School Finance Reforms Must Address District-level Problems


School Finance Reforms Must Address District-level Problems

In 2012, district-level funding became the subject of litigation when a group of parents sued Clint Independent School District, claiming that it allocated more funds to its schools in the Clint area than it did to schools in Horizon City and Montana Vista. Analysis of Clint ISD’s expenditures between 2006 and 2010 support this assertion. For example, Clint ISD’s Clint High School received an average of $2,709 per pupil more than Horizon High School during this time, despite having a smaller share of disadvantaged students. While the Texas Supreme Court ruled that the plaintiffs must go through administrative channels before pursuing legal action, this case highlights a critical component of school finance that is largely ignored by policymakers.

Clint ISD’s funding problems are not an anomaly as the vast majority of districts employ Full-Time Equivalent (FTE) budgeting systems that diminish equity and transparency. In fact, one Texas study found allocation practices within districts have more effect on school-level resources than revenue inequities among districts. The authors concluded “We should not assume that school finance reforms directed at resolving resource inequalities between school districts will ensure those resources are equitably distributed among schools and their students.”

Rather than giving principals actual dollars that can be spent flexibly based on school priorities, FTE budgeting provides staffing positions—such as teachers, librarians and counselors—according to rigid staffing schedules. As a result, resources that are intended for specific students are often used for other purposes, and school leaders have less say over how funds are spent. While charter and private school leaders tend to have significant control over budgeting decisions, this isn’t true for most district schools where a typical principal controls as little as 1%—5% of funding.

Another problematic feature of FTE budgeting is that it equalizes staffing positions so that each school’s resource allotment does not reflect the actual salaries of its teachers. In this system, schools in disadvantaged neighborhoods—which tend to have less expensive teachers—are forced to subsidize the more costly staffs at other schools. An analysis by Marguerite Roza examined numerous districts, including Austin and Dallas, and found that “…teacher salaries are an average of $1,000 to $5,000 higher in schools with fewer poor students than in the highest-poverty schools in the same district.” In a separate study, Roza and Paul T. Hill found that the average gain or loss within four districts evaluated ranged from $72,576 to $120,612 with one school losing an astounding $959,730 due to district policies.

This transfer of resources would be less troublesome if teacher quality were distributed uniformly within districts. But research suggests that this isn’t the case, as schools in disadvantaged neighborhoods have more difficulty attracting candidates to fill vacant positions than schools in wealthier neighborhoods and thus have smaller applicant pools. As a result, some principals get the first crack at hiring the most talented teachers, and these schools tend to snap up the more experienced, higher-salaried staffs. So while salary is largely an unreliable predictor of performance for individual teachers, this is not the case when considering variations in average teacher salaries among schools. Marguerite Roza and Paul T. Hill conclude:

On average, given that each school can hire the best talent available, schools with more applicants get more talent. And our research shows that schools with the most applicants employ higher salaried teachers. Those with much smaller applicant pools have fewer hiring choices and end up with lower-salaried teachers. In sum, the average salary for all teachers at a given school reflects the school’s ability to hire teachers and thus can be related to teacher quality.

A district budgeting system that allocates dollars to schools based on actual salaries—instead of allocating staffing positions based on average salaries—can help eliminate this problem in two ways.

First, it would force principals to consider economic tradeoffs in the hiring process, which would allow for a more natural dispersion of teacher quality throughout a district. On the surface, this might seem to introduce an unwelcome element into teacher selection, as current systems typically permit principals to simply “hire the best candidate, irrespective of cost.” But in a world of finite resources, this approach is flawed since some schools will inevitably benefit at the expense of those that have fewer choices.

Second, to the extent that an equitable mix of teacher quality among schools is still not achieved within a district, the principals who would otherwise be forced to subsidize their peers are instead permitted to apply cost savings to things such as additional staff, classroom technology, tutoring and incentive pay. This would not only allocate resources based on what individual students are entitled to, but also help foster a better work environment that could attract talented candidates in the future.

To address district-level funding issues, at least 80%—90% of each student’s allotment should be pushed directly to the school in which he or she is enrolled, similar to what most states already do with charters. This will guarantee that funds are spent on the students they’re intended for while also affording principals greater autonomy over expenditures since they would receive actual dollars and not staffing allotments or other inputs. If legislators fail to implement this as a state-level reform then leaders should be encouraged to adopt it locally as more than 30 districts across the U.S. have already done. In cities such as Houston, Denver and Boston, funds are allocated by a weighted-student formula and principals receive actual dollars to spend flexibility rather than staffing positions or other inputs. This system has proven to be popular among principals, as 87% of those surveyed wanted to keep it.

For more, see Reason Foundation’s latest brief on Texas school finance.