February 12, 2016

Five Finance Tips for States on School Funding

By Bellwether

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If my Google alerts are any indication, 2016 is a hot year for state school finance (first time “hot” and “school finance” have been used in a sentence together?). Kansas hit the news dramatically with the court imposing a June 30 deadline to fix its school funding system or schools will not open next fall. Some of this year’s other sizzling school finance stories include:

  • A handful of states are in court on charges of inequitable or inadequate funding or both, including California and Texas, with Texas expecting a high court decision soon that could require somewhere between $0 and $10 billion new dollars per year for public schools.
  • The Washington legislature is racking up $100,000 a day in legal fees for failing to address a 2012 ruling.
  • Michigan may increase spending flexibility to facilitate technology purchases.
  • Nebraska’s governor wants to cap school spending and school board taxing authority.
  • Colorado’s legislature is rigorously studying its school funding system, laying the groundwork for future action.
  • Arizona will soon implement a wonky but consequential shift in the way it counts students and is pondering big changes to public education revenue streams.

While funding alone cannot guarantee great outcomes, unstable, inadequate, or poorly-designed funding systems fail to create a solid foundation on which great things can be built.  
As these states (and all states) deal with these big funding questions, here are five things to consider:
1. Equity should drive the framework for state funding systems.
Allocating school funding and establishing and holding schools accountable for learning standards are two primary functions of states as the guarantors of the right to education. The ability of all schools to deliver on that guarantee depends on the equitable distribution of resources supporting them. Most, if not all, state funding systems are fundamentally geared to address equity, but those gears get sticky when policymakers add elements aimed at addressing other priorities, often for political expediency. Legislators must always keep their eye on the ball. (Hint: Equity is the ball.)

2. Student-based funding makes the most sense from an equity perspective and an operational one.
A student-based formula links the flow of funds directly to the key cost driver in the system, kids and their educational needs. Weights for student characteristics linked to the need for increased educational support—like economic disadvantage, status as an English language learner, or special education needs—ensure that the most funds flow to schools serving the highest need students. And weights for small or sparsely populated districts can compensate for diseconomies of scale that disadvantage smaller and often rural districts. A smartly designed student-based funding structure delivers funds tied directly to the needs of students—what’s more equitable than that? And what better basis for spending decisions at the local level than a revenue stream predicated on the needs of children?
3. Addressing student funding equity also addresses taxpayer equity.
States’ heavy reliance on local property tax for school funding drives a large measure of the inequity in school finance. From a student perspective, the issue is easy to see—children living in more property-poor communities often attend lower-funded schools because of disparities in local revenue. But there’s a taxpayer issue here too. Proponents of “local discretion” argue that local voters should be permitted to tax themselves as they see fit based on the level of education services they want to provide. But how does that work when District A generates $100 per student at $1.00 tax rate, and District B generates $1 per student at the same rate? District B’s taxpayers show the same willingness to pay, but they (and their schools) get much less for their effort. The playing field must be level or it isn’t true discretion. Some states provide funding to less property-wealthy districts to enable them to generate comparable revenue at comparable rates (equalization). But this doesn’t happen everywhere all the time. And where and when it doesn’t happen, poor communities and their schools and students lose.
4. Spending flexibility creates space for innovation.
A well-designed equitable funding formula doesn’t need to dictate how districts spend money. Yes, some parameters may be necessary with some funding streams, like those tied to federal grants or supporting fixed costs like teacher pension contributions. But moving away from categorical restrictions on expenditures passed down from the state gives districts the ability to more nimbly adapt to changing instructional needs and provides a necessary condition for innovation. Bottom line: Keep the allocation of school funding as close to students and their needs as possible, and let local spending decisions follow locally.
5. Try to stay out of court.
Lawsuits take a long time, and children attend potentially under-resourced schools for years while adults duke it out. Exhibit A: Washington’s legislature is still grappling with a 2012 ruling on a case that was filed in 2007. A child entering kindergarten when the suit was filed is now in high school. Too bad for her. And lawsuits breed ill will among the very people who ultimately must work together to design the solutions.
School finance policy isn’t simple. But it is arguably the most important policy debate in state houses. Lawmakers must act with the guiding principles of equity and flexibility front and center to build the foundation on which system of schools that serves children well can thrive.

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