Public school enrollment is falling fast, and hold harmless policies that provide funding protections for school districts are becoming increasingly costly. These policies can broadly be classified in two ways, with each type serving different aims.
Declining enrollment protections allow school districts to use previous, rather than current, student counts for funding purposes. This promotes stability by giving school districts time to adjust to revenue fluctuations caused by enrollment losses. Similarly, funding guarantees promise school districts a minimum level of state aid and are often used as a political bargaining chip to help legislators pass school finance reforms. Across states, many hold harmless policies were in place even before the COVID-19 pandemic.
But such hold harmless policies fund “ghost students” or set arbitrary funding floors, which have opportunity costs. For instance, these dollars could be otherwise devoted to raising per-student funding for all school districts or to directing greater funds to higher-need students.
Hold harmless policies also reduce the incentive for school districts to right-size operations or innovate in response to budget constraints. Finally, they run the risk of becoming entrenched in school finance systems over time, outliving their intended purpose.
In many cases, it’s unclear exactly how much these provisions cost and which districts benefit most from them. As a result, policymakers can’t easily assess their effectiveness or whether these resources could be put to better use for students. With widespread public school enrollment losses in the wake of the COVID-19 pandemic, the financial costs of some hold harmless policies have increased exponentially. This trend is likely to continue, with the National Center for Education Statistics projecting that nationwide public school enrollment will fall by 5.1% between 2021 and 2031 as many states continue to lose students. This, combined with the rise of school choice policies such as Education Savings Accounts and public school open enrollment, also raises the stakes for policies that effectively fund students twice.
This study shines light on the issue by assessing declining enrollment provisions across three states: California, Missouri, and Oklahoma. It also analyzes separate funding protections in California and Missouri. Because it is sometimes claimed hold harmless policies benefit low-income students, particular attention is given to trends related to school district poverty levels.
California
- In 2022-23, 789 of 931 school districts—or 84.7%—received declining enrollment funding. As a result, there were an estimated 400,974 ghost students statewide, costing the state $4.06 billion or 6.2% of total formula aid. Charter schools were not eligible for this funding.
- Los Angeles Unified School District had an estimated 50,417 ghost students, costing the state $507.74 million or $1,459 per student.
- On average, the state’s highest-poverty school districts weren’t the largest beneficiaries of declining enrollment funding per student.
- In 2022-23, 148 school districts received hold harmless funding via California’s Minimum State Aid (MSA) policy, which guarantees funding based on 2012-13 levels. The majority of these school districts (111) were property-wealthy districts that didn’t otherwise qualify for state formula aid. MSA funding for school districts totaled $186.1 million.
Missouri
- In 2021-22, 256 of 518 school districts—or 49.4%—received declining enrollment funding. As a result, there were an estimated 44,997 ghost students statewide, costing the state $197.04 million or 4.7% of total formula aid. Charter schools were not eligible for this funding.
- On average, the state’s highest-poverty school districts weren’t the largest beneficiaries of declining enrollment funding per student.
- In 2021-22, 200 school districts received hold harmless funding via Missouri’s large school hold harmless (LSHH) and small schools hold harmless (SSHH) provisions, which guarantee funding based on 2005-06 and 2004-05 or 2005-06 levels, respectively. Combined, these policies cost the state about $134 million and sent state aid to 17 property-wealthy school districts that otherwise wouldn’t qualify for state formula aid.
- Clayton and Brentwood—two of the highest-funded school districts in the state— received $546 per student and $580 per student in LSHH funding, respectively.
Oklahoma
- In 2022-23, 155 of 541 school districts in Oklahoma—or 28.7%—received declining enrollment funding. As a result, there were an estimated 3,777 ghost students statewide, costing the state $14.03 million or 0.6% of total formula aid.
- On average, the state’s highest-poverty school districts weren’t the largest beneficiaries of declining enrollment funding per student.
- The per-student amounts allocated through this provision were substantially lower than in California and Missouri.
3 Key Takeaways
Putting it all together, this study has three key takeaways for state policymakers.
1. Declining enrollment provisions can have substantial opportunity costs, but context matters.
Hold harmless policies divert dollars away from funding school districts based on current enrollment counts and students’ needs. California and Missouri illustrate how declining enrollment provisions can consume a substantial portion of state education budgets during periods of widespread enrollment losses. In comparison, Oklahoma allocated only a modest portion of its formula aid through its declining enrollment policy.
As declining enrollment provisions become costlier, policymakers can look to states such as Texas, Arizona, and Indiana, which all fund school districts solely based on current-year enrollment counts. Alternatively, lawmakers can make their declining enrollment provisions less generous, as Oklahoma did in 2021, by going from a two-year look back to a one-year look back.
2. Funding guarantees can allocate dollars arbitrarily and undermine state funding formulas.
Hold harmless policies can long outlive their intended purpose and arbitrarily benefit subsets of school districts at the expense of overall funding fairness. This is especially true of funding protections, which are often aimed at ensuring state aid for wealthy school districts.
For example, California’s Minimum State Aid (MSA) guarantee was designed to shield some districts from funding losses related to a funding formula overhaul in 2012-2013. This policy directed $126.6 million in state funds to 111 property-wealthy school districts that wouldn’t otherwise receive any state funding.
Although funding protections are entrenched in statute, lawmakers sign off on them each year they persist. Eliminating outdated hold harmless policies can be politically challenging, but is a worthwhile policy goal.
3. The relationship between declining enrollment funding and school district poverty rates is tenuous.
Across the three states examined, there isn’t a clear relationship between declining enrollment funding and school district poverty levels. For instance, California’s highest-poverty school districts (Quartile 4) received less declining enrollment funding on average than its lower-poverty school districts (Quartiles 2 and 3).
If targeting additional dollars to low-income students is a policy goal, there are more effective ways to accomplish this. For instance, all states examined in this study have funding weights in their formulas that provide additional resources for economically disadvantaged students. This is a more precise and transparent approach to divvying up education dollars.
Many states employ hold harmless policies similar to those examined in California, Missouri, and Oklahoma. Policymakers in each state should evaluate the cost of these policies, their distribution patterns, and whether they’ve outgrown their original purpose. In a context where states are still rebounding from COVID-19 enrollment shocks and many are projected to have stagnating or declining K-12 populations over the next decade, it becomes increasingly expensive to shield districts from the resulting financial effects. Ultimately, legislators should ensure that K-12 dollars are tied to their strategic goals for
public education.
Full Study—Billions: The Cost of State Hold Harmless Policies in K-12 Education