High levels of school and community poverty can have a compounding effect on low-income students’ resource needs. To address systemic inequities in K-12 education funding at the state level, it may not be enough to rely on extra funds allocated for individual economically disadvantaged students in funding formulas. An increasing number of states, especially those with big economic divides among school districts, are factoring in concentrated poverty in their funding allocations to even the playing field. 

Splitting the Bill: How Do School Finance Systems Support Economically Disadvantaged Students? highlights the latest research on policy options for weighted funding streams for economically disadvantaged students and concentrated poverty across the country. As the most recent state to add concentrated poverty to its education funding formula, Michigan is worth a closer look. 

In its latest education budget signed into law this summer, Michigan created an “Opportunity Index” to factor in district-level concentrated poverty in its funding formula. Previously, students who qualified as “at-risk” due to their socioeconomic status generated additional funding through a single weight. In fiscal year (FY) 2023, this was an 11.5% weight on a base of $9,150.  

Michigan’s new policy creates six tiers, with districts enrolling high concentrations of at-risk students receiving more weighted funding per pupil (Table). For example, an at-risk student in a low-poverty community would generate a minimum of 11.5% in additional funds for their school district. If the same student moved to a high-poverty community, they would generate up to 15.3% in additional funds. Within each of the first five tiers of district economic disadvantage, the amount of the funding weight increases incrementally as poverty increases, before topping out at the highest tier. 

In the first year of implementation, Michigan’s Opportunity Index will drive about $952 million in funding, $200 million more than previous at-risk weight investments in the state’s funding formula. 

Over time, Michigan aims to continue investing in these weights, with a target maximum weight of 47% in its highest-poverty districts. There will be a phased-in implementation of these targeted weights due to budgetary constraints. 

Table: Michigan’s Opportunity Index Funding Formula Tiers for Concentrated Poverty Weights (FY24) 

Michigan isn’t alone in its focus on concentrated poverty. Other states have used different methods to incorporate concentrated poverty considerations in state education funding formulas: 

• Tennessee: Allocates a 25% weight for economically disadvantaged students, 5% additional for students attending Title I schools. 
• Texas: Allocates 22.5% to 27.5% weights for economically disadvantaged students in five tiers based on a student’s address. Tiers are constructed at the U.S. Census Bureau’s block group-level using data including household income, home ownership, household composition, and educational attainment from the American Community Survey five-year estimates. This allows Texas to identify neighborhoods with greater unmet needs within school districts.  

Generally, there are three distribution structures that states could use in a concentrated poverty weight: 

1. A flat, add-on weight, as used in Tennessee, for high-poverty districts or schools. This is the simplest option but may not capture gradations of poverty in different districts. 
2. A tiered weight, as used in Texas. This structure captures nuance that a flat weight may not. However, it could create fiscal cliffs for districts near the dividing line from one tier to the next, as slight fluctuations in student demographics might lead to big changes in funding. 
3. An escalation formula, where the amount of the concentrated poverty weight rises on a sliding scale after a certain cut-off point. For example, Colorado uses a sliding scale of weights for any district with higher poverty than the state average. This prevents fiscal cliffs and prioritizes the highest-poverty districts, but can be difficult to predict and is often harder for policymakers and advocates to explain to the broader public. 

Michigan’s Opportunity Index is a combination of tiering and escalation distribution structures. Within Tiers 1-5, the more the need (based on district poverty) the more a per-pupil weight is allocated, starting from a minimum weight and increasing up to the minimum for the next tiered band. In Tier 6 (the highest-poverty districts) every low-income student generates the maximum weight. 

There is not a one-size-fits-all funding formula for states to choose from. The more complex funding equity design options, such as an escalation formula, might provide greater precision in allocation, while posing a risk to transparency and predictability in the system. States’ specific funding design choices should depend on the number, distribution, and needs of districts along with budgetary constraints. Regardless of individual statewide factors, a concentrated poverty weight is a valuable step that policymakers can take to address longstanding funding disparities in high-poverty communities and make sure that all children have the resources they need to succeed in school. 

For state policymakers and advocates considering a concentrated poverty weight in funding formulas, Splitting the Bill: How Do School Finance Systems Support Economically Disadvantaged Students? breaks down policy design options and more.