Testimony: Tennessee school finance reform would address student needs
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Testimony: Tennessee school finance reform would address student needs

Tennessee's school finance reform would give policymakers a more reliable mechanism for targeting dollars to selected categories of student needs including low-income students and students with disabilities.

Tennessee is one of only nine states that still employ a resource-based formula for allocating education dollars to school districts. This approach puts the focus squarely on inputs rather than students’ needs and is mired in layers of complexity that reduce transparency. As a result, it can be difficult for policymakers to effectively target dollars to students and formulating a coherent strategy for allocating the state’s $9.655 billion in state and local funding is near impossible. Our recent study of the Volunteer State’s school finance system reveals five key findings: 

1.      Only 3% of Tennessee education dollars are allocated based on student characteristics. 

2.      Only 16% of education dollars are flexible for district and school leaders to determine how to spend. 

3.      Funding for low-income students is relatively neutral with respect to districts’ poverty levels.

4.      In multi-system counties, county school districts tend to be at a funding disadvantage compared to municipal and special school districts. 

5.      The state’s local wealth equalization is unnecessarily complex and opaque.

Overall, HB 2143 is a significant step in the right direction. Most importantly, it streamlines dollars into a weighted student formula that allocates dollars based on students’ needs. Ultimately, this proposal would give policymakers a more reliable mechanism for targeting dollars to selected categories of student needs including low-income students and students with disabilities. States such as California, Colorado, and Texas already use similar weighted-student funding formulas.  

Tennessee policymakers can learn from California’s bi-partisan funding reform, which has key similarities to HB 2143. In 2013 California enacted its Local Control Funding Formula (LCFF), which sought to increase funding equity and give school districts greater autonomy over spending decisions. To do this, LCFF eliminated about three-quarters of the state’s categorical programs—nearly half of all categorical funding—and streamlined dollars into a weighted-student formula that delivers unrestricted funds to districts based on students. Early research has given LCFF high marks and shown several emerging themes.

First, there has been widespread support among school districts and local officials. In a survey of superintendents, 82% agreed that LCFF allows them to better align goals, strategies, and resource allocation decisions. Researchers have also found “little enthusiasm” among district officials for returning to categorical funding. A separate survey found that, of those familiar with the law, 72% of likely voters and 84% of parents viewed it positively.

Next, there have been positive cultural shifts within school districts that show evidence of greater collaboration between fiscal and academic leaders in developing budgets. According to one California official, “We’re finally [asking] who are the students with the highest need and how do we address those needs?”

Researchers at Edunomics Lab have found that there is also evidence of districts using the spending flexibility to customize educational services without radical shifts in spending. For example, some districts have prioritized things such as staff development and health services, while others deprioritize them. While Edunomics also found evidence that many districts beefed up their teaching staff ranks with their additional dollars, it appears that they didn’t simply bargain away their new dollars with across-the-board salary increases, another concern that policymakers sometimes have with local flexibility.

Lastly, there was also a greater focus on fairness, with research by The Education Trust-West showing a “dramatic” improvement in funding equity.

California’s experience with school finance reform indicates that HB 2143 would be a win for Tennessee’s students, parents, educators, and taxpayers.

One argument against the bill is that it would fail to deliver pre-determined staffing positions such as counselors and nurses to schools. While this is technically correct—the revised funding formula does not prescribe staffing levels or use them to calculate the base amount—policymakers should see this as a feature, not a bug. Local leaders are in the best position to align funding with students’ needs and student-centered funding provides them with the flexibility to do just that. In fact, most states do not use assumptions about staffing levels to determine districts’ base funding amounts nor do they require dollars to be spent on such positions. Ultimately, this is precisely the top-down mindset that HB 2143 would help address.

Another argument against HB 2143 is that it wouldn’t deliver equal per-student funding increases to each school district in Tennessee. While this is also correct, policymakers should recognize that since the reform is intended to improve funding fairness, districts shouldn’t expect to all get an equal per-student share of the new funding. Districts aren’t all on a level playing field under the current funding system and HB 2143 aims to mitigate that problem rather than perpetuate it. As such, it is appropriate that some districts would receive a larger per-student share of the new funding than others. 

Lastly, one further objection to HB 2143 is that it would lead to an increase in local taxation after 2027 because the proposal would drive more state funding into the K-12 funding system, thus eventually requiring an increase in local funding to match the state increases. Again, while this objection is correct, it’s important to point out that any future increases in education funding–whether HB 2143 passes or not–would require an increase in local funding. In its current form, HB 2143 does not make substantial changes to how district fiscal capacity is determined. Therefore, increases in education funding would have similar effects on local taxation whether they occur under the Basic Education Program or the Tennessee Investment in Student Achievement Act proposed in HB 2143. 

Thank you for your time. Reason Foundation’s team of education policy analysts are available to answer any questions you have regarding Tennessee’s education finance system and student-centered funding.