Marar: With State Budgets in Crisis, Now Is the Time to Fix Public School Financing to Make It Fairer and More Effective

With a recession imminent and tens of millions of Americans filing for unemployment benefits in the past few weeks, state budgets are taking a beating — and schools could be in serious fiscal jeopardy. In states like Florida, where recently passed budgets promised more funding for education, the optimistic state revenue forecasts underpinning those budgets are set to go up in flames. In Virginia and Utah, for example, multimillion-dollar budget cuts have already been flagged. And while some states, like Arizona and California, keep substantial rainy-day funds that will cushion the downturn’s blow, the relief will be limited. Many states either don’t have similar funds or have already depleted theirs.

A financial crisis like this means it is time to reform America’s outdated school finance system to reduce inequities and make the most of what we spend.

History shows, and common sense would indicate, that schools in the poorest parts of the country are hit worst in recessions, since they receive less in local property taxes and depend more on state revenues from sales or income taxes, which can decline drastically in economic downturns. The five years following the 2008 recession saw education funding gaps between high- and low-poverty school districts grow from $289 to $1,004 per student, even though many districts in high-poverty areas increased tax rates in an attempt to close the gap.

Public education funding should be determined by need, not zip code.

To ensure fairness while preventing such disasters from happening again, let’s first consider what not to do. School districts fund their facilities and operations primarily through a combination of state and local revenues. The amount of local revenue a district can raise is typically contingent on its property wealth, which is why states usually provide funding that compensates for these differences. However, states also provide additional funds on top of this local effort. During the last recession, local revenue-adjusted streams were often cut instead of nonadjusted streams. These nonadjusted streams, such as Arkansas’s state-based categorical funds for alternative education or teachers’ professional development, tend to subsidize school districts that can best support themselves. This results in significantly less funding per pupil in some districts than in others with students in comparable need. It isn’t the purpose of these grants that is the problem. The problem is that limited state funds aren’t being prioritized for districts that can’t raise as much money on their own.

Policymakers should also avoid cuts to school choice programs, like Florida’s popular (and recently expanded) tax credit scholarships. Low-income families depend on these programs to access education options more suitable for their children, and research shows that they save taxpayers money. Private and charter schools that participate deliver the same or better outcomes as traditional public schools —  for significantly less per pupil.

So, what can states do to make the most of education dollars while shielding the most vulnerable and disadvantaged kids from disproportionate budget cuts? First, they can reduce the impact of local revenue differences that exacerbate divides between richer and poorer students and regions.

For example, Vermont swapped local property tax rates for a state-based property tax. That equalized differences between property-wealthy and property-poor school districts. Though property tax revenues vary substantially among districts, the revenue itself remains relatively stable, even during recessions, relative to sales or income taxes. Similarly, Wyoming caps how much local property tax a school district can raise, with excess funds remitted to the state for redeployment in districts suffering from funding shortfalls.

States can also remove restrictions on how various funding streams, grants and resources for statewide programs can be used — pushing more education funds directly to districts and schools.

When revenues decline, those close to the ground are best equipped to make trade-offs among spending priorities that are tailored to the needs and concerns of their students and local communities. Conversely, statewide mandates forcing districts and schools to spend funds on specific resources or programs limit flexibility and make school and district officials less accountable for improving outcomes.

In 2013, California abolished 32 programs and restricted grants, about 75 percent of those in the state, so it could put those resources into general funding for school districts. Empowered with greater say over their finances, district officials and principals consulted with community stakeholders to develop customized spending plans. Reviews of the reforms find that they’ve won resounding support from both parents and school leaders. Hawaii also reported strong support from communities and education leadership after adopting a similar model.

Importantly, reviews in both states found that funding equity, or the provision of a greater proportion of funds to disadvantaged or at-risk students, improved. These examples are a valuable lesson for the many states that continue resourcing schools through top-down, one-size-fits-all prescriptions.

The economic downturn is likely going to force every state to tighten its belt. But that doesn’t mean that disadvantaged students fighting for a good education must be shortchanged or that legislators can’t deliver fairer and more effective schooling systems through timely reforms that make the most of every dollar spent.

Satya Marar is an education policy analyst at Reason Foundation and a school choice fellow with Young Voices.

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