Published Online: January 4, 2005
Published in Print: January 6, 2005, as Financing Better Schools

Financing Better Schools

Too often, traditional methods of paying for schools come up short.

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Public school finance systems are in flux.

Historically, states have focused on how to distribute money equitably across districts, with far less attention to what that money bought or the results it produced. Now that states have set ambitious performance goals for students—and the federal No Child Left Behind Act requires all public school students to reach those targets in reading and mathematics by 2013-14—the push is on to link money to student performance.

Quality Counts 2005: No Small Change, Targeting Money Toward Student Performance, focuses on the burgeoning efforts to link funding to educational outcomes. Nearly $500 billion in combined federal, state, and local money is spent on precollegiate education in the United States each year, with nearly half the total coming from state coffers.

Today, 31 states are considering major changes in how they pay for education or allot money to school districts, according to the Education Week Research Center’s policy survey of 50 states and the District of Columbia for Quality Counts 2005.

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The winds of change are blowing inside and outside state government: Sixteen states are embroiled in litigation challenging the school finance systems they now have in place. Lawsuits in 20 other states have been decided or settled in the past five years, often in the plaintiffs’ favor.

The tight state budgets of recent years also have put pressure on education spending, forcing many schools and districts to do more with less. In Education Week’s survey, 37 states and the District of Columbia identified a lack of resources or unpredictable funding levels as the most pressing school finance issue, particularly given state revenue trends.


One of the most notable changes in the past decade has been in how policymakers talk about school finance.

Since the 1990s, legislatures and the courts have increasingly shifted their focus from questions of “equity” to “adequacy” as they seek to identify what it would cost to produce the objectives for education spelled out in state constitutions.

Although the specific language varies, almost all those constitutions contain requirements for the provision of a “thorough and efficient,” “sound basic,” or “adequate” education. Plaintiffs’ lawyers have won almost two-thirds of the major school finance decisions in states’ highest courts since 1989 based on adequacy arguments, including a string of cases in the past two years.

Education Week’s policy survey found that 30 states have had adequacy studies conducted. Six of those studies were under way as of late last fall. In addition, 14 states have had studies done to estimate the costs associated with implementing the No Child Left Behind Act. In nine of those states, the studies were still in progress as of late last fall.

But school finance experts show little agreement on which method is best for calculating adequacy. Bruce D. Baker, a scholar at the University of Kansas, categorized the adequacy methods and findings across state studies for Quality Counts. For example, he found that the price tag per pupil in 2004 dollars, adjusted for regional cost differences, ranged from $6,820 to $11,107 in Maryland, depending on the method used. Across states, the estimated price tag ranged from a low of $5,009 per pupil in Illinois to a high of $15,639 in New York.

One reason for such differences, according to an Education Week analysis of adequacy studies in Kentucky, Maryland, and New York state, is that different studies include different costs for educating students with special needs.


Education Week’s national survey found that 43 states and the District of Columbia include weights or adjustments in their finance formulas that provide extra money for students with certain characteristics, such as poverty, disabilities, or lack of fluency in English.

Twenty-six states and the District adjust their general funding formulas for “at risk” students, broadly defined as students in poverty or those deemed more likely than others to fail academically or drop out of school.

Nine states adjust their formulas to reflect differences in what a dollar can buy across different regions of those states, such as urban and rural areas.

But there’s little evidence that those dollar amounts are based on data showing what it actually takes to bring a student from a poor family, for example, to the proficient level on state tests. On the contrary, it’s surprisingly hard to get a clear picture of how schools spend money on instructional programs and services, including staffing. Education Week found that only 22 states and the District of Columbia collect at least some school-level financial data.

Often, the amount of money that schools actually receive is obscured by state and district “categorical” programs.

Education Week found that, on top of their base funding formulas, 48 states and the District now provide categorical funding to schools or districts. Such aid is used for specific purposes, such as early-childhood education, school construction, reading initiatives, and gifted-and-talented, bilingual, or special education programs, often with strings attached.


Given the importance of teachers for student learning, policy experts also suggest moving away from what are called single-salary schedules to compensation plans that reward teachers who have special knowledge or skills, or who succeed in raising student performance. Teachers willing to work in subjects with shortages or in hard-to-staff schools would also earn more.

In the current school year, Education Week learned, only six states have developed their own pay-for-performance program based on teacher acquisition of knowledge and skills. Five states have programs that reward teachers based on their students’ achievement: Arizona, Florida, Iowa, New Mexico, and North Carolina. In addition, 26 states provide recruitment or retention incentives to attract and keep teachers in high-need subject areas. Fourteen states have such incentives to attract and keep teachers in high-poverty or low-performing schools.

At the same time, 20 states have laws mandating a single-salary schedule, or one in which teachers with the same seniority and education get the same pay. Such statewide pay scales potentially restrict flexibility in how much schools can choose to pay teachers.


Even if states could determine how much it costs to bring all, or most, students to a specified level of performance, they’d still need to find the cash. Economists suggest that could be increasingly difficult, given the patched-together nature of most state revenue systems.

Education Week found that 31 states have taxes or fees earmarked for education. Twenty-four have lotteries dedicated at least in part to K-12 education. Voters in Oklahoma approved such a lottery in November. And 35 states rely on districts to contribute at least a minimum local tax effort toward financing their schools.

But as the reliance on local property taxes has lessened (33 states limit such taxes), state tax structures have not necessarily stepped into the breach. And while 43 states enacted large tax cuts during the boom years of the 1990s, most have neither reversed those cuts nor enacted other tax increases to replace lost revenues during the recent leaner years.


As part of this year’s focus on school finance, Education Week revisited its grades on the equity and adequacy of state resources for public education. Given the current debate about what an adequate education costs, we decided not to grade states on adequacy this year. Instead, the report rank-orders states on several key spending indicators.

States that earned the highest grades on equity have a relatively weak relationship between local property wealth and school revenues; less variation in spending across districts; and a smaller gap between the amount spent on students in the lowest-spending districts and the state median spending per pupil.

As is true every year, Quality Counts also tracks student achievement across the 50 states and the District of Columbia, and charts progress on three other facets of states’ education systems: standards and accountability, efforts to improve teacher quality, and school climate. States averaged a C-plus across the graded categories this year, the same as last year.

Quality Counts 2005 is divided into two sections. “Financial Evolution” examines the special theme of this year’s report. “State of the States” includes more than 100 indicators of the health of each state’s public education system. In addition, it includes profiles and report cards for the 50 states and the District of Columbia.

—The Editors

Vol. 24, Issue 17, Page 7

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