America's Fragmented Education Funding System

Kansas must re-visit its state school funding system. What about the rest of the country?
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Kansas must re-visit its state school funding system. What about the rest of the country?
(Photo: Larry W. Smith/Getty Images)

(Photo: Larry W. Smith/Getty Images)

Earlier this month, Kansas' supreme court ruled that the state legislature had failed to fairly distribute state education funds between the state's rich and poor school districts. Previously, the court had determined the state legislature has a constitutional requirement to "provide enough funds to ensure public school students receive a constitutionally adequate education and that the funds' distribution does not result in unreasonable wealth-based disparities among districts." The ruling, which is the latest installment in an ongoing battle over equitable education funding in the state, requires the legislature to revise its funding formula by June 30. Should the legislature fail, all of the state's K–12 public schools would be subject to a court-ordered shutdown in August.

State education funding formulas vary wildly from state to state, but most states utilize some variation of the "foundation program," a system that was devised in the 1920s to fairly distribute state education funds. Under the foundation program, the state sets a minimum ("foundation") level of funding required to provide an adequate education, and then provides districts with sufficient funds to achieve that minimum level. In recent years, however, the equity of state funding formulas has been challenged in court. In 2014, South Carolina's supreme court ruled that the state had failed to provide a "minimally adequate" education for students in poor and rural districts and needed to re-visit its funding formula. A 2014 lawsuit in Mississippi went the other way, with the state's supreme court ruling against a number of districts that had alleged unfair funding practices. A similar suit in Pennsylvania is currently underway.

There are a number of different ways of thinking about what "fair" state school funding across rich and poor school districts should look like. The first, and most straightforward, vision requires that students in rich and poor districts across a state should receive an equivalent amount of total per-pupil funding per year. In a world like this, schools in poor districts would have a similar ability as schools in wealthier districts to fund longer school days, classroom materials, smaller class sizes, and supplemental services. Many education experts further argue that a "fair" school funding formula might actually require a higher level of per-pupil funding in poor districts to provide the additional services (including tutoring and a longer school year) that disadvantaged students require to succeed. Unfortunately, most states fail both versions of the fairness test.

A "fair" state funding formula would actually need to direct higher levels of state funds to poor districts to compensate for their lower levels of local revenue.

Public schools in America rely on a combination of local funding (mostly derived from local property taxes), state funding, and federal funding. Overall, public K–12 schools obtain 45 percent of their funding from local revenues, 46 percent from state revenue, and nine percent from federal revenue. There is, however, substantial variation in each district's ability to raise local revenues—poor districts have a much smaller property tax base to draw from and thus rely more heavily on state and federal funds. So in order to ensure equivalent per-pupil funds across districts, a "fair" state funding formula would actually need to direct higher levels of state funds to poor districts to compensate for their lower levels of local revenue. A funding formula designed to result in higher levels of per-pupil funding in low-income districts would need to direct even more state funds to those districts.

In recognition of this, many states at least make an effort to dispense more state education funds to needier districts, but such efforts generally fail to make up for the lower local revenues available to poor school districts. Only 15 states utilized progressive funding formulas in 2012 (i.e. allocated more resources to poor districts), according to the Education Law Center's School Funding Fairness National Report Card, which issues a report ranking state school funding formulas on an annual basis. Meanwhile, 19 states employ flat funding systems (which allocate resources equally between rich and poor districts), and 14 states actually provide less state funds to poor school districts.

"The four most progressive states—South Dakota, Delaware, Minnesota, and New Jersey—provide their highest-poverty districts, on average, with between 30% and 38% more funding per student than their lowest-poverty districts," the report's authors write. "In contrast, the four most regressive states provide significantly less funding to their highest-poverty districts. In Vermont, Wyoming, and North Dakota, high-poverty districts receive only about 80 cents for every dollar in low-poverty districts, while in Nevada high-poverty districts receive a startling 48 cents to the dollar."

State funding decisions have major consequences. Even "flat" state funding formulas can result in highly inequitable total funding outcomes due to the outsized role of local funding in some districts. New York, for example, provides approximately equivalent levels of per-pupil state funding to rich and poor districts, but a 2015 report from the Education Trust concluded that it's the second most unequal state with respect to total per-pupil funding. The gap in New York has worsened in recent years due to political reluctance to fully fund the state's "Foundation Aid" formula, which was devised in response to a 2006 lawsuit on equitable school funding. A report released earlier this week by two education advocacy groups concluded that "the average spending gap between the 100 wealthiest school districts in the state and the 100 poorest districts" was $9,796 per student.

Educating low-income students is a challenging proposition, and experts disagree on the role that funding plays in student outcomes. There's some evidence that smaller class sizes in elementary school are associated with better outcomes. A paper published last year in the Quarterly Journal of Economics looked at school funding changes in the 1970s and '80s and concluded that "a 10 percent increase in per-pupil spending each year for all twelve years of public school leads to 0.31 more completed years of education, about 7 percent higher wages, and a 3.2 percentage-point reduction in the annual incidence of adult poverty." By contrast, a 2013 paper published in the American Economic Journal: Applied Economics found that class size and per-pupil expenditures were not associated with school effectiveness at a number of charter schools, although several expensive interventions (high-dosage tutoring and increased instructional time) were.

The achievement gap between high- and low-income children in America has increased significantly over the last 25 years. Sean Reardon, of the Center for Education Policy Analysis at Stanford University, concluded in a 2012 report that "[t]he achievement gap between children from high and low-income families is roughly 40 percent larger among children born in 2001 than among those born twenty-five years earlier."

The challenges facing public schools in low-income school districts are complex; it would be naïve and simplistic to suggest that tweaking state funding formulas will solve all of America's education problems. But in the face of historic achievement gaps in education, a funding model that ensures students in low-income districts are, at a minimum, entitled to the same level of per-pupil funding as their wealthier peers seems like a pretty reasonable goal. The recent decision in Kansas is a step in the right direction.