Clearing up definitions of backpack funding
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Clearing up definitions of backpack funding

Without strong funding portability mechanisms, school districts have weak financial incentives to welcome transfer students.

For school choice programs to succeed, state leaders need to account for whether their K-12 funding system has portable education funding, i.e., dollars that follow students to the school of their choice. Portable education funding is also often called “backpack funding,” but this term can refer to several things. 

In a new Reason Foundation policy brief, Public Education Without Boundaries, our team analyzes how school finance systems can get in the way of dollars following students across school district boundaries. Advocates of backpack funding should also pay attention to how dollars follow students between individual public schools, between public and private education environments, and how the whole education funding system ultimately ties together. In each case, backpack funding hits new roadblocks and requires different policy solutions.

1.       District-to-District Backpack Funding

An important subset of backpack funding concerns how education dollars follow students when they attend public schools outside of their residentially-assigned school district boundaries. Without strong funding portability mechanisms, school districts have weak financial incentives to welcome transfer students via cross-district school choice. The recent policy brief, Public Education Without Boundaries, tackles this problem and identifies three primary culprits preventing funding portability between public school districts.

First, most states have a group of school districts that are “off-formula,” meaning the districts can raise more than all the funding they are entitled to under their state’s main funding formula from local tax sources alone. Put simply, off-formula school districts create funding portability problems because they often don’t lose or gain funding when students transfer out or transfer in.

A second problem for funding portability between school districts is local education funding, which often comes from local property taxes. These taxpayer funds are often raised to support public school operations and finance construction projects, but because these local taxpayer funds aren’t raised based on student enrollment in schools or the district, they again don’t follow students when they transfer out of a school district.

The third funding source that doesn’t follow students easily is any state funding stream that’s not based on current enrollment figures or is not based on enrollment at all. To illustrate, in 2018, Missouri’s K-12 funding system funded 194 school districts based on past revenue amounts rather than current their student counts. Again, this means that a student transferring into any of those Missouri school districts doesn’t generate new funds for the district and that a student transferring out doesn’t take any funding away from the district if they leave.

Achieving backpack funding between school districts means finding ways to make these kinds of education funding sources—which don’t typically follow students—portable. 

One model for how to do this is in Wisconsin, which sets a single, statewide per-student funding amount that follows each student to their new school when they transfer to a new district. That calculated amount accounts for state and local funds–including some dollars that are not portable–which are then deducted from a sending school district’s state revenues. While this amount doesn’t include all funding devoted to a student in their home district, it exemplifies a way that other states can factor in education revenues from different sources and ensure that they come out of a sending district’s budget and follow transfer students out and to their new schools. 

2.     School-to-School Backpack Funding

Importantly, even if policymakers follow examples like Wisconsin to ensure education dollars are portable across school district boundaries, ensuring that funding follows students within school district boundaries when students transfer to a new school within the same district is a separate challenge. While all states have funding formulas ensuring that at least some education dollars follow students across district boundaries, none have statewide policies requiring that districts implement backpack funding at the school level. Therefore, implementing school-to-school backpack funding is a district-level decision that only a small subset of school districts across the country have implemented to some degree.

The standard method most school districts use to allocate dollars within their boundaries is to allot staffing and program-specific funding to each school. Under this common model, school resources aren’t usually thought of in terms of dollars. Budgets are largely administered at the district level, so school principals aren’t directly dealing with the financial effects of students transferring in or out of their schools.

This widespread practice of districts allocating staffing and programs to individual schools has several negative effects on within-district school choice as well as overall funding fairness. When dollars don’t automatically follow children between schools, districts might not be willing to allow for within-district choice because it can complicate budgeting for each individual school. 

Additionally, it’s long been noted that this budgeting practice based on staff positions leads to large per-student funding disparities between schools within the same school district due to differences in staff salaries between campuses. And as new state reports on federally mandated school-level spending data show, this practice often shortchanges schools serving high-need students. 

Achieving backpack funding within districts requires a different toolkit than what’s required to get backpack funding between districts. At the local level, school district leaders need to commit to a weighted student funding mechanism to fund individual schools and implement it with fidelity so that schools are funded solely based on the individual needs of the students they serve. 

Similarly, state policymakers could also advance legislation that requires districts to fund their schools on a weighted funding model and that gives students the option to choose schools within their boundaries. While these efforts would require substantial cultural shifts whereby districts place more budgeting responsibility on individual schools, they would lead to school-to-school backpack funding that fosters both public school choice and funding fairness.

3.       Public-to-Private Backpack Funding

Another definition of backpack funding expands the previous definitions to include non-public education environments. An example of public-to-private backpack funding would be universal education savings accounts (ESAs)—like the accounts recently implemented in states like West Virginia, Iowa, and Arizona. Universal education savings account programs are for all students in a state, regardless of their income or whether they are currently enrolled in public schools, private schools, or homeschooling.

In most cases thus far, students only qualify for an education savings account once they have withdrawn from the public school system. Also, ESAs and private school vouchers are often tied to the per-student amounts under the state’s education funding formula. When a student withdraws from a public school district to utilize an ESA or voucher, that state per-student amount generally leaves the district and follows the student. 

However, the problems that occur with district-to-district backpack funding also apply to public-to-private backpack funding. Local funds outside of the formula and state grants outside of the formula don’t typically follow ESA students, and off-formula school districts won’t typically see a reduction in funding when a student leaves to use an ESA. 

4.       Universal Backpack Funding

Finally, having a universal ESA is not all that’s required to have universal backpack funding. To achieve true universal backpack funding, policymakers need a single mechanism that allows for district-to-district, school-to-school, and public-to-private education choices. Education savings account amounts would need to be calculated similarly to how the per-student funding amount is calculated in the Wisconsin example above so that non-portable education funds become portable. 

Coming up with a single mechanism that accommodates all forms of backpack funding requires policymakers to make the public K-12 funding system more compatible with ESAs. When public school funding mechanisms have a mixture of portable and non-portable dollars, it’s difficult to have ESA amounts that are similar to the per-student funding levels in the public schools without costing the state extra money to make up the difference between the education dollars that follow students out of a school district and the dollars that are left behind in the district losing the student. 

As more universal education savings account bills make their way through legislatures and to governor’s desks across the country, policymakers should also consider how universal backpack funding can help streamline their education funding mechanisms so that all students are funded the same way, regardless of the schools they attend or the environments they are educated in.

Universal backpack funding would help break down the divide that exists between students being educated in public and private environments and ensure that all education funding follows students wherever they go to learn.