Whither KLSD?

A Discussion of Enrollment Forecasts, Their Uses, Requirements and Limitations

Claire Aldrich and Satya Nitta Acknowledgments: Chris Sommers

Disclaimer: The analysis performed in the following pages is to be considered as opinions expressed by the authors only

Executive Summary
Demographers application of CSR method is invalid CSR approach is inappropriate for cyclical situations Historical data reveals enrollment could be recovering soon Multivariable linear regression may be a more useful tool Data requirements persist to complete analysis Data thus far suggest the risk and cost of being wrong are still too high
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Outline
Critical review of the Grip report and conclusions Review of cyclicality in enrollment Multivariable linear regression Observations and discussion

Outline
Critical review of the Grip report and conclusions Review of cyclicality in enrollment Multivariable linear regression Observations and discussion

As we know, Dr Grips forecast calls for a continuing decline

Graphical Review: Demographic Projections, Nov 2013
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C-SR method used

...which reflects the major limitations of the CS method for this situation, further exacerbated by its flawed application.

Summary of C-SR method 2 parts to a standard Cohort Survival Ratio method.

Cohort survival method KG enrollment prediction

C-SR Method: Start with current enrollments, by grade, then advance students one grade for each year of the forecast. Thus, the current years kindergarteners become next years first graders. The current years first graders become next years second graders, and so on. KG Enrollment Prediction: The cohort survival method needs some way to obtain future kindergarten enrollments. The study done for KLSD assumes that the recent trend in kindergarten enrollments will continue.
Ex: If kindergarten enrollment declined by 5% annually during the last five years, kindergarten enrollment is assumed to continue to decline by 5%. Mr. Grip used a variation. Average 3 years of birth data, used a fixed (1.25x) multiplier based on 6 yr BK ratio taken during the recent downturn of the Great Recession.

Major Issues With Demographers Report

Does not consider growth in home sales which is the single biggest source of increased enrollment in KLSD (statistical proof later in this document) Fixed births Fixed birth to survival ratio of 1.25: - B-K survival ratios could not be computed for the entire 20 year period b/c KLSD geocoded data was not available. As a result, Dr. Grip notes he could only use 5 and 6 year averages (p 12, Nov 2013 report). This dramatically skews the forecast downward. Misleading error projections. Claims enrollment can be predicted within 1% for 5 years. Implied suggestion that housing growth, macroeconomic conditions etc are all being predicted to BETTER than 1% for 5 years Very few first principles models in the physical sciences come anywhere near this number, leave alone social sciences
Cannot model human behavior accurately (yet)

Chip Timing Models 5% accuracy outstanding

C-S method not appropriate for cyclical variations irrespective of size of districts Misunderstood our SAC/HU ratio history has been as high as 1.25 (a fact overlooked by Dr G, but on the BOE website)

Disadvantages of the Cohort-Survival Method

its accuracy as a long-term predictive tool is poor to questionable CSR is only able to accurately forecast for a very short interval into the future Beyond one to two years, the projections tend to be highly suspect since CSRs major assumption is a linear trend which may not hold true after a few years Ref: Grip and Young, Planning and Changing, 1999 Berk & Associates, 2008 Two major disadvantages: The first problem is that the method for calculating future kindergarten enrollments is likely to be problematic when the trend in kindergarten enrollments is changing. The second major problem with the K Linear Cohort Survival method is that it will poorly forecast enrollments if migration patterns are changing. The most likely situation for this to occur is when there is a substantial change in housing 8 Berk & Associates, 2008

Could this Be Us?

Case Study: Washington State Mis-projection using Cohort-Survival method

Above graph shows the kindergarten trend in the State during the two time periods. Note that kindergarten enrollments were declining during the 1997-2002 period, but rose (swiftly and strongly) during the 2003-2007 period. Continuing the trendunderstated future kindergarten 9 enrollments.

Outline
Critical review of the Grip report and conclusions Review of cyclicality in enrollment Multivariable linear regression Observations and discussion

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Two Major Questions

Is cyclicality a relevant issue for us to factor in? If the C-SR method is not reliable, what is? Lets consider our cyclicality

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Based on Superintendent Kreutzers graph, it looks like enrollment is going down..

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Based on preliminary data, however, a full history suggests we are in a trough that could be on the verge of recovery
KLSD Elementary Enrollment
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Interestingly, Chappaqua follows very much the same pattern

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Chappaqua vs Katonah, Elementary Enrollment

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1. Chappaqua, 2013: surprise Elementary enrollment increase of 39 students this year (58 total across all grades). Attributed to existing home sales 2. KLSD 1998: Surprise increase of 91 students in grades 1-6 from the prior year's K-5, due to home sales. 3. KLSD 1999: Additional 80 students
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So, if CSR is not reliable for cyclical situations, What is?

The goal of this study was to construct a regression model to more accurately predict enrollments than calculated by either the Cohort-Survival Ratio method or by moving averages for a time frame of one to seven years into the future
Although this *CSR+ is very accurate in short-term planning, its accuracy as a long-term predictive tool is poor to questionable CSR is only able to accurately forecast for a very short interval into the future Beyond one to two years, the projections tend to be highly suspect since CSRs major assumption is a linear trend which may not hold true after a few years

In a separate study to test whether regression analysis was a better method of prediction than the Cohort-Survival Ratio, Webster (1970) found a regression model to be significantly more accurate than the CSR.
Source: R.S. Grip & J. W. Young, Planning and Changing (1999).
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Outline
Critical review of the Grip report and conclusions Review of cyclicality in enrollment Multivariable linear regression Observations and discussion

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How common are Regression algorithms?

One of the most popular projection algorithms Used everywhere:
Epidemiology: Ex: Relation of smoking to mortality Finance: Ex: Capital pricing asset models Economics: Ex: Predict consumption spending Real Estate: Ex: Predict housing prices Physical Sciences: Ex: Complexity Behavioral Sciences: Ex: Athletics world records
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Multivariable Linear Regression: Inputs to the model

Housing Birth rates

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Housing strongly correlates with Enrollment

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Enrollment vs Housing

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R = 0.6816

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C-SR method applied during a growth cycle

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Multivariable Linear Regression: How good is this model?

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Enrollment = f(Housing, Birth Rates)

Limitations: Fits training data very well if data is linear (R2 ~ 0.9), but Need independent variable trends Accuracy improves with data if cyclicality is considered, need more mathematical rigor (and perhaps use polynomial regression or normalization) Independent variables should not be strongly correlated (sufficient to establish housing and birth rates are not highly correlated) 20

So - What factors might drive a recovery home sales forecast?

Economic indicators stock market up, unemployment claims down, GDP up.. Affluent Echo boomers nearing peak move to suburbs with children age (KLSD) Empty nester pent up supply (needs more research- can we geocode locations? Work w. R/E brokers to do surveys?) Early signs of life in KLSD: In our town first grade class up 7%; Preschool classes also seeing growth Home sales up 12%, now at 200 annual run rate Last cycle home sales went from 200 to 300 in one year and remained on average over 300 for the next 13 years...

Other notes: FYI - Our SAC/HU ratio history has been as high as 1.25 (a fact overlooked by Dr G, but on the BOE website.). Stock ratio, likely higher for new home sales. Any secular concerns need to be addressed with hard data, not hunches or anecdotes
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Linear Regression Projections

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Elementary Enrollment 300 Enrollment Enrollment Enrollment Grip Projections Houses Sold

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Capacity footnotes: Bottom Line (A) 1380 = capacity with all 61 standard classrooms Top line (B) 1440 = capacity in event of unlucky surprise: +60 students, across 3 grades and 2 schools need +6 extra classrooms in 2 schools. Note also violates ideal school size of 400 as shown in literature.

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Our forecast thus far

Our forecast thus far: Housing assumptions
Conservative: Housing stays flat, 210 sales a year Moderate: 210 300 growth over 5 years Strong Recovery: 210 330 growth over 5 years

Historical data show that home sales rose from 200 to 300 in one year and remained on average above 300 for the next 13 years
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Simple math and The Perfect Storm (You tell me housing, Ill tell you enrollment)
Additional housing comes on line (Falcon Ridge, Oakridge), housing market recovers, we get a surprise increase K, 1st and 2nd graders, we need 3 extra classrooms at 1, 2, or 3 schools. Class sizes rise from 200 to 300 annually enrollment reaches 1450 in 3 yrs (300 275 250 200 200 200) School size rises above 450+
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Outline
Critical review of the Grip report and conclusions Review of cyclicality in enrollment Multivariable linear regression Observations and discussion

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What if were wrong?

What if were wrong? (How do we pass the What were you thinking test?) Is it appropriate to make decisions in the trough? Especially where young children and their education is involved? Would closing a school now be the equivalent of shorting the market? If Jamie Dimon could not time it, and Alan Greenspan couldnt either why should we be able to? As we all know, its virtually impossible to time the market. The only way to win long term is to stay invested and not to be going in and out of the market. Capacity issues - caution re squeezing. MBA 101: NEVER run your plant over 85% capacity

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Other issues
Slippery slope risk: Need to keep our school system attractive to attract future buyers and keep our community vibrant. MBA 101: Successful businesses maintain and invest in their brands. They are sacred. Impact of school size A survey of the literature shows that 400 students is the ideal school size- could it be that all of our elementary schools were designed with this principle deliberately in mind? Tax cap issues to reopen or grow when necessary Execution risk thoughtful redistricting, physical simulation of bus routes still to be done, as well as many other transition plans

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Recap
Demographers enrollment projections invalid.
Not appropriate for cyclical situations - ignored housing growth as a key predictor

Our district, like our peers, has cyclic enrollments. We are in a trough, and may be recovering soon.
We showed housing is a strong predictor We built a multi-variable regression model. Predicted the past accurately. Needs work.

Initial regression model suggests strong correlation with housing

Over-predicting test data A recovery could be underway but no one can accurately predict housing growth. Chappaqua shows strong and sudden growth in enrollment and housing. We are very similar (recall comparison)

In the absence of a credible enrollment forecast, there is no case to close a school. At a minimum, we need more time to study and collect data In a broader sense, even after further analysis, it may not be appropriate to recommend closing a school in a period of cyclical recovery: (Not if, but when) Respectfully submit that in faithfully upholding its stewardship of young children and their education, it is not the province of a school administration (or any of us) to be speculating on the future of housing. We are a school system, not a hedge 28 fund.

Appendix
Claire Aldrich Holds a BA in Economics and Political Science from Yale University and a CFA. Claire has worked as a credit analyst on Wall Street for 30 years. Satya Nitta - Holds a Ph. D in Chemical Engineering from Rensselaer Polytechnic Institute. Master Inventor at IBM T J Watson Research center. 15 years of experience in Nanoelectronics inventing and developing future chip technologies. Recent focus is on applications of Cognitive Computing.
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Linear Regression Explained

Hypothesis:
Parameters: Cost Function: Goal:

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J(0,1)

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Gradient descent algorithm

Correct: Simultaneous update

Incorrect:

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