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How Perverse Incentives Leave Struggling School Districts Behind

Few states have laws mandating district mergers, a fact that leaves financially distressed districts with no recovery option.
Downtown Midland, Pennsylvania.

Downtown Midland, Pennsylvania.

The town of Midland, Pennsylvania, sits on the Ohio River about 30 miles northwest of Pittsburgh. For most of the 20th century, steel was king in the working-class, blue-collar town. At its peak, the Crucible Industries steel mill employed approximately 5,000 workers from Midland and its neighboring communities. The mill also served as a crucial source of tax revenue and economic stability for the region. But, like so many other steelmakers in the Rust Belt, Crucible ran intro trouble in the early 1980s—namely a major economic recession. When the plant closed in 1982, around 4,500 workers lost their jobs. (A portion of the mill was bought shortly thereafter by another company, but it employed only a few hundred workers.)

The closure of the Crucible mill was particularly devastating for Midland's public's schools. The town's education budget, which had been heavily reliant on revenues from Crucible, was devastated by the declines in enrollment and property values that occurred after the mill closed. Anticipating an education crisis, Midland's school system started searching for a nearby school district with which it could merge—a process that, in Pennsylvania, requires the consent of both school districts. By 1983, the town had sent merger requests to every one of the other 14 districts in its county. Every single request was denied. The story of Midland is no anomaly: Since 2000, 18 districts in Pennsylvania have sought mergers with their neighbors. Only one has succeeded.

In a report released this week, EdBuild, a non-profit organization that researches school funding, takes a look at what happens to financially distressed districts like Midland. EdBuild's findings are grim: Only nine states have laws on the books allowing state officials to mandate district mergers. That leaves districts like Midland with few choices when their finances go south.

"So long as [states] are going to continue to promote a funding system that is highly dependent on local revenues, then they have to hold true to their commitment to make up for the difference in communities like Midland," says Rebecca Sibilia, EdBuild's chief executive officer. "The majority of states don't hold true to that commitment."

In the United States, public school funding is derived, in large part, from state and local tax revenues. On average, elementary and secondary schools receive 9 percent of their funding from the federal government, 46 percent from the state, and 45 percent from local revenues. The funding system's heavy reliance on local tax revenues means that wealthier districts (or those otherwise blessed with an ample tax base) are almost always dramatically better-funded than their poorer neighbors.

Only some states direct funding to less affluent districts in an effort to address the disparities between districts' funding levels. According to the most recent edition of the Education Law Center's annual School Funding Fairness National Report Card, only 11 states in 2015 had progressive school funding formulas (which distribute more state funding to poorer districts). Twenty states had "flat" systems, and 17 states actually distributed more money to wealthier districts.

In addition to contributing to a sizable achievement gap between high- and low-income districts, this school funding system creates perverse incentives for wealthier neighborhoods to wall themselves off and hoard their revenues for their own students. In a report published last year, EdBuild examined a particularly troubling manifestation of this trend: school district secession. Since 2000, 47 communities (predominately wealthy, white areas) have successfully seceded from their district.

"What you have is a system that is going to constantly be at odds with itself," Sibilia says. "The incentive in a school system that is locally funded and locally governed is to keep your wealth as close as possible; that means your kid is going to get the best education they can."

In the absence of any state law allowing Pennsylvania to mandate a district merger, these incentives left Midland without a single district willing to merge. In 1985, Midland was forced to close its high school, despite having raised taxes over 70 percent in an effort to keep the school operating. For the next five years, Midland bused its high school students to nearby Beaver Area High School. In 1990, however, a new school board in Beaver voted to end the agreement, so Midland was forced to bus high school states across state lines, to the East Liverpool City School District in Ohio. East Liverpool ended that agreement in 2015. Now, Midland high schoolers attend either a nearby charter school or, thanks to a new agreement, Beaver Area High School.

"These are towns that have already lost economic hope, they're losing their homes, their jobs, their sense of self worth," Sibilia says. "And now the last thing that you're taking away from them is the opportunity for their kids to learn and have a better life. The school funding system is the last kick in the teeth."