K-12 school finance reforms

There is strong evidence that K-12 school finance reforms (SFRs) increase state aid and spending in school districts with large populations of students from low income backgrounds (Lee 2021a, Chakrabarti 2015, Chaudhary 2009, Dee 2004, Steinberg 2020). Carefully implemented SFRs modestly decrease disparities in school spending between low and high income districts (Rothbart 2020, Roy 2011, Springer 2009, Card 2002, Steinberg 2020). However, the effectiveness of SFRs is affected by spending decisions at both school district and individual school levels that can undermine equity goals (Kelly 2022, Lee 2021a, Hyman 2017). Available data suggests court ordered SFRs reduce revenue inequality through state aid; however, over time effects can fade, perhaps as legal pressure decreases, economic downturns strain state budgets, and other legislative demands reduce funds available to support SFRs (Condron 2017). The effectiveness of SFRs can also be reduced by legislative delays, slow roll-out provisions, funding guarantees, court appeals, or a combination of oppositional tactics (Rothbart 2020). Funding guarantees such as hold harmless provisions provide high income school districts assurances that pre-reform funding levels will be maintained regardless of new formula calculations (Rothbart 2020, Kelly 2022).

State-level SFRs have reduced funding inequalities to varying degrees, depending on the amounts spent (Rothbart 2020, Kelly 2022, Lee 2021a, Bischoff 2019). In Massachusetts, SFRs increased school spending on both direct teacher and student instruction-related expenses and on capital expenditures in school districts with the highest poverty rates and lowest education spending, without state-level regulations directing the use of new resources (Dee 2004). However, some state policy changes, such as hold harmless provisions, appear to reduce or eliminate the effectiveness of SFRs intended to improve equity (Kelly 2022, Dhaliwal 2021). For example, in 2016, the Pennsylvania state legislature implemented a fair funding formula with a hold harmless provision that reduced funds available to distribute through the new formula, which resulted in increased racial disparities in school funding across the state (Kelly 2022). In California, SFRs are associated with increased spending progressivity, which means greater resource allocation and spending flexibility, for school districts with more students from low income backgrounds, English language learners, or foster youth. However, positive effects faded over time in some rural districts and more research is needed to determine which changes in funding sources and formulas protect progressivity over the long term (Dhaliwal 2021).

There is strong evidence that K-12 SFRs that increase school spending in districts with low incomes improve academic outcomes (NBER-Jackson 2021, Fan 2020, Chaudhary 2009), especially when reforms are sustained for four years or more (NBER-Jackson 2021). Improvements in academic outcomes increase gradually over time, and effects are larger for children from low income backgrounds (Fan 2020, Lafortune 2018, Jackson 2016) and for younger students (NBER-Jackson 2021, Baker 2020a). Studies have shown that school funding increases that are not designated for capital investments produce greater improvements in academic outcomes than school funding increases that are capital-spending specific; however, both types of investment have positive academic effects (NBER-Jackson 2021). SFRs can provide schools with new resources to hire and retain quality teachers, increase teacher salaries, reduce class sizes, increase course offerings, improve extracurricular opportunities, improve facilities, and more (Cruz 2022, Bischoff 2019, Kreisman 2019, Lafortune 2018, Jackson 2016, Chaudhary 2009). However, state education budgets and the progressivity of funding after reforms varies from state to state (Thorson 2019). SFRs that increase education budgets and school spending equity reduce achievement gaps; however, these reforms alone are not sufficient to eliminate academic achievement gaps (Kreisman 2019, Thorson 2019, Roy 2011). Implementing SFRs in combination with other education interventions may increase effectiveness (Thorson 2019).

Available evidence shows that substantive and sustained SFRs improve test scores, increase high school completion rates, college enrollment, and college completion, especially the longer students are exposed to increased school spending (Baker 2020a, Hyman 2017, Kelly 2022, Lee 2021a). A Texas-based study shows students in rural districts that receive additional funding improved their reading and math scores, and high school dropout rates declined (Kreisman 2019). In a Michigan-based study, SFRs led to improved academic performance on state mastery tests, though not on ACT scores (Roy 2011). States with SFRs that increased education spending levels for low income school districts and support more teachers per pupil are associated with greater academic improvements among students from low income backgrounds and reduced achievement gaps between students from high and low income backgrounds (Baker 2016). Effectiveness varies between states and local decisions can divert spending increases away from intended student populations (Hyman 2017).

SFRs have positive effects overall on academic achievement among students with disabilities; however, effectiveness varies by poverty level. Appropriately financing education for students with disabilities is difficult and increased funding alone is generally not sufficient to reduce achievement gaps between students with disabilities in high poverty schools and students with disabilities in low poverty schools. Policymakers also need to be careful how they provide funds for students with special needs to appropriately support school districts without incentivizing overidentification of students as disabled (Cruz 2022).

Increased per pupil spending for students for all 12 years of public education increases adult earnings and reduces the likelihood of adult poverty, especially among children from low income backgrounds (Jackson 2016, Kelly 2022, Lee 2021a). Increased public school funding, especially in elementary school, also reduces adult arrest rates. Available evidence suggests increased school funding is cost effective for the crime reducing effects alone (NBER-Baron 2022).

Experts suggest SFRs to support rural school districts may need to consider both the cost disadvantages and cost advantages for rural schools. Since available data suggests that rural and non-rural school districts spend new funding similarly, adjustments for rural areas may be most effective as unrestricted revenue rather than categorical grants for specific purposes such as transportation (Dhaliwal 2021).

Successful SFRs often include weighted student adjustments with larger funding weights for students from low income backgrounds, those with limited English language skills, and those with special needs. More successful SFRs also address differences in costs to school districts based on geography, district size, and purchasing power (Knight 2019a). SFRs may improve equity more if they specify multiple funding adjustments for districts that account for district poverty rates, local property wealth, and racial diversity, rather than choosing a single measure. Policymakers can use their state’s school finance data to determine the best approach to prioritize equity in their SFRs (Knight 2022). SFRs may increase the state’s share of responsibility for school funding, reorganize districts to create stronger tax bases, and broaden the tax base supporting schools by sharing business tax revenue regionally. However, such efforts are typically resisted by politically powerful and economically advantaged communities that argue for states to defer to local community control (Steffes 2020). SFRs can reduce funding to school districts with high incomes, and engagement with local decision makers in high income districts is suggested to help avoid negative effects on student academic performance in those areas (Roy 2011). Available data suggests across-the-board reductions to state-level school funding results in regressive budget cuts that are most harmful to school districts with low incomes (Knight 2022, Baker 2016). Experts suggest that, when required, budget cuts should come from categorical funding grants that benefit school districts in wealthier areas (Knight 2022).

There is strong evidence that K-12 school finance reforms (SFRs) have the potential to decrease disparities in spending between school districts with low and high incomes (Roy 2011, Springer 2009, Card 2002, Steinberg 2020). In a Michigan-based study, SFRs significantly reduced the gap in school spending between the lowest and highest spending districts (Roy 2011). SFRs should be designed carefully and without hold harmless provisions or limitations that prevent any reductions in state aid to advantaged, predominantly white school districts, since such provisions can increase disparities in funding levels (Kelly 2022). The effectiveness of SFRs can also be reduced by school district and school level decisions that affect the distribution of funds. For example, principals may use new funds to hire novice teachers and assign students with limited English skills, low income backgrounds, or special needs to their classrooms, while assigning students with higher achievement records and fewer needs to experienced teachers (Lee 2021a). Students with disabilities in high poverty schools have lower academic achievement than peers in low poverty schools, which suggests that SFRs that provide additional resources to high poverty schools could help reduce those disparities (Cruz 2022).

Students of color, especially Black, Hispanic, and Native students, are much more likely to attend school districts with high poverty rates than white students (Knight 2022). Overall, school districts with a high percentage of white and Asian students have the highest level of locally generated revenue. State aid partially compensates for lower funding levels in school districts with high percentages of Black, Hispanic, and Native students. However, there is variation between states in the design and purpose of state education finance formulas and since state funding is a larger share of education funding in districts serving predominantly Black, Hispanic, and Native students these districts are most vulnerable to state budget cuts (Knight 2022, Jackson 2021).

Racial disparities in K-12 education funding levels have been demonstrated between school districts with mostly white students and those with predominantly students of color, independent of poverty levels (Kelly 2022, Rothbart 2020, Card 2002). For example, disparities in school spending are strong and persistent in school districts serving primarily Hispanic students (Baker 2020a) and in districts serving primarily Navajo Nation students in Arizona (Martinez 2019). SFRs can help reduce racial disparities in funding between school districts; however, state funding formulas are created as part of a political process that is influenced by voter preferences. In cases where majorities of the voting-age population and student population do not share the same race, disparities in local funding levels are often exacerbated (Rothbart 2020). One estimate of racial disparities in funding during the 2015-2016 school year suggests school districts with high poverty levels and mostly white students received approximately $23 billion more in funding support than school districts with high poverty levels and mostly students of color (Kelly 2022). Studies also associate increases in racial segregation levels with increased disparities in school funding and resources (Kelly 2022).

Public education is intended to help children become good citizens, which produces individual and collective benefits. Collectively society benefits when citizens contribute to economic productivity and growth, need fewer social service supports, participate in a functioning democracy, abide by the laws, respect the rights of others, manage conflict peacefully, and avoid illegal activities and prison time (Rice 2020).

Discriminatory housing, lending, and exclusionary zoning policies in the era of Jim Crow and government-sanctioned segregation led to the redlining practices of the Federal Housing Administration (FHA), concentrated poverty, and entrenched residential segregation (Kaplan 2007). Redlining denied people of color access to government-insured mortgages and labeled homes in neighborhoods where people of color lived as uninsurable, thereby guaranteeing that property values in those neighborhoods would be less than those in white neighborhoods (Kaplan 2007). Entrenched residential segregation and reduced property values created many neighborhoods where local property taxes can be high and yet raise low levels of revenue to support public education (Kelly 2022). Researchers estimate about 15,000 rural and urban school districts were systematically underfunded under the local property tax-based finance system (Condron 2017).

At the federal level, in 1965, the Elementary and Secondary Education Act (ESEA) was passed with the goal of providing additional resources to low income schools to increase academic achievement among students from low income backgrounds and students of color. Available research on ESEA found only modest or negligible effects, which fueled the political battle surrounding whether or not to provide additional funding for low income schools (Thorson 2019). SFRs aiming for equity have been repeatedly resisted, undermined, or undone by wealthy and politically powerful communities to keep wealth and local property tax advantages for their own schools (Steffes 2020).

After the 1954 Brown v. Board of Education decision, supporters of SFRs challenged state school funding systems in state supreme courts using an equity-based argument. In California, the Serrano v. Priest decision in 1971 was the first to find that a state’s school finance system was unconstitutional and mandate reform. From 1990 to the present, reform advocates shifted litigation strategies from equity-based to adequacy-based claims. Lawsuits were filed in 44 out of 50 state supreme courts that argued state finance systems did not provide adequate education with sufficient resources and opportunities for all children regardless of where they live. As of 2007, 24 state supreme courts have mandated adequacy-based SFRs (Rice 2020, Condron 2017).

In the first half of the 20^th century, revenue generated by local property taxes covered over 80% of school spending. As of 2014, a variety of SFRs have been implemented and the average share of state revenue support for public education has increased to about 46% and the local share has reduced to about 45% (Rice 2020). Several reports have shown that the 2008 recession caused steep declines in state public school funding, and these funding cuts disproportionately reduced budgets for high poverty school districts (Baker 2016) and districts serving larger populations of English language learners (Baker 2020a). As of 2014, 31 states were providing less funding for public schools than they provided in 2008 (Baker 2016). The COVID-19 pandemic also changed poverty rates, altered student enrollments, and complicated state education budget estimates, which in many cases has resulted in proposed state funding cuts that disproportionately affect low income school districts (Urban-Blagg 2021).

• How successfully have SFRs in your state increased education spending and reduced disparities in education spending? Which school districts in your community remain underfunded? How could local spending decisions be adjusted to improve spending equity and help state aid reach school districts and students most in need of support?
• Does your state’s school finance system include hold harmless provisions or limitations on the amount of the state education budget that can be redistributed for equity goals? What additional efforts could be undertaken to remove those limitations?
• What outreach work could your community engage in to understand equity reforms and support changes to unfair provisions in new funding formulas?
• Which school representatives, community organizations, political leaders, and other groups need to be a part of the effort to adopt SFRs in your state? Which local community organizations can support schools and school districts to enable successful implementation?

In 2022, the Education Law Center (ELC) published a report that documents the need for additional school finance reforms (SFRs) across the country and identified 27 states with failing grades for school finance, especially for funding distribution (ELC-School finance 2022). According to the report, per pupil spending is well below the national average for millions of students, especially in the South and West of the country, and most states are not yet providing sufficient funding for students in schools in high poverty areas (ELC-School finance 2022, ELC-School finance 2021). ELC reports suggest that some SFRs have reduced spending inequalities, as in California, where SFRs between 2013 and 2019 increased school funding by $18 billion and raised California’s rank from 21^st to 8^th most progressive in funding distributions (ELC-School finance 2021). As of 2022, 19 states have progressive funding distribution systems allocating additional funds to high poverty school districts, while 17 states have regressive systems allocating less funding to high poverty school districts than they allocate to low poverty districts. New York, North Dakota, and North Carolina have reformed their funding distribution systems from regressive systems to mildly progressive ones; while Connecticut, Kentucky, Nevada, Oregon, and Rhode Island have moved from flat systems to regressive distribution systems (ELC-School finance 2022).

As of 2016, 45 states have implemented a version of SFRs (Bischoff 2019). As of 2018, 41 states provide additional funding to schools for students from low income backgrounds, usually for students who qualify for free and reduced price school lunches through the National School Lunch Program (Thorson 2019). In 22 states, additional funding is provided by increasing the per pupil allocations for these students (Thorson 2019).

Weighted student funding can also be adopted at the school district level to support equity in spending and to support state-level reform efforts. Many school districts across the country have adopted such a reform. However, one report suggests that there is not a standard weighted student funding model and that each of the 19 school districts examined have developed their own models (IES-WSF 2019).

‡ Resources with a focus on equity.

ELC-Making the grade^‡ - Education Law Center (ELC). Making the grade.

ELC-Tools^‡ - Education Law Center (ELC). Making the grade: Tools for advocates.

ERS-Toolkit^‡ - Education Resource Strategies (ERS). Toolkit: What is student-based budgeting? How can it drive student learning? Implementing an equity-focused school funding model as a part of broader district strategy.

LPI-School finance - Learning Policy Institute (LPI). School finance: Featured resources.

WCEG-Rothstein 2016 - Rothstein J, Lafortune J, Schanzenbach D. Can school finance reforms improve student achievement? Interactive graphic provides a state-by-state look at how funding gaps between high- and low-income school districts evolved from 1990 to 2011. Washington Center for Equitable Growth (WCEG); 2016.

* Journal subscription may be required for access.

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ELC-Making the Grade 2022 - Education Law Center (ELC). Making the grade 2022 state profiles: Wisconsin. 2022.

ELC-School finance 2021 - Education Law Center (ELC). Nationwide school finance analysis assigns “F” grade to 22 states, calls on Congress to incentivize funding reforms. 2021.

ELC-School finance 2022 - Education Law Center (ELC). Making the grade 2022: 27 states receive 'F' on school funding report card. 2022.

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Hyman 2017 - Hyman J. Does money matter in the long run? Effects of school spending on educational attainment. American Economic Journal: Economic Policy. 2017;9(4):256-280.

IES-WSF 2019 - Institute of Education Sciences (IES). Weighted student funding (WSF) is on the rise. Here’s what we are learning. 2019.

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Knight 2022 - Knight DS, Hassairi N, Candelaria CA, Sun M, Plecki ML. Prioritizing school finance equity during an economic downturn: Recommendations for state policy makers. Education Finance and Policy. 2022;17(1):188-199.

Kreisman 2019* - Kreisman D, Steinberg MP. The effect of increased funding on student achievement: Evidence from Texas’s small district adjustment. Journal of Public Economics. 2019;176:118-141.

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Lee 2021a - Lee JH, Fuller B, Rabe-Hesketh S. How finance reform may alter teacher and school quality: California’s $23 billion initiative. American Education Research Journal. 2021;58(6):1225-1269

Martinez 2019 - Martinez DG, Jiménez-Castellanos O, Begay VH. Understanding Navajo K-12 public school finance in Arizona through tribal critical theory. Teachers College Record. 2019;121(5):1-34.

NBER-Baron 2022 - Baron EJ, Hyman JM, Vasquez BN. Public school funding, school quality, and adult crime. National Bureau of Economic Research (NBER). 2022: Working Paper 29855.

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Urban-Blagg 2021 - Blagg K, Gutierrez E, Lee V. How COVID-19-Induced changes to K-12 enrollment and poverty might affect school funding. Washington, D.C.: Urban Institute: 2021.