This economic downturn is an opportunity to reform school finance systems

This economic downturn is an opportunity to reform school finance systems
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How much money is needed to provide an “adequate” education for kids? This question has been debated vigorously in state legislatures, courthouses and media outlets throughout the country as stakeholders seek to define a sufficient per-pupil funding amount for school districts. While identifying such a precise figure might be impossible, it does raise a related question that’s seldom asked: Should school districts have free rein to raise vast sums of local dollars beyond any reasonable definition of adequacy? After all, it makes little sense to spend more on public education than what’s needed — especially with the economic downturn caused by the coronavirus crisis threatening education budgets.

In every state, it’s not hard to find examples of excessive spending. For instance, in 2017-18 Missouri’s Brentwood School District generated more than $21,000 per pupil in state and local operating revenue alone. For context, this mirrors the sticker price for Chaminade, an elite private school nearby, and is more than double what some neighboring districts raise. While it’s obvious that both are spending at high levels — especially given their low-need student populations — Chaminade is privately funded and Brentwood relies on public dollars. There are bipartisan reasons that school districts should not be allowed to spend like elite private schools on the taxpayers’ dime, especially when many other districts can’t access the same funding. 

Many funding equity advocates, who tend to lean left, already agree. After all, they argue, it’s only fair to put districts on equal footing and disadvantaged students are often the ones shortchanged. Surprisingly, it’s often conservatives — who favor fiscal restraint in other policy contexts — giving a free pass for excessive spending. But there’s a good reason they shouldn’t.   

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A primary rationale given is based on the idea of local control — that is, decisions are best left to the lowest or least centralized unit possible. In public education this historically has meant the authority of school boards, which generally have a say over local tax rates and bond issuances. Putting aside the effectiveness of this relationship — school boards are vulnerable to regulatory capture by special interests and voter turnout is often a paltry 10 percent to 20 percent — this argument is overshadowed by other considerations.  

Importantly, this version of local control is antiquated because families increasingly pursue educational opportunities outside of their residentially-assigned districts. For example, a critical mass of students in Indiana, about 10 percent, now attend either a school in a neighboring district through open enrollment or a charter school. The trend toward expanded choice has effectively uprooted the centuries-old assumption on which most school finance systems are built — that students attend schools based on where they live — and raises fundamental questions about the role of district boundaries in modern education systems.

Most notably, property-wealthy districts that rely primarily on local dollars have little financial incentive to offer open seats to transfer students, which can lead to restrictive open enrollment policies. For example, when districts in California achieve Basic Aid status (and no longer generate state funding for transfer students) they often stop accepting them altogether. Funding variations also make it difficult for neighboring districts and charters to compete for talented teachers since they can’t match the salary levels of higher-spending districts, yet they’re all held to the same accountability standards.  

Lastly, there are also concerns around transparency and fairness as local education revenue is largely raised with property taxes, which are already unpopular. It’s not uncommon for districts with identical local tax levies to yield substantially different revenue levels and changes in property valuations over time often aggravate these disparities even further. 

The fact is that education has changed rapidly in the past two decades and school finance systems must be reformed to reflect these new dynamics. As such, state policymakers should streamline funding and ensure that students are funded fairly, regardless of where they attend school. And while many states have mechanisms that limit local spending, these restrictions generally don’t go far enough, and property-wealthy districts are still permitted to raise vast sums of additional dollars. 

Instead, adequacy should be a two-way street, with no district permitted to raise more operating revenue than what’s provided by state funding formulas. Not only is this the fiscally conservative thing to do, it’s also fair for both the increasing number of kids seeking better opportunities outside of their zip codes and to the many who already are being shortchanged.  

Aaron Smith (@AaronGarthSmith) and Christian Barnard (@CBarnard33) work for Reason Foundation, a nonprofit think tank promoting free minds and free markets. Smith is Reason’s director of education reform and Barnard is an education policy analyst.