TEENAGE PARENT DEMONSTRATION

Report on Costs of Education and Training Programs, Chapter III

CHAPTER III:
APPROACH TO MEASURING RESOURCE COSTS

CONTENTS OF CHAPTER

1. Introduction
2. Reference Period
3. Elements of Total Resource Cost

INTRODUCTION

To estimate the value of the demonstration resources identified in the previous chapter, we defined a specific time period for which costs would be estimated, identified the resources used in that period, and then sought information on actual costs incurred or alternative measures of resource value.  Once total resource costs were estimated, we calculated unit costs in order to standardize costs in relation to the extent of participants' periods of AFDC receipt and participation in major demonstration activities.  In Section A below, we define the demonstration period we selected as the focus for analysis of costs.  In Section B, we describe how we measured the three major elements of total resource costs -- reported costs incurred directly by the demonstration programs, estimated implicit costs of services provided at no charge to the programs by other agencies, and state central management costs.  This discussion forms the basis for the data that are presented and interpreted in Chapter IV. 

THE REFERENCE PERIOD

The cost analysis focuses on fiscal year 1989 -- the period of July 1988 through June 1989 -- for two reasons.  First, this period was late enough in the demonstration to represent a year of stable program operations, when the demonstration programs most closely resembled ongoing programs, but early enough that demonstration operations at the sites still included enrollment of new participants.⁽¹⁾  Second, this period coincides with the fiscal year in both New Jersey and Illinois, which simplifies some aspects of data collection.

During the year we selected to measure program costs, Project Advance and Teen Progress served teenage parents with varying tenures in the program.  Some had entered the program before the start of fiscal year 1989 and continued to be served during the year.  Others entered the program at various points during the year.  Thus, estimated costs represent a composite of continuing services to participants already established in ongoing activities, initial services to new enrollees, and the process of identifying eligible teenage parents, calling them in, and conducting intake.⁽²⁾

THE ELEMENTS OF TOTAL RESOURCE COST

Total resource costs are composed of site costs -- the cost of services delivered by the Camden, Newark, and Chicago programs -- and central management costs -- the cost of overseeing and supporting the programs from the Trenton and Springfield offices of the New Jersey Department of Human Services and the Illinois Department of Public Aid, respectively.  The primary focus of the cost analysis is on site costs, which include both "program-paid costs" for services delivered directly by program staff or purchased by the program, and "in-kind costs" for services provided to demonstration participants at no cost to the program by staff of other agencies, either at the program site or at other community locations.  Our estimates of central management costs are reported separately, because the relative size of such costs is likely to vary with the scale of program operations and we have very limited basis for estimating that variation.  Program-paid site costs, in-kind site costs, and central management costs all include the cost of labor and associated fringe benefits, non-labor costs, and overhead.

Program-Paid Site Costs

A large proportion (although varying from site to site) of the resources used in delivering demonstration services can be valued based on actual expenditures paid by the program and charged to the demonstration projects for staff and personal services, non-labor direct costs, support service payments, capital costs, and overhead.  Data on the cost of these items were obtained from State expenditure accounting records, including special reports on expenditures charged against the demonstration project budget and general expenditure records that are used for certain types of costs incurred on behalf of all AFDC recipients.  The specific categories for which costs were reported, and the types of charges reported in each category, are listed in Table III.1.  In most instances, the State expenditure reports provided a clear and full accounting of the cost of program resources.  However, several exceptions should be noted in which some adjustments or special treatment were required.

SOURCE:  New Jersey Department of Human Services Teen Progress Quarterly Financial Reports and Illinois Department of Public Aid Obligation Transaction Reports for Project Advance.

^aExpenditures for the purchase or lease of capital equipment in these categories were amortized before inclusion in the cost estimates.

Some adjustment of New Jersey reports of expenditures for site service contracts was required to arrive at a full estimate of the resources provided to run program workshops in Camden and Newark.  Rather than using actual reported payments, we relied on the terms of contract agreements to estimate the market value of services delivered in fiscal year 1989, for two reasons.  First, because of delays in billing, payments to other agencies were often made many months after services were rendered, and at such irregular intervals that payments in a 12-month period could not be relied on as an estimate of annual costs.  Second, a few agencies that negotiated contracts to provide services later failed to bill the demonstration project for some or all of the periods of service.  Thus, estimates of contract services costs are based on the reported values placed on services by demonstration planners and managers, but not strictly on payments made during fiscal year 1989.⁽³⁾

Special treatment was also given to program-paid expenditures for the purchase or lease of capital items, such as computer equipment, software packages and software development, office furniture and other major office equipment, and major office renovations.  All computer equipment and other capital items which were purchased were assumed to have a useful life of five years.  Thus, one-fifth of total expenditures for such items was attributed to fiscal year 1989.  In the event that State reports did not clearly distinguish between purchase and lease payments for non-computer office equipment, total expenditures for these items were allocated evenly across the four years of the demonstration period, with one-fourth of the expenditures included in reported costs for fiscal year 1989.  The cost of items allocated in these ways is included in the indirect cost category (for Newark only), the computer equipment and services category, and other equipment and furnishings.

Both states reported costs for support service payments -- for child care, transportation and other training-related expenses (TREs) -- but in ways which create slightly different category definitions.  In New Jersey, costs were reported in three separate categories -- payments to child care providers, payments for transportation, and payments for other client expenses (TREs).  The State demonstration expenditure reports in Illinois, which served as the basis for support service cost estimates in this draft, do not distinguish payments for child care from payments for transportation or other TREs.  Thus, these support services are reported as a single category of cost.⁽⁴⁾

In-kind Site Costs

Since program-paid costs reported by the two state agencies did not fully reflect all sources of demonstration services, it was also necessary to estimate the implicit value of some in-kind services provided by other agencies at no reported cost.  In-kind cost estimates were required for some workshops led or sponsored by other organizations, on-site remedial education instructors from other agencies, job training funded by JTPA or other publicly-funded agencies, GED classes and other education programs provided by local community organizations or educational institutions (other than secondary schools), and other services provided by community agencies.  The services for which in-kind costs were estimated and the basis for these estimates are summarized in Table III.2.

SOURCE:  Interviews with site managers and staff of provider agencies. 

NOTE:  All in-kind cost estimates based on salaries also include overhead rates of relevant agencies. 

^a  Classes were poorly attended and did not enroll the expected number of participants; the unit cost estimated in the contract was applied to each participant, rather than the actual contract cost. 

^b  Monthly costs of community college GED classes in Camden were based on unit costs reported by Chicago Community College System, since no data could be obtained from Camden County College.

^c  Cost per participant in ESL in Newark was estimated based on costs from Camden because no cost information was available on the ESL provider in Newark. 

In calculating the value of in-kind services, we strove to estimate the full cost of all resources used in providing the services, including indirect and overhead costs, even if not all costs were passed along to consumers of the services.  For example, tuition charges at community colleges do not fully cover the costs of college staff and facilities, because much of the cost is borne by state education subsidies.  Instead of using tuition fees as an estimate of the resource cost for program participants' classes at community colleges, we obtained a more complete estimate of the full cost of college programs. 

In-kind cost estimates were derived from information obtained from service providers, who reported costs in two ways.  Most providers were able to supply information on the total value of all resources used in delivering services to demonstration participants.  In these instances, providers either reported their actual total cost of providing services or, more commonly, provided information on staff salaries, the frequency and duration of service delivery and preparation, and organizational overhead rates, from which we could estimate the total cost of the services.⁽⁵⁾  Since, for example, workshop leaders or GED teachers were provided by other organizations for a specified period of time regardless of the number of demonstration participants who attended the sessions or classes, we did not compute unit costs for the value of these services.

Other providers reported unit cost estimates for their services.  To compute the aggregate costs of these services, unit cost estimates were multiplied by the relevant number of units in the study period, based on data from the sites' participant tracking systems.  However, the definitions of the units for which costs were reported and, thus, the way the data had to be used, varied by service provider and type.  For example, JTPA agencies reported the average cost per person served in job training.  To compute total job training costs, we multiplied JTPA per-person cost estimates by the number of demonstration participants determined to have participated in training during fiscal year 1989.  In contrast, community colleges reported the cost per credit hour in college level classes and the cost per person-month in non-matriculation (GED and ABE) classes.  To calculate total in-kind costs for these services, cost per credit hour was converted to a cost per person-month of attendance.  The average cost per person per month was then multiplied by the number of months spent by demonstration participants in the relevant educational programs or courses during fiscal year 1989.  Since contacting every service provider to obtain unit cost estimates was impractical, unit cost information was obtained from selected providers.  These unit cost rates were then applied to estimate total costs for other providers of comparable services.  Representative unit cost rates were used to compute the aggregate implicit costs of job training, some education services, and a few infrequently conducted workshops (Table III.2). 

To calculate the in-kind costs to the programs of job training at all three sites, we used a unit cost rate equal to the approximate average of JTPA costs per trainee across all three sites.  This rate was applied to all job training, regardless of the provider or whether or not the training was actually funded by JTPA.  Demonstration participants received training from about 25 providers in Camden, 17 in Newark, and over 100 in Chicago.  Most training was funded by JTPA, however, so the JTPA cost per trainee provides a reasonable basis for the cost estimate.  Camden, Newark, and Chicago JTPA agencies reported per-trainee costs of $3,695⁽⁶⁾, $4,299, and $4,500 respectively, with the average JTPA cost for the three agencies (unadjusted for number served) of $4,158.  A rounded unit cost rate of $4,200 was adopted for the three sites.⁽⁷⁾

For education, the costs of in-kind services were estimated in a variety of ways depending on the kinds of information available from each provider.  Cost estimates for GED/ABE courses and post-secondary courses at community colleges were based on the cost per person-month of attendance for each of the two types of programs reported by the Chicago Community College system -- $250 per person-month of GED/ABE attendance, and $475 for post-secondary courses.⁽⁸⁾  ESL classes were reported only in Camden and Newark, and for very few participants; person-month costs in both sites were based on a report from the Camden Hispanic Women's Resource Center, where ESL classes were offered, on the costs of instructor time and the size of classes.  The cost of classes in four-year college programs was assumed to be the same as at two-year community college programs.  This assumption may understate some education costs, but since a very small number of participants attended four-year colleges, it does not introduce any substantial distortion of cost estimates.

Representative rates were also used to estimate costs for providers of very small-scale services -- primarily occasional workshops.  For every such service, we obtained estimates from site managers of the time that staff from other agencies spent delivering the service.  For each service, we applied a salary rate obtained either from the particular provider agency or from a comparable agency in that site or one of the other sites.  For example, approximate extension service counselor salaries in Camden were obtained and applied to estimate the costs of nutrition workshops in Newark and the home/life management skills Workshop in Chicago.  Other such examples are noted in Table III.2.

Central Management Costs

The full costs of any program include the cost of central management control and oversight, and these must be given some recognition in our accounting of demonstration costs.  Our analysis therefore includes approximate estimates of the cost of central management provided by the New Jersey Department of Human Services (NJDHS) and the Illinois Department of Public Aid (IDPA) to the sites in Camden, Newark, and Chicago.  However, we report central management costs separately from site costs, for several reasons.  In Illinois there is no clear accounting of central office costs actually incurred for the demonstration; as a result, we must infer estimates from information in demonstration grant application budgets.  In New Jersey, central staff costs are reported, but they coincide so closely to grant application estimates that they do not appear to reflect close documentation of the actual time spent on demonstration management.  Obtaining a reasonably accurate breakdown of the time allocation of central office staff in either state was impractical.  Finally, the magnitude of such costs relative to site program costs is likely to depend on the scale of program operations, and might be quite different at the scale of a one- or two-site demonstration than at the scale of an ongoing, statewide program.  We therefore present estimates of central management costs separately to provide some indication of how central management increases overall program costs, but with less supporting data than is the case for site costs.

Data on central management costs were available in different forms in each state.  In New Jersey, the time of central management staff was explicitly budgeted in grant proposals and then charged to State demonstration accounts, and the associated costs were included in demonstration expenditure reports and grant financial reports.  Total New Jersey central office staff salaries, fringe benefits, and indirect costs were 30 percent of total reported site labor costs in Camden and Newark (salaries and fringe benefits).  In Illinois, central management costs were not explicitly included in grant proposal budgets, and the time of central management staff was not accounted for in State expenditure reports.  However, IDPA normally applies a 26.3 percent indirect cost rate to labor costs when planning and budgeting for its programs.  A portion of this indirect cost -- that which covered site office overhead in Chicago -- was included in the state accounting reports for the demonstration program.  However, the portion that supported office staff and facilities in Springfield was not reported since these services were provided to the demonstration program at no cost.  This portion of indirect cost for central office functions amounts to 24 percent of reported site salaries and fringe benefits.  Although the accounting definitions underlying these data are unclear, these two central office overhead rates -- 30 percent for New Jersey and 24 percent for Illinois -- provide an approximate range for the relationship of central management costs to demonstration site costs.

Presumably, the ratio of central management to site costs would be somewhat lower in a larger, ongoing, multi-site program than in a small demonstration project, due to economies of scale in central monitoring efforts.  The origins of the two central management cost rates derived above support this interpretation and provide some basis for selecting a central management overhead rate that might apply in ongoing programs.  The higher rate in New Jersey reflects an accounting of central office costs during the demonstration.  The lower Illinois rate reflects broader agency experience not only with demonstration programs but other ongoing programs, as well as the larger scale of operation there.  For this reason, we have applied the rate derived for Illinois -- 24 percent -- to reported salaries and fringe benefits in all three sites as a consistent way of estimating the central office costs that would be associated with program sites like those in the Teenage Parent Demonstration if they were part of a larger, ongoing program.

[End of Chapter III]

Go to Chapter IV:  COST ANALYSIS RESULTS

ENDNOTES

1.  Project Advance continued to enroll teenage parents in the program at a reduced level after intake for the demonstration evaluation sample ended in September 1989.  Program participants who enrolled after that time were not included in the demonstration evaluation.  [Back to text]

2.  Costs associated with conducting intake included administering baseline questionnaires and basic skills tests to teenage parents who ended up being assigned to the control group. As a result, program costs are slightly overstated.  [Back to text]

3.  In cases where reported expenditures over time correspond to contract terms, workshop costs are included under program-paid site costs as site service contracts.  In those instances where actual expenditures do not clearly match reported contract terms over any defined period, the estimated cost of services provided is included as an in-kind cost, as explained in the following section.  [Back to text]

4.  Some data on support service payments obtained from the Illinois Department of Public Aid did not allow us to distinguish payments made to program participants.  As a result, our estimate of Chicago support service costs is likely to somewhat understate total costs.  [Back to text]

5.  For example, workshop cost estimates were calculated based on the estimated total number of hours that an agency staff person spent preparing for and conducting workshops at the demonstration site, the staff's approximate salary, and the applicable overhead rate for the provider agency.  [Back to text]

6.  The Camden JTPA agency actually reported an estimate of $2,500 per-trainee, exclusive of administrative overhead.  Since that agency applied an overhead rate of 47.8 percent to the salary of a JTPA job counselor provided to the demonstration, we used the same overhead increment to adjust the unit cost estimate for training services.  [Back to text]

7.  Using the average cost per person served in JTPA job training assumes that demonstration participants consumed the same amount of training program resources as the general population served by JTPA programs.  It is possible, of course, that teenage participants may have been more or less likely to drop out of programs they started than other trainees.  However, since most training programs have fixed class schedules that do not allow trainees who drop out beyond the initial stages of a program to be replaced, even dropouts can be assumed to be consuming a "program slot" regardless of the actual duration of their training participation.  Overall average cost per JTPA training participant is therefore a reasonable basis for estimating costs for demonstration participants.  [Back to text]

8.  These rates were also used to calculate the in-kind costs for GED/ABE classes taught at the Project Advance site (provided by one of the city community colleges) and for any educational courses provided as part of the New Jersey programs that were not program-paid and reported in the demonstration accounts.  We did not pursue separate unit cost estimates of education services in New Jersey because costs for almost all GED/ABE classes in the New Jersey sites were program-paid and included in the demonstration accounting reports and only a limited number of New Jersey participants were in post-secondary education in fiscal year 1989.  Using the Chicago community college rate to calculate the small amount of implicit educational costs in New Jersey introduces little error in our estimates.  Only 17 Camden participants were reported as active at any time in postsecondary education in FY 1989.  In Newark, only four participants were in post-secondary education in FY 1989, and the approximations of college cost rates received from the local Essex County College were roughly consistent with the cost estimates from Chicago.  [Back to text]

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