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^{4, 5, 6, 7, 8}. Carefully implemented SFRs modestly decrease disparities in school spending between low and high income districts^{1, 8, 9, 10, 11}. However, the effectiveness of SFRs is affected by spending decisions at both school district and individual school levels that can undermine equity goals^{2, 4, 12}. 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 SFRs¹³. The effectiveness of SFRs can also be reduced by legislative delays, slow roll-out provisions, funding guarantees, court appeals, or a combination of oppositional tactics¹. 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^{1, 2}.

State-level SFRs have reduced funding inequalities to varying degrees, depending on the amounts spent^{1, 2, 4, 14}. 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 resources⁷. However, some state policy changes, such as hold harmless provisions, appear to reduce or eliminate the effectiveness of SFRs intended to improve equity^{2, 15}. 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 state². 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 term¹⁵.

There is strong evidence that K-12 SFRs that increase school spending in districts with low incomes improve academic outcomes^{6, 16, 17}, especially when reforms are sustained for four years or more¹⁶. Improvements in academic outcomes increase gradually over time, and effects are larger for children from low income backgrounds^{17, 18, 19} and for younger students^{16, 20}. 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 effects¹⁶. 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^{6, 14, 18, 19, 21, 22}. However, state education budgets and the progressivity of funding after reforms varies from state to state²³. SFRs that increase education budgets and school spending equity reduce achievement gaps; however, these reforms alone are not sufficient to eliminate academic achievement gaps^{9, 22, 23}. Implementing SFRs in combination with other education interventions may increase effectiveness²³.

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^{2, 4, 12, 20}. A Texas-based study shows students in rural districts that receive additional funding improved their reading and math scores, and high school dropout rates declined²². In a Michigan-based study, SFRs led to improved academic performance on state mastery tests, though not on ACT scores⁹. 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 backgrounds²⁴. Effectiveness varies between states and local decisions can divert spending increases away from intended student populations¹².

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 disabled²¹.

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^{2, 4, 19}. 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 alone²⁵.

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 transportation¹⁵.

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 power²⁶. 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 SFRs²⁷. 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 control²⁸. 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 areas⁹. 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^{24, 27}. Experts suggest that, when required, budget cuts should come from categorical funding grants that benefit school districts in wealthier areas²⁷.

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 distribution²⁹. 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^{29, 30}. 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 distributions³⁰. 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 systems²⁹.

As of 2016, 45 states have implemented a version of SFRs¹⁴. 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 Program²³. In 22 states, additional funding is provided by increasing the per pupil allocations for these students²³.

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 models³¹.