The Key School Finance Question: Are Dollars Allocated Based on Students?

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The Key School Finance Question: Are Dollars Allocated Based on Students?

The U.S. spends $634 billion annually on public education.

Americans have plenty of reason to be concerned about school finance, beginning with the fact that the U.S. spends $634 billion annually on public education—enough to rank 5th in the world in per-pupil spending.

Both taxpayers and kids benefit when these dollars are used productively and that’s why it’s important for school choice advocates to understand the relationship between school finance systems and choice policies such as charter schools, education savings accounts, and open enrollment.

Most advocates are familiar with the phrase “backpack funding,” which describes a straightforward concept: let the money follow a student to their school of choice.  But what does this really mean in the broader context of school finance? A look under the hood of virtually any funding formula is sure to reveal provisions that make this difficult or even impossible — and that’s if you have days, weeks or even months to devote to understanding the financing formulas in the first place.

Fortunately, school choice advocates don’t have to become experts to understand whether a policy supports funding portability. They just need to ask a simple question: Are dollars allocated based on students?

Red flags should go up if the answer isn’t a clear-cut, “Yes.” And just as guitarists learn chords and scales to become proficient, choice advocates should become familiar with several problematic provisions that are found in many state and school district funding formulas.

  1. Staff-based Allocation: This is the practice of distributing resources based on rigid staffing ratios, which inevitably leads to large funding swings at the margins. For example, a school might receive one teacher for every 20 students, an assistant principal for every 500 students, and a librarian for every 800 students. This makes funding less responsive to enrollment because the addition or subtraction of a student doesn’t necessarily result in more or less funding. Most districts allocate resources in this manner, which not only prevents funding from following the child but also ties the hands of principals by dictating how funds are spent.
  2. Hold Harmless: These ‘outside-the-formula’ provisions allocate resources based on historical funding levels and are usually intended as temporary measures when state formulas change, but often end up existing in perpetuity due to political pressure. For example, North Carolina’s Disadvantaged Student Supplemental Funding allotment provides 16 districts an average of $779 per pupil more than other districts because they participated in a pilot during the 2004 school year. As a result, students with identical needs are funded at different levels depending upon what district they attend.
  3. Minimum Aid: These provisions provide guaranteed dollars to all school districts, regardless of how much local revenue their local property wealth generates. For example, Pennsylvania provides property wealthy districts with at least $500 per pupil in state dollars. As a result, existing spending disparities are exasperated and scarce tax dollars are allocated to districts that don’t need additional funding.
  4. Categorical Aid: Provides funding for specific purposes ranging from professional development to transportation. These funding streams often come with strings attached and prevent principals from strategically allocating dollars to meet student needs. Before California enacted its Local Control Funding Formula, its categorical aid included programs for oral health assessments and community-based tutoring.

The common thread among these provisions is that dollars are delivered based on factors other than student needs, which ultimately affects funding portability and fairness. A student might receive vastly different resources depending on what school or district they attend and money doesn’t flow seamlessly to charter schools and other school choice programs. For taxpayers, it also means a highly inefficient funding mechanism that wastes valuable dollars that can be used more productively. Fortunately, states and districts across the U.S. are making fundamental reforms aimed at addressing these issues. In 2013, California’s Local Control Funding Formula eliminated more than 50 categorical programs and districts such as Boston Public Schools are adopting student-based budgeting.

School choice advocates should be skeptical of funding mechanisms that aren’t tied directly to individual students and work toward streamlining all education dollars into a simple, needs-based formula. This will not only save taxpayers money but will help pave the way for school choice programs that empower parents and provide educators with greater autonomy.

Aaron Garth Smith is an education policy analyst at Reason Foundation, a nonprofit think tank advancing free minds and free markets.