The Bottom Line

I predict we’ll see more robust debate and analysis on the topic of state education funding over the next decade as states grapple with ongoing economic uncertainty and political polarization amidst population fluctuations, public school enrollment declines, and labor shortages. Despite the way presidential candidates bloviate about K-12 education every election cycle, it’s actually state legislatures who play the most influential role in school funding.  

I invited Zahava Stadler, Project Director of the Education Funding Equity Initiative in the Education Policy Program at New America, to collaborate with me in predicting what the state education funding landscape has in store for the next decade. 

The Basics

On average, the typical composition of K-12 education funding breaks down like this:

• Federal Funding: ~8%
• Local Funding: ~ 46%
  • Includes private PTA/PTO Fundraising: <1%
• State Funding: ~46%

Although local and state funding make up roughly equal proportions of total funding, state legislatures have the greatest influence, for better or worse, on funding (in)equity and policy. States direct dollars to local education agencies (LEAs; usually school districts) based on a comprehensive formula, whereas local education funding is far more fractured and almost entirely dependent on local property wealth. Ideally, states leverage their education funding authority to ensure equity and adequacy for all schools, although many states still fall short of this reality. Parent organizations’ private fundraising is a tiny fraction of school funding but it is also the most inequitably distributed with the least transparent reporting– In fiscal year 2013-14, the nation’s 50 richest PTAs (the wealthiest 0.05%) raised and spent $43 million dollars (~10% of total PTA spending) for the nation’s most affluent schools.

A Constitutional Matter

The most recent state ruling on school funding equity is a Pennsylvania Commonwealth Court case. While there have been similar funding lawsuits, there is a powerful moral clarity in the language of this decision that rejects the state’s argument that those gaps are an inevitable and acceptable side effect of a locally controlled education system. In an 800-page ruling, Judge Renée Cohn Jubelirer determined that the state’s funding formula (which relies heavily on local dollars) is inequitable and unconstitutional.

What’s next? The Judge says the burden of remedy rests on the Legislature and Executive branches of Pennsylvania government.  We’ll be watching Pennsylvania for the next few years to see what funding reforms are in store in the wake of this court decision. Will the state fundamentally reform its unjust school funding system, as Kansas did after that state's 2017 Supreme Court decision in Gannon v. State? Or delay for years before taking action and ultimately make only moderate tweaks to the formula structure, like the Washington legislature following the 2012 McCleary v. Washington ruling? All eyes are on Pennsylvania lawmakers as they face this new and vital mandate.

Major Themes in State Funding Formulas

The most salient theme in state funding is a shift towards more equitable and need-sensitive K-12 funding allocations. Over the last decade, education funding experts have shone a light on how regressive or progressive state school funding is. In this context, regressive funding means that the state’s highest-poverty districts receive less combined state and local funding than the state’s lowest-poverty districts. An EdBuild analysis of fiscal year 2014 data showed that 27 states had regressive funding: school districts serving the fewest poor students have more per-pupil funding than those serving the greatest number of poor students. Urban Institute performed a similar analysis of how progressive education funding is by state that also included federal funding, finding that the addition of federal funding further helps balance out funding between high and low-wealth districts, leaving just a handful of states remaining regressive with overall funding. However, the underlying regressivity of state and local funding in many states meant that the federal funding served largely to fill gaps or achieve a very limited level of progressivity; only in a handful of states was there enough funding to ensure that students in poverty received the substantially greater funding needed to support them to success.  

The 2022 “Equal is Not Good Enough” report from The Education Trust reveals that inequities in school and district funding persist. Across the country, districts with the most students of color on average receive substantially less (16%) state and local revenue than districts with the fewest students of color, and high-poverty districts receive 5% less state and local revenue than low-poverty districts. The districts with the most English learners receive 14% less state and local revenue, compared with districts with the fewest English learners.

Definitions of student-need vary, but common categories taken into account in school funding formulas include: students from low-income backgrounds or those in high-poverty schools, students with disabilities, and English learners. Less frequently considered but also important are students who are experiencing homelessness or housing instability, and students with limited or interrupted formal education (SLIFE). Districts receive targeted federal funding for some of these students, although there are also several “unfunded mandates” associated with serving some of these student populations—scenarios where districts are required by federal law to meet certain compliance requirements, but do not receive any (or not nearly enough) federal funding to comply with those obligations. IDEA, the law guaranteeing rights and providing federal funding for students with disabilities, is famously underfunded, with analyses estimating that targeted IDEA grants only cover between 10-20% of special education costs to districts.

Flexibility of funding is also an important equity consideration. Local money is generally unrestricted, but these dollars are more easily raised in high-wealth districts, giving school leaders in low-wealth districts far less flexibility in addressing student needs. Federal dollars, in contrast, usually have many strings attached to ensure they are spent on intended student groups. Some state funding comes in the form of flexible per-pupil aid, but much also comes through limited-use grants or reimbursements for specific costs. As a result, the wealthiest districts, with more local money at their disposal, have the greatest latitude, while high-need districts face the most restrictions.

Weighted Student Funding

One popular and effective approach for state (and, increasingly, district-level) funding formulas to achieve resource equity is Weighted Student Funding (WSF). In this type of resource allocation model, state policymakers determine a series of student-need categories (economically disadvantaged, special education, etc.) and apply a multiplier, or “funding weight,” to the dollars provided for those students. For example, for every $1.00 of funding for a pupil with no identified needs, students with disabilities may receive $2.50; English Learners may receive $1.40. Total LEA funding allocations are determined by applying these funding rules to the specific student population counts at each school district. These formulas are often highly complex with a variety of rules and weights.

Check out an example of how a state funding formula translates to school district revenue based on student enrollment in the new Arizona School Finance Portal.

Examples of state funding formula overhauls in the last decade:

• Connecticut and Kansas both moved from block-granting their school funding to providing state aid through weighted student funding (WSF) formulas
• California moved from a cumbersome, categorical-heavy allocation system to a much cleaner WSF formula
• Tennessee moved from a resource-based formula to a WSF, to be implemented in the 2023-2024 school year
• Maryland’s Blueprint funding formula changes modified local funding rules, added money for concentrated poverty, and increased weight for disability
• Texas increased its base amount, added differentiated funding for different degrees of community poverty, and streamlined the calculation to emphasize student need over geographic characteristics

Shifting (and Shrinking) Student Populations

There are two major trends in public school enrollment that spell trouble for school budgets: student populations are decreasing, and student needs are increasing. Special education designations have increased by more than 10% over the past 10 years, with students who receive special education services now making up 15% of the population; the English Learner population is growing; and student mental health needs are increasing, with only about half of schools feeling equipped to meet those needs. 

Meanwhile, total enrollment is declining by 1-2% per year and birth rates indicate that the declines will continue for years to come. With more than half of education funding determined by student counts, this spells decreasing total revenue coupled with increasing per-pupil costs—you don’t have to be a math whiz to understand that this equates to a troubling financial scenario. Furthermore, a number of states are launching universal Education Savings Account programs to offer alternative education pathways for families—and while it remains to be seen to what degree these new choices will accelerate enrollment decreases beyond current forecasts, it’s broadly predicted that these offerings will only contribute to enrollment and revenue declines in traditional public schools. 

The broad shift to weighted student funding models should be flexible and responsive to the growth and increasing prominence of higher-need populations. Historically, states have relied on the Free or Reduced-Price Lunch designation as a proxy for low-income status in state formulas, but this is becoming a less valid indicator of economic need as schools and districts move towards community-level calculations of eligibility for subsidized school meals, a change that provides more students with access to free meals but reduces the accuracy of the count of students in the school or district that should receive supplemental funding under the state formula. Instead, many states are trying to use direct certification data (such as data from other state agencies regarding SNAP or TANF participation) for individual students' households as the qualifying criterion. In making this move, some states have allowed students to also qualify for funding through the low-income weight if they are homeless, migrant, or foster youth. States could and should add distinct weights for these  populations as well, rather than just using them as additional ways to qualify for the same low-income weight.

Check out Maryland State Department of Education’s new Report on Neighborhood Indicators of Poverty in conjunction with the state’s new Blueprint funding formula for K-12 education.

We must stress that current funding formula systems are not yet equipped to adapt well to enrollment declines. 

There are two likely potential scenarios with existing state formula models:

• States will maintain effort in terms of total funding appropriations (i.e. if the education budget is $1.3 billion this year, it will be sustained at or above $1.3 billion regardless of enrollment declines). In this scenario, the per-pupil amount may temporarily increase as the denominator of student count decreases, although the true value of the funding amount also depends on whether the $1.3 billion is adjusted for inflation.
• States will maintain effort in terms of per-pupil funding appropriations, in which case the total appropriation will decrease relative to enrollment decreases. 

We are deeply concerned that at least some states will perceive enrollment declines as an opportunity to save funds in a recession. At first glance, it may seem reasonable that the dollars should scale down with student counts. The problem, as we have detailed earlier in this series, is that school budgets do not easily scale up and down due to the high percentage of fixed costs (i.e. you can’t pay a teacher 7% less if a 4th grade class is 26 students instead of 28 students). 

Generally, formulas have dealt with enrollment declines in ways that provide transition time, using policies like calculating funding based on the greater of last year’s student count or the average of the previous 3 years’ counts—but districts will need better, more permanent ways to adjust, because these declines are not a blip. To the extent that state policymakers are even aware of the long-range implications, they have not yet found good solutions to this problem. As proposed in last week’s essay, the future may rest in governments facilitating intergovernmental cooperative agreements that allow schools to use parts of their facilities to host other public and community services. Any viable paths forward—especially ones that prioritize equity for the most vulnerable student populations—will require far more innovative, collaborative, and nimble resource allocation models at the school, district, and state levels. 

TL;DR

The past decade has seen modest improvements in resource equity as a result of state funding model reform, and yet, major inequities persist. The next decade poses additional challenges of looming economic and political volatility, population shifts and enrollment declines, labor shortages, and a host of threats to the traditionally rigid unit economics of K-12 education. Whether these inequities improve or worsen from here will hugely depend on state leaders’ willingness to seek innovative, iterative approaches to funding K-12 education with a special focus on ensuring equal access to high quality educational opportunities for all students. 

As Judge Cohn Jubelirer wrote in the Pennsylvania decision: “[E]very child can learn. It is now the obligation of the Legislature, Executive Branch, and educators, to make the constitutional promise a reality…”

This article is the seventh in a series that reviews “10 Predictions for the Next 10 Years of Education Finance.” Read other topics in the series now:

• Teacher Compensation
• Declining Enrollment
• Pension Debt & Reform
• The Great Unbundling
• The Future of EdTech
• Reimagining K-12 Real Estate
• State Funding Formulas
• Investing in Early Childhood
• School Choice
• EdFinTech Climbs to New Heights

Special thanks to Zahava Stadler  for her contributions to this piece! 

Contributing Author

Zahava Stadler, Project Director, Education Funding Equity Initiative | New America