Deconstructing Funding Fairness: Comments on the release of our latest report

Posted on June 19, 2012



Today, I, along with colleagues at the Education Law Center released the second round report on school funding fairness which can be found here:

http://www.schoolfundingfairness.org

We cover much ground in this report and develop what we believe are a useful set of indicators for comparing state school finance systems. In this new version of the report, we also include interactive tables and graphs thanks to the efforts and expertise of Danielle Farrie.

http://www.schoolfundingfairness.org/ia_reports.htm

But there’s always more to the story. There’s always more to be discussed/addressed that can’t be fully captured in a short policy report. Specifically, I would like to address a handful of potential misconceptions regarding funding fairness.

First, it is important to understand that unfair conditions may occur even in states that would appear in our updated report to be generally fair.

Second, it is really important to understand that the percent of money that comes from the state – from state tax revenue sources – does not seem to predict/influence the overall level of fairness. Fairness is not achieved by pushing all funding away from property tax revenues and onto state source revenues. In fact, such a move might do little to improve fairness while substantially increasing revenue volatility (income tax revenues which fuel state general funds are typically far more volatile – elastic to economic conditions – than are property tax revenues.   The real key to a good school finance formula is to figure out how to integrate the revenue sources into a system that is overall fair, and stable.

Third, federal revenues make things only marginally fairer. Their effect is minor. Yes, they are targeted to higher poverty districts generally. And yes, for those districts the resources are needed and may seem substantial. But, in the big picture of funding fairness, it comes down to providing that right mix of state and local funds to achieve a system that is overall fair.

Let’s take a closer look at each of these issues.

There are unfair conditions even in states that appear fairer!

Let’s begin with a look at Connecticut, a state that appears to a) spend a fair amount on its schools and b) spend marginally more on higher poverty districts. Or at least so the federal data on state and local revenues which we use in the funding fairness report indicate.

Connecticut is a particularly interesting case. As it turns out the fairness we find in our report is selective in two ways. First, the progressive tilt to the formula overall is significantly influenced by special aid provided primarily to Hartford and New Haven. Other high poverty districts lack this benefit. It is selectively applied. Second, the aid to which I refer is aid targeted for magnet schools which partly serve children from other districts in an effort to integrate minority and non-minority, low income and non-low income students. That this aid shows up in the expenditures of Hartford and New Haven also creates some distortion to the calculation of per pupil spending.

Here is an arguably more accurate portrayal of the selective fairness of funding in Connecticut. To clarify – selective fairness is… well… unfair.

This graph relates current spending per pupil (Net current expenditures per ADM 2011) after removing magnet aid from district expenditures. Overall, Hartford and New Haven remain better funded than other high poverty districts, but lower than with magnet aid included. Further, several very high poverty Connecticut districts have very low funding compared to their surroundings, precisely what landed them on my previous list of most screwed school districts.

Figure 1

Allocating more state aid doesn’t make it fairer if aid is allocated unfairly!

There exists a common assertion that disparities in school funding across districts are largely caused by disparities in property tax base – local property wealth – and the failure of states to allocate enough aid to offset those disparities. At times, I even hear advocates suggesting that if we could just do away with property tax funding of schools, and move all of the funding to state taxes and make the system completely state controlled, all of these equity concerns would be resolved. Wrong. Wrong… and double Wrong.

First, as a tangent which I mentioned above, allow me to point out that property tax revenues actually play a really important role in stabilizing school revenues over time and acting as a counterbalancing force to state aid fluctuations. State school finance systems require a balanced portfolio of revenue sources!  State income tax revenues are much more volatile to economic cycles.

That aside, the figure below shows as we did in our first edition of the report, that states where districts on average receive a higher share of funding from the state (either as actual state disbursements, or in some cases as cleverly reclassified local property tax revenues raised by state mandated minimum tax rates, perhaps with revenue sharing), do not necessarily have fairer- more progressive – distributions of state aid.

Figure 2

So, how can this be? The implication of this is that state aid itself is being allocated unfairly? Is that possible? How might a state allocate aid in ways that fails to improve the fairness of the overall distribution of state and local revenue?

Well, let’s start with a hypothetical of what should be, or the distribution of aid as it might appear in a progressively funded state like New Jersey or Ohio. The figure below shows that state aid must counter two forces of local economics. First, state aid must be allocated in higher amounts to districts with less local capacity to raise that aid on their own. Second, to achieve progressiveness, aid must be allocated in higher supplemental amounts – or weighted amounts – to districts with greater student needs. If we totally oversimplify these issues and assume that low capacity districts also tend to have higher needs, it might look something like this:

Figure 3

And, as it turns out, states like New Jersey actually do look something like that:

Figure 4

But even New Jersey isn’t “perfect” in this regard. Note that middle wealth districts actually drop below the highest wealth districts. The pattern “dips” when it should perhaps climb more consistently from left to right.

So then, what the heck is going on in other states? Well, here are a few examples of the state aid distributions in states that scrape the bottom of the fairness barrel in our updated report. I will have a new report out this fall supported by the Center for American Progress in which I dissect how states actually use their aid formula to make things worse! Unbelievable, but true. Some states actually allocate state aid so inequitably as to make funding gaps bigger! (see this post for an explanation of the pig!)

Figure 5. North Carolina

Figure 6. Texas

In this final figure, I show how New York State “tweaks” their aid formula from its initial calculations to its final calculations in ways that actually increase the funding gap from lower to higher poverty districts. The first cut (left hand side of the figure) calculations of state aid in New York would have many districts getting little or no state general foundation aid. But, the state aid formula then tweaks that amount by guaranteeing a minimum aid of $500 per pupil and an upward adjustment to the aid share for districts that are middle to upper middle wealth. Then, as I’ve discussed in previous posts, the state allocates disproportionate property tax relief aid to the wealthiest districts. Overall, these adjustments have the effect of increase the low poverty to high poverty funding gap from $1,100 per pupil to $2,300 per pupil. Yep… using state aid to double the funding gap! The politics of state school finance systems at work!

Figure 7. New York

Federal aid is no substitute for a sound, well designed, progressive state school finance system!

Finally, what about that federal aid and specifically what about that biggest chunk federal aid allocated to local districts primarily on the basis of poverty? Doesn’t that do the trick? Doesn’t the federal aid create the necessary upward tilt? Well… uh… no… it doesn’t. It helps, indeed. But Federal Title I aid creates only marginal improvements.

Consider that according to the most rigorous empirical research on the topic that it generally costs double to achieve comparable outcomes in a district that is 100% low income versus one that is 0% low income. That is, each low income child would warrant a “weight” of about 1.0 if counting low income as qualifying for free/reduced lunch (185% income level). When using the more stringent 100% poverty threshold, the required weight is about 1.5.

The following figure and table show that on average nationally federal title I funding adjusts upward the tilt of revenues per pupil by about 5% for a district that is 30% in poverty (100% poverty level). This would be comparable to about a 5% adjustment for a district that is 70% or more “low income” (qualified for free or reduced lunch, see page 31). That’s a relatively modest and far from sufficient adjustment!

Figure 8

Figure 9

So, while Federal Title I Aid is not entirely irrelevant, it is far from sufficient for achieving the extent of need-based targeting required for high poverty settings.

A sound, well-designed, progressive state school finance system is required.

Sadly, far too few of such systems presently exist.

Equitable and adequate financing of public school systems in the U.S. remains largely a state responsibility, and some states continue to either throw their entire education systems under the bus (Arizona, Tennessee), or selectively disregard children living in high poverty settings. Put simply, money matters. School funding equity and school finance reforms matter.

It’s not sexy and it’s not reformy. In fact, it’s quite possibly anti-reformy, but the reality is that equitable and adequate financing of state education systems remains the necessary underlying condition for providing quality schooling and achieving equal educational opportunity for all children.

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