Student-Based Budgeting has helped Chicago; CPS budget bungling is the real problem

Before Chicago Public Schools (CPS) adopted a Student-Based Budgeting model in the 2013-2014 school year, its funding system was complicated, uncertain, and unfair. The old structure focused on the adults instead of the kids by budgeting for teacher positions, regardless of cost, based on enrollment quotas at each school. CPS’ model was clunky and convoluted, with several different quota formulas for elementary, middle, and secondary-level students. Figuring out what the budgets would look like each year was a needlessly serpentine task, guzzling away hours of otherwise-better-used administrative hours. The model posed plenty of risks too.

Chicago’s old budgeting system left parents and principals trapped in a game of fiscal Russian roulette. Just one more or less student at the right enrollment quota threshold could be the difference between an entire teaching position and its tens of thousands of accompanying dollars. Depending on the circumstances, a school could get a disproportionate windfall or be understaffed and underfunded, even if its overall need did not change compared to a counterpart with similar enrollment. With little budget autonomy under the previous system, principals didn’t have the flexibility to readjust resources to meet these awkward changes smoothly.

Besides its practical limitations, CPS’ old model made school funding inequality par for the course throughout the city, hurting the poor and minorities the most. For instance, between two identically sized 400-student schools, one received $281 less per child than its counterpart; a total disparity of over $110,000. A Department of Education study found that nearly 300 of CPS’s schools eligible for additional Title I federal funding for low income students got less per-student district funding than schools without those grants. The Title I schools served student bodies over 90 percent below the poverty line but got 13 percent less money per-pupil than the schools with wealthier students. And in 2005, a budget analysis by Catalyst Chicago found that the CPS schools most likely to be underfunded were large schools serving predominately Latino students.

Student-based budgeting is tackling all of the problems Chicago’s old formulas caused. The city’s SBB reforms let funding follow kids to the public school of their choice. Now all schools get the same amount of money: $4,697 per student enrolled in kindergarten through third graders; $4,390 for each student in fourth through eighth grade; and $5,444 per high school student. With funding directly tied to enrollment, schools have an incentive to compete to provide the best education possible. And by giving students with extra obstacles such as poverty, English-language-learning, or special needs extra money, CPS allocates its resources most equitably, proportional to school size and student need.

Because the money follows the kids, not the adults, Chicago schools have an equal shot at hiring the best teachers when it comes to compensation. Thanks to the SBB overhaul, Chicago principals now control nearly half of their schools’ individual budgets. Now school leaders can more easily re-evaluate their spending each year to best meet students’ needs as their budgets change.

Despite SBB’s benefits for Chicago, its rollout coincided with significant cuts that some unfairly blame on the new budget system. The true source of the reductions is much simpler: fiscal mismanagement. CPS has a $1.1 billion deficit, which lead Moody’s Investors Services and Fitch Ratings to recently downgrade their bond rating to junk status. While tax revenues decreased a relatively modest five percent between the 2011-2012 and 2013-2014 school years, expenses related to the districts pensions and interest for its $6.2 billion deficit exploded 90 percent. Every school has less per-student-funding than it would if CPS had been more responsible with its cash.

A lot of criticism of SBB centers on the $60 million Chicago’s traditional public schools are losing this year. Yet for all the outcry, SBB has made things more sustainable long-term, not less. That’s because CPS is finally ripping off a Band-Aid it’s kept on too long. For the past two years, CPS maintained “hold-harmless” agreements that protected schools from funding decreases, even if they experienced declining enrollments. During that time CPS wasted millions of dollars sending money to schools for students who were no longer there.

So the cuts to some CPS schools aren’t the result of callous disinvestment in education. The money shows you a path students are taking. The district predicts it will experience a net decrease of over 800 students from last year. Of students staying in the district, many are moving out of the traditional neighborhood schools to enroll in charter schools.

The exodus shows students and parents voting with their feet, choosing to leave for schools they feel will serve them better. Now when these students depart a school, they’re taking their funding with them to their new school. Given all the benefits discussed above, portable funding in Chicago should be celebrated, not feared.

CPS faces many challenges as it struggles to overcome past fiscal mismanagement and reform enormously expenses taking an increasingly large piece of the budget pie, leaving less and less money for students and classrooms. But student-based budgeting is part of the solution, not the problem. By making sure each student brings a fair amount of money with them, CPS has started down a more equitable path that will help deliver better educational results over the long-term.

Tyler Koteskey was an education policy analyst at Reason Foundation, a non-profit think tank advancing free minds and free markets.