Are Education Cost Functions Ready for Prime Time? An Examination of Their Validity and Reliability

Abstract

This article makes the case that cost functions are the best available methodology for ensuring consistency between a state's educational accountability system and its education finance system. Because they are based on historical data and well-known statistical methods, cost functions are a particularly flexible and low-cost way to forecast what each school district must spend to meet the standards in a state's accountability system. However, the application of cost functions to education must confront several challenges in both data collection and estimation methodology. This article describes the strengths and weaknesses of various ways to address these challenges and illustrates how the reliability and forecasting accuracy of cost functions can be tested using data for Missouri school districts.