kopsa. (2022, December 12). The City That Kicked Cops Out of Schools and Tried Restorative Practices Instead. In These Times. https://inthesetimes.com/article/the-city-that-kicked-cops-out-of-schools-and-tried-restorative-practices-instead
Pierce, P. R. (2018). The Origin and Development of the Public School Principalship. Creative Media Partners, LLC.
Schmidt, J. (2008). History of School Counseling. In Hardin L.K. Coleman & Christine Yeh (Eds.), Handbook of School Counseling (pp. 3–13). Routledge. https://doi.org/10.4324/9780203874806
STN Editor. (2014, March 6). Updated: Amended Indiana Bill Allowing School Bus Advertising Passes Senate. School Transportation News. https://stnonline.com/news/updated-amended-indiana-bill-allowing-school-bus-advertising-passes-senate/
Weiler, S. C., & Cray, M. (2011). Police at School: A Brief History and Current Status of School Resource Officers. Clearing House: A Journal of Educational Strategies, Issues and Ideas, 84(4), 160–163. https://doi.org/10.1080/00098655.2011.564986