Good morning,
Many states waste billions of dollars on education because they use outdated enrollment counts in their funding formulas. As a result, states provide funds for students no longer enrolled in public schools–known as ghost students–or they set arbitrary funding floors for money given to schools, regardless of how many students are enrolled.
These policies aim to provide school districts with predictable budgets and financial wiggle room as they adjust to fluctuating enrollments. However, according to a new Reason Foundation report, this comes at a hefty cost to taxpayers.
The study reviewed the cost of hold harmless provisions in California, Missouri, and Oklahoma. The most recent data showed that these provisions funded nearly half a million ghost students at an additional cost of almost $4.3 billion to taxpayers. This means taxpayers spent billions of dollars on students no longer at these public schools, including some who had already graduated high school or transferred to private schools.
In a 2023 EdChoice report, Martin F. Leuken found that “42 states offered either temporary or permanent protections during the pandemic (2020 to present) to help district finances through enrollment or hold harmless provisions.”
Some hold harmless provisions, such as Colorado’s, used student counts from the previous five years. At least six states used student counts from the prior year or the prior three years–whichever is greater.
These policies cost taxpayers large sums of money, especially when student enrollment declines while school districts receive funds based on higher enrollment counts from prior years. According to data collected by Burbio, a company that measures K-12 spending, the number of public school students dropped in 18 states during the 2022-23 school year compared with the previous school year.
Moreover, the number of public school students is likely to continue to decrease in many states. Enrollment projections published by the National Center for Education Statistics estimate that K-12 enrollments will drop by 2.7 million students between 2022 and 2031. If accurate, in 2031, public schools would have lost almost 4 million students since 2019.
To remedy this funding and enrollment problem, public schools should not receive funds for students they aren’t teaching. Instead, their finances should be enrollment-sensitive, like charter schools and private schools. Some states, such as Florida, Texas, Arizona, and Indiana, already base annual education funding on current-year enrollments.
Using current student counts is especially important in states with robust private school choice or open enrollment programs to ensure taxpayers don’t pay for a student’s education twice: once through the hold harmless provision and a second time through a private school scholarship.
While using the most recent student counts for funding purposes will be difficult for some school districts losing students, it comes with potential long-term benefits. “These dollars could be otherwise devoted to raising per-student funding for all school districts or to directing greater funds to higher-need students,” Reason Foundation’s Aaron Smith and Christian Barnard point out. With state budgets tightening, saved dollars could also offset state revenue declines.
As many states face lower student counts and federal COVID-19 relief funds dry up this year, state policymakers should reconsider how public school funding works. Instead of propping up school districts by funding ghost students, policymakers should ensure school districts operate based on their actual student counts.
From the states
Pennsylvania signs a major school finance reform into law, significantly increasing K-12 education funding.
In Pennsylvania, Gov. Josh Shapiro signed a bipartisan budget into law. The bill changed the state’s education funding formula and significantly increased K-12 education funding by $1.1 billion, 21% of which will go to Philadelphia schools. The bill did not include a private school program.
What to watch
Iowa Gov. Kim Reynolds announced that more than 30,000 students will receive education savings accounts during the 2024-25 school year. This represents an increase of about 76% in student participation compared to last school year. Scholarships are currently valued at about $7,800 per student. While student eligibility is capped for families with incomes at 400% of the federal poverty level, all students will become eligible for a scholarship for the 2025-26 school year.
Taking political cues from Texas Gov. Greg Abbott, Tennessee Gov. Bill Lee withheld endorsements from Republicans up for reelection in the legislature who didn’t support his private school choice proposal this spring. Instead, Gov. Lee announced support for primary challengers who pledged to support his school choice policies. After Republicans failed to support the governor’s school choice proposals during the spring, he “pledged to vet GOP legislative candidates this election year based on his school choice agenda,” Chalkbeat Tennessee reported.
Recommended reading
The Hidden Role of K–12 Open-Enrollment Policies in U.S. Public Schools
Jude Schwalbach at Education Next
“Overall, these data showed that, in Arizona and Florida, most students used open enrollment to transfer to urban and suburban school districts. However, in Wisconsin, rural school districts attracted the second-largest share of transfer students when compared to other locales in the state.”
Transparent K-12 open enrollment data matters to parents, policymakers and taxpayers
Jude Schwalbach at Reason Foundation
“Data on open enrollment programs are scarce since SEAs rarely distinguish between students using open enrollment from residentially assigned students in their annual reports on student enrollment. This makes it difficult for policymakers, researchers, and the public to assess the effect of open enrollment programs. Accordingly, state policymakers should require SEAs to publish highly transparent reports on open enrollment each year on their websites.”
A Unified Theory of Education
Frederick M. Hess and Michael Q. McShane at National Affairs
“In lieu of new spending schemes or exercises in technocratic adventurism, we should approach education from a place more explicitly grounded in practical, formative, human-sized solutions. Children are not abstractions, and parents are loath to entrust their child’s well-being to radicals who speak as if they are. Our approach is rooted in a particular kind of seriousness: a purposeful, formative, joyous kind.”