Rethinking the Revenue Side of the K-12 Funding Equation

Most discussions of school funding focus on “how much.” There is a good reason for this: the end goal of any finance system is for all school districts to have enough to meet their students’ needs. Yet achieving this goal is as much about how money is allocated as it is about how much is raised (or spent) overall.

On average, about 45 percent of all K-12 revenue comes from state sources (e.g., sales and income tax), about 45 percent comes from local sources (mostly property tax), and the remaining 10 or so percent is federal aid. Yet these three revenue “streams” are typically handed out to districts in very different ways, and states vary widely in terms of their state/local “splits.” As a result, two states serving similar student populations might spend the same amount per pupil but exhibit vastly different adequacy and equity outcomes depending on the source of those funds and how they are allocated.

In a couple of recent Shanker Institute reports (here and here), we’ve been looking into this “revenue side” of the school finance equation, with a focus on finding better ways to collect and distribute all three sources of K-12 revenue (federal, state, and local), without necessarily increasing the overall amount of funding.

Beyond the Blame Game: Remote Schooling Was Predicted By Spending Adequacy

Our guest author today is Mark Weber, a member of the research team for the School Finance Indicators Database project. He is also the Special Analyst for Education Policy at the New Jersey Policy Perspective, and a Lecturer at the Rutgers University Graduate School of Education.

It’s become an article of faith on the political right: teachers unions forced schools to go remote during the pandemic. But what if that’s not true? What if there’s actually more to the story?

In a new working paper, Bruce Baker and I consider another possibility: Schools that are inadequately funded were more likely to go remote in the 2020-2021 school year, the first full year after the pandemic hit. While we wouldn’t say that funding inadequacy was the sole cause of remote schooling, we do document a relationship between the two that calls into question the idea that unionization was the only or even primary reason for the loss of live schooling.

Is ESSER Money Being Spent or Not?

Our guest author today is Jess Gartner, CEO and Founder of Allovue, an education finance technology company.

As part of a series of federal pandemic-relief stimulus packages, K-12 schools received three rounds of funds through the Elementary and Secondary School Emergency Relief Fund (ESSER I, II, and III), totaling nearly $200 billion. Almost immediately, headlines across the nation probed how (or if) schools were spending these dollars. Nearly three years after the initial round of funding ($13 billion) was granted by the CARES Act in March 2020, questions linger about the pace and necessity of spending. Why is it so hard to get a straight answer?

For two years, the prevailing theme in the headlines had been that school districts were sitting on stacks of cash, whereas more recent (and far less breathless) stories say the money is now on track to be spent. Why all the confusion? The complex multi-year process of receiving, planning, spending, and reporting ESSER dollars is more complicated and drawn out than a single soundbyte can convey (I’ve tried!). Let’s take a quick look at a few key issues to bear in mind when thinking (or reading) about ESSER funds, and then a couple of conclusions as to what’s really going on.

The Long Shadow of Racial Housing Discrimination

Earlier this year, we published a report on the relationship between housing discrimination/segregation and school funding disparities. I would encourage you to check it out. But I’d like to discuss the substance of the report from a somewhat broader perspective.

Our analysis, while it includes a lot of national results, consists largely of “case studies” of seven metro areas. In order to interpret and understand our results, we relied heavily on the work of scholars who had focused on those areas.1 And that included a great deal of specific history that one might not see in (otherwise excellent and very important) large scale segregation analyses. These histories illustrate how, in every metro area, the effort to keep white and non-white families living in different neighborhoods was a deliberate plan.

Multiple institutions, public and private, all played a part. That means city governments, the federal government, courts, the real estate industry, the finance industry, and homeowner associations. And the plan adapted to changing circumstances. When segregative tools became obsolete or illegal, new tools were developed to keep building on past efforts. A few of these tools are still in use today.

How Much Has Education Spending Increased Over Time?

Our guest author today is Mark Weber, Special Analyst for Education Policy at the New Jersey Policy Perspective and a lecturer in education policy at Rutgers University.

The issue of how much the U.S. spends on K-12 public schools rightfully receives a lot of attention. More often than not, these discussions rely on simple data, such as average per-pupil spending over time across the entire nation. I would argue that the variation in spending, both within and between states, is so enormous as to render national comparisons potentially misleading, and also that the more consequential question is not just how much states and districts spend, but whether their spending levels are commensurate with their costs.

That said, overall spending trends are clearly important, and so let’s take a quick look at how much K-12 spending has increased in the U.S. over the past 25-30 years, using data from the School Finance Indicators Database (SFID). The SFID is an important resource for those who study and write about school finance, and so our brief examination of the spending trend also provides an opportunity for transparency: the stakeholders, policymakers, and journalists who rely on our work should know more about how we collect and prepare the data we use. “How much does the U.S. spend on schools?” may seem like a simple question, but proper measurement tends to complicate things.

Inequity Is Embedded In School Finance

Our guest author today is Fedrick Ingram, secretary-treasurer of the Albert Shanker Institute and the American Federation of Teachers.

Every February, it comes around: Black History Month. It may seem like a feel-good event that has nothing to do with the nitty gritty of school policy and everything to do with uplift. But in my mind, the Black excellence we celebrate and try to nurture this month is the very reason we scrutinize one of the most foundational school issues we face: School finance.

Before I get to that, let me say the obvious: Black history should not be relegated to one month a year. And it should not be limited to predictable recitations of Harriet Tubman, George Washington Carver and Martin Luther King Jr. We need to go deeper.

We need to celebrate intellectual luminaries like Mary McLeod Bethune, Ida B. Wells, Bayard Rustin and Carter G. Woodson—the man who lobbied so hard to establish Black History Month back in the 1920s. And I want to celebrate Black excellence in today’s leaders. People like Rep. Maxine Waters, who has steadily held her ground to protect democracy; Sen. Raphael Warnock, who courageously ran for office in a state unlikely to elect him—and wound up tipping the Senate toward the Democrats by winning a seat once held by a Confederate general; Jason Reynolds, who publishes true-to-life stories that resonate with and engage Black children; and Nikole Hannah-Jones, who gave us the 1619 Project and continues to lift up all the history that has been missing from our classrooms for so very long.

But as much as we have to celebrate, there is still so much more to do. School finance illustrates the point.

School Funding And Equal Educational Opportunity

Equal opportunity is kind of the endgame in education policy. That is, school systems should provide all students, regardless of their backgrounds or economic circumstances, with what they need to achieve minimum acceptable outcome levels. 

School funding is a huge factor in the equal opportunity realm, given that virtually all effective education policies require investment. From the finance perspective, states can achieve equal opportunity by allocating funds such that districts with higher costs—e.g., those serving higher-poverty populations—have enough to pay those costs (primarily by using state funds to help districts with less capacity to raise funds locally). In other words, the job of states is to ensure that funding is adequate in all districts.

What we’ve found in the School Finance Indicators Database (SFID), in short, is that there is plenty of educational opportunity in the U.S., but it’s not equal. Let’s quickly visualize some of our SFID data and see how that’s the case.

The Disturbingly Persistent Decline In State Education Effort

Fiscal effort (or simply “effort”) is an important tool for evaluating states’ school finance systems. Effort tells you how much of a state’s capacity—how big a slice of its “economic pie”—is devoted to K-12 schools. Effort indicators help you determine whether states lag behind in spending because they have smaller economies from which to draw revenue, or because they have simply failed to devote a large enough share of their capacities to their public schools.

Effort can change over time due to changes in spending, capacity, or both. The trend in fiscal effort over the past 20 years, and particularly since the “Great Recession” of 2007-09, is among the most concerning results we have presented from the School Finance Indicators Database (with our collaborators Bruce Baker and Mark Weber).

The graph below presents U.S. average effort (unweighted) between 1997 and 2018. Effort is calculated very simply: we divide each state’s total spending (direct to K-12 education) by its total capacity. The latter can be measured in two different ways, each of which is represented by a different line in the graph: gross state product (the blue line) and aggregate personal income (the red line). These two denominators produce extremely similar trends. The estimates for all years exclude D.C., for which effort is not calculated, and Vermont, due to irregularities in that state’s spending data in 2018 (the state is excluded from all years to keep a consistent set of states across years). Finally, note that the y-axis in the graph starts at two percent, and so year-to-changes appear a bit larger than they would if the axis started at zero.

The Great Divergence In State Education Spending

When we talk about K-12 education spending inequality, we're usually talking about differences in resources between high- and low-poverty districts within states. But spending levels also vary between states, and that too matters for overall spending inequality in the U.S. How has this changed over the past 25 years? In other words, does K-12 spending vary more between states than it did a quarter century ago?

Let’s take a look at one simple way to visualize this trend. In the graph below, each blue circle is a state, and there one set of 51 states (including D.C.) for each year between 1993 and 2018 (the horizontal axis). On the vertical axis is total current spending in each state, predicted for a district in each state with a 10 percent Census child poverty rate (the graph is very similar regardless of poverty level). These spending levels also control for regional wage variation, district size, and population density, all of which affect the “value of the education dollar.” This allows for a better comparison between states (e.g., it costs more, on average, to hire teachers in Connecticut than in Alabama). The red plus signs within each year represent the unweighted average spending level across all states. These data are from the School Finance Indicators Database.

Our focus here is on the “spread” of states (blue circles) within each column (i.e., within each year). A larger spread, of course, represents greater variation (and, roughly speaking, more interstate inequality). The trend over time is a bit striking.

School District Spending And Equal Educational Opportunity

The fact that school districts vary widely in terms of funding is often lamented in our education policy debate. If you think about it, though, that’s not a bad thing by itself. In fact, in an ideal school funding system, we would expect to see differences between districts in their spending levels, even big differences, for the simple reason that the cost of educating students varies a great deal across districts (e.g., different student populations, variation in labor costs, etc.). 

The key question is whether districts have the resources to meet their students’ needs. In other words, is school district spending adequate? In collaboration with Bruce Baker and Mark Weber from Rutgers University, we have just published a research brief and new public dataset that addresses this question for over 12,000 public school districts in the U.S.

There is good news and bad news. The good news is that thousands of districts enjoy funding levels above and beyond our estimates of adequate levels, in some cases two or three times higher. The bad news is that these well-funded districts co-exist with thousands of other school systems, some located within driving distance or even in the next town over, where investment is so poorly aligned with need that funding levels are a fraction of estimated costs. To give a rough sense of the magnitude of the underfunding, if we add up all the negative funding gaps in these latter districts (not counting the districts with adequate funding), the total is $104 billion.

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