School Finance

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.

One Page Summaries Of Your State's School Finance System

For the past few years, the Shanker Institute has been collaborating with Bruce Baker and Mark Weber of Rutgers University to publish the School Finance Indicators Database (SFID), a collection of finance and resource allocation measures for policymakers, journalists, parents, and the public. 

The State Indicators Database (SID), the primary product of the SFID, is freely available to the public, but it includes about 125 variables. So, even if you know exactly the types of measures you are looking for, compiling the data for a state or a group of states might present a challenge. While we have tried to make the data accessible for non-researchers, we realize that it can still be difficult for a lot of people. 

We have therefore just published 51 state school finance profiles (with help from ASI fellow Lauren Schneider), which pull together a digestible amount of information into one place for each state (and D.C.). You can download the profiles individually or as a group.

State Budget Cuts And School Districts With Pre-Existing Conditions

The Center on Budget and Policy Priorities has published projections of state budget shortfalls due to the pandemic. The total estimated shortfall for fiscal years 2020-2022 is $555 billion. This includes $290 billion in FY2021 alone, a deficit over 25 percent larger than that in the worst year of the Great Recession (2009). 

Compared with the sickness and death caused by Covid-19, state budget shortfalls are just collateral damage (though remember that states spend a lot on healthcare). But it could be a lot of damage. Unlike the federal government, virtually all states are required to balance their budgets every year. They cannot spend more than they raise in revenue, which means any deficits must be balanced out by cuts. Suppose we take these CBPP projections at face value, and subtract from them existing federal aid forthcoming and total state budget reserves. That, according to CBPP, still leaves states about $400 billion short for this past fiscal year and the next two (and there could easily be shortfalls in subsequent years).

Virtually all public school districts will feel this pain, but it will not be felt equally. Higher poverty districts are more dependent on state revenue, since more affluent districts generate more revenue from local sources (mostly property taxes). But the situation is even worse: higher poverty districts are already spending far less than they need to be. In a sense, the pandemic is going to be particularly harsh on districts with pre-existing conditions.

The Crucial Role Of State Policy In The Impending School Budget Crisis

Last week, we published a report on the probable implications of the coronavirus pandemic for K-12 education funding. My co-author Bruce Baker and I present a bunch of data on the impact of the 2007-09 "Great Recession" on education funding, as well as outcomes illustrating states' responses to the budget crisis caused by the recession. Using insights from these descriptive analyses, we offer a set of recommendations for minimizing the harm of the coronavirus recession on school budgets. 

I won't go through our findings and recommendations individually; you can download the full report, or read the executive summary. I do want to discuss on one overarching theme of the recommendations, and it's very simple: any truly effective response to the impending budgetary crisis cannot consist solely of a federal assistance package. The way states fund public schools has to change, with a forward-thinking focus on faster recovery from this crisis as well as systems better equipped to handle future crises. Chess rather than checkers.

To be clear, federal funding will be absolutely crucial in smoothing the large decreases in revenue that will occur. Without this federal help, there will likely be cuts to school budgets (and those of other public services) so severe that recovery in many states may be a matter of decades rather than years. Moreover, districts serving larger shares of disadvantaged students will bear a disproportionate amount of the harm. Accordingly, we recommend that federal funds be drawn out in two "phases" over a 5-7 year period, and that states be required to distribute them in a manner that targets assistance to those districts that need it the most. But this won't be enough.

Interpreting School Finance Measures

Last week we released the second edition of our annual report, "The Adequacy and Fairness of State School Finance Systems," which presents key findings from the School Finance Indicators Database (SFID). The SFID, released by the Shanker Institute and Rutgers Graduate School of Education (with my colleagues and co-authors Bruce Baker and Mark Weber), is a free collection of sophisticated finance measures that are designed to be accessible to the public. At the SFID website, you can read the summary of our findings, download the full report and datasets, or use our online data visualization tools.

The long and short of the report is that states vary pretty extensively, but most fund their schools either non-progressively (rich and poor districts receive roughly the same amount of revenue) or regressively (rich districts actually receive more revenue), and that, in the vast majority of states, funding levels are inadequate in all but the most affluent districts (in many cases due to a lack of effort).

One of the difficulties in producing this annual report is that the our "core" measures upon which we focus (effort, adequacy, and progressivity) are state-level, and it's not easy to get attention for your research report when you basically have 51 different sets of results. One option is assigning states grades, like a school report card. Often, this is perfectly defensible and useful. We decided against it, not only because assigning grades would entail many arbitrary decisions (e.g., where to set the thresholds), but also because assigning grades or ratings would risk obscuring some of the most useful conclusions from our data. Let's take a quick look at an example of how this works.

The Progressive School Funding Option

One of the more striking findings in our recent report presenting data from the School Finance Indicators Database concerns funding progressivity, or fairness. A state’s finance system is considered progressive (or fair) to the degree districts serving higher-needs students (e.g., lower-income students) receive more funding than districts serving lower-needs students.

The graph below is taken directly from our report (my co-authors are Bruce Baker and Mark Weber), and it provides a rough illustration of progressivity in the U.S. as a whole. The numbers in the graph are state and local per pupil revenue by district poverty quintile. They are not dollar amounts because they are centered around the average for each district’s labor market to make them more comparable. If funding were progressive, the bars in the graph would slope upward left-to-right, since it would indicate that higher poverty districts receive more revenue than lower poverty districts. Regressive funding, in contrast, would be characterized by a downward right-to-left slope. Instead, what we find is that the bars are virtually flat – that is, higher-poverty districts receive no more or less state and local revenue than lower-poverty districts. Moreover, this has been the case for 20 years.

I would reiterate that this is just an approximation of the national average. But it is consistent with what you see if you examine the situation state-by-state – there are a handful of truly progressive states and a few that are truly regressive, but most states are basically flat. It is also consistent with other analyses that use alternative methods (e.g., Chingos and Blagg 2017).

The Role Of States In Teacher Pay Gaps

We recently published a research brief looking at gaps in pay between teachers and comparable non-teacher professionals. These gaps are sometimes called “teaching penalties.” The brief draws on data from the School Finance Indicators Database (SFID), a collection of school finance and resource allocation measures published by the Shanker Institute and the Rutgers Graduate School of Education. 

The first part of the brief presents our estimates of teaching penalties, by state, for young (age 25) and veteran (age 55) teachers. We find that the gaps between teachers and similar non-teacher professionals range between 5-10 percent in states like Pennsylvania and Montana to 35-40 percent in Arizona, Oklahoma and Colorado (the latter three are all states in which there were recent major teacher strikes). To be clear, these estimates do not include benefits, although our rough calculations (discussed in the brief) suggest that the inclusion of benefits would not come close to closing these gaps in most states.

Our primary focus, however, is on the relationship between these teaching penalties and states’ school finance systems. 

Specifically, we find a significant relationship between the size of the penalties and adjusted state K-12 spending. In other words, states that spend more exhibit smaller gaps. We find a similar relationship between the penalties and states’ fiscal effort, which measures how much of their total “economic capacity” they spend on K-12 education – i.e., states that put forth more “effort” tend to have smaller gaps.

Federal Educational Investments Are Essential

Our guest author today is Stan Litow, a professor of Public Policy at both Duke and Columbia University. He is a former deputy chancellor of schools in New York City, former president of the IBM Foundation, a trustee of the State University of New York, and a member of the Albert Shanker Institute’s board of directors. His book, The Challenge for Business and Society: From Risk to Reward, was published last year.

The Trump Administration’s recent education budget proposal got a lot of attention for trying to eliminate all federal support for the Special Olympics. In response to bipartisan opposition to this foolish proposal, the cut was restored. This is good news, but the bigger story of the Administration’s proposed cuts to educational programs—and their impact on the most critical issues facing the nation—got lost in what appeared to be a positive result. The cut to the Special Olympics was misguided, but hardly unique. The overall cuts represent 12 percent of the education budget, or approximately $7 billion.

Among the most misguided cuts are those that would negatively affect college affordability, including reductions in student aid programs such as College Work Study, as well reduced funding for teacher professional development. As with the Special Olympics, there are advocates on both sides of the aisle who are likely to fight hard to reverse these cuts, but reversing the cuts would only represent a modest victory. They would not solve the underlying problems exemplified by the cuts.