How Should States Count Students to Calculate School Funding?
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How Should States Count Students to Calculate School Funding?

School finance systems should base education funding on current enrollment figures to best serve students and promote equity.

As the COVID-19 pandemic continues to affect student enrollment and school attendance rates, states are grappling with how they should count students to determine public school funding allotments.

For years, states have varied in their approaches to counting students and delivering payments to school districts. Many states choose methods that use up-to-date student counts, but others rely on outdated enrollment or revenue numbers.

Allocating education funding based on historical student counts or revenue levels is often referred to as “hold harmless.” These hold harmless provisions can seriously distort funding allocation patterns and undermine equity goals by providing school districts with education dollars for students they no longer teach. Despite the significant downsides, a number of states choose to fund their school districts using this method.

But there are also many examples of states employing student counting systems that are based on current student numbers. In these states, education dollars tend to promptly follow a student to the district they are currently attending.

While it can sometimes be difficult for researchers to access clear information on how exactly states across the country count students, we estimate that 24 states use either no or minimal hold harmless allotments, while 7 states have relatively modest provisions in place. Note, that this doesn’t account for temporary hold harmless policies that are related to the Covid19 pandemic and these classifications may be adjusted based on our continued research.

  • 15 states – including Texas, South Carolina, and Louisiana – base school district funding on student counts from the current year without any major exceptions for school districts with declining enrollment or prior funding levels (i.e. a hold harmless allowance). Some of these states fund districts based on attendance, others based on enrollment count days, and still others based on average daily membership which averages enrollment counts over the entire school year. Regardless of the specific counting method, these 15 states all fund school districts based on current year counts, with no substantial hold harmless allowances.
  • Nine states – such as Alabama and Mississippi – fund school districts based on prior year counts and again do not use major hold harmless provisions for school districts with declining enrollment. While this approach falls short of providing funding based on current year student counts, it does have the advantage of providing districts with more predictable funding levels without employing a hold harmless provision.
  • Seven more states fund districts based on the current year but feature modest allowances for declining enrollment or revenue. For instance, Vermont uses a single enrollment count window at the beginning of the school year and funds schools based on that same-year count, but districts are guaranteed at least 96.5 percent of the previous year’s revenue.

The remaining 19 states have more substantial hold harmless policies in place, which vary in how they operate. For example, Oklahoma has a blunt policy that funds districts based on the highest student count of either the current, prior or second preceding school year. Similarly, Pennsylvania funds school districts based on a three-year average of average daily membership and guarantees that all districts receive at least as much funding as they did in the prior year. States usually use these counting methods to smooth out the effects of student population changes over time and to make it easier for districts to plan their budgets.

However, funding school districts on the basis of inaccurate or outdated student counts prevent dollars from following students to the school they actually attend in real-time and prioritizes districts with declining enrollment over those with stable or growing enrollment.

Policymakers in these states might wonder how to transition to a more responsive funding system. One important consideration is how to structure payment schedules.

On a granular level, states often have regular payment schedules that can be adjusted to reflect any changes in enrollment over the course of the year. In Washington, school districts are initially funded for their first month based on enrollment estimates. Subsequently, enrollment is counted on the first day of each month throughout the entire school year and these counts are used to determine the next month’s payment. In January of the following school year, all enrollment data is finalized, and “any recovery is treated as if the school district received an advance on its apportionment payment in the prior year.”

Another state that delivers funding based on current year counts is Texas.

In the fall before each biennial legislative session, legislative payment estimates (LPE) are calculated for school districts using estimated attendance data. LPEs are then used to determine how much funding districts are allocated throughout the year using one of three payment schedules. Because each school districts’ actual attendance will inevitably differ from their LPEs, Texas Education Agency produces regular reports throughout the year that include revised allocation amounts so that districts can plan accordingly. After the close of the fiscal year on August 31st a settle-up process begins in which Texas Education Agency pays out additional aid to school districts and charters that were underpaid and recovers funding from those that were overpaid.

In the coming years, it’s going to be increasingly important for state policymakers to allocate scarce resources strategically, and doing so requires a school finance system that bases funding on current enrollment figures.

Lawmakers can learn from successful practices of other states and customize their approach to meet actual student and school needs.