Budget & Finance Opinion

Fatally Flawed

By Lewis C. Solmon — June 17, 1998 14 min read
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The battle over how to pay for public education is shifting from state legislatures to the courts.

The battle over how to pay for public education is shifting from state legislatures to the courts. Yet, while the epicenter of the funding controversy may have shifted, the issues around which the battle lines are drawn remain primarily the same as they have been for the past three decades--how to design and fund a state system that assures equity and adequacy.

We have been observing and participating in efforts to devise new and comprehensive school funding formulas across the country and believe that, almost without exception, the solutions being offered to courts and legislatures are fatally flawed. They push more money into a system that produces far too much failure and promotes far too little change where it really counts--student learning.

Why? Because virtually every funding model under consideration defines equity and adequacy solely as a function of how much more money will be funneled to schools. These plans are driven by one overriding principle: Give schools more money, and students will learn more. Ignoring the fact that little correlation can be found in research to support this proposition, this “quantity equals quality” linchpin of school funding models has driven the debate for three decades. It has failed because it gives little attention to how the system through which the money passes can be re-engineered to produce better results.

These court-driven funding initiatives attempt to use state constitutional provisions to leverage more money for schools. Nearly every state has a constitutional provision that speaks to the importance of education, and offers direction to the legislature. Surprisingly, while 25 state constitutions mandate that their legislatures provide a uniform, general, or common education, 16 mention that the systems should also be thorough or efficient. The notions of “thorough” and “efficient” have been largely forgotten in the funding debate.

“Thorough and efficient” focuses on the bottom line--giving our children a high-quality education with the least amount of waste. It suggests an emphasis on value--better quality for less money. Focusing on value should not be viewed as an excuse for policymakers to ignore dealing with the issue of adequacy. Spending money efficiently, however, is very much related to the goal of adequacy because there is a limit to how much more money taxpayers will shell out for schools. How money is spent, and to what effect, is as important as how much is spent.

We propose seven guidelines policymakers should use in shaping their funding formulas. If they integrate these principles and concepts into their states’ formulas, we believe students will learn more. By paying attention to these principles and concepts, it is possible to achieve the essential goals of equity, adequacy, thoroughness, and efficiency in school finance. A funding formula that promotes a thorough and efficient system should reflect the importance of these factors.

Let’s begin with adequacy. Adequacy requires that the basic elements of a quality education be funded. Easily enough said, but how do we determine what is basic and necessary? Start with the type of student. What works in a suburban district falls far short of being adequate for urban students. Likewise, a rural district’s students have different needs.

The conventional approach to building a funding formula takes a sampling of selected districts, calculates a weighted average of the per-pupil expenditure levels, and uses that number to establish the “basic aid guarantee amount” for each student. This is flawed for two key reasons. First, few states have expenditure data sets that are reliable or accurate down to the district and building level; and second, calculating student-expenditure levels without taking into consideration the educational context and student performance yields a result that has no relevance to the real world.

How money is spent, and to what effect, is as important as how much is spent.

How the money is spent and the type of student do matter. That’s why our first principle for building a funding framework that promotes learning is this: The formula should be built around a “factor cost accounting” approach. Beginning with the student, determine the factors that must be present for that “student type” to learn, provided of course that the student makes a reasonable effort to learn.

Some student needs are common regardless of the student type. For example, a funding formula that promotes adequacy must provide every student with good textbooks and other instructional materials. Funding adequate access to technology is also a universal need. Therefore, the formula should direct that these essentials be covered. All-day kindergarten, class-size reduction in early grades, and funding tutorial-support programs are necessary for at-risk students. So the formula should calculate the cost of providing these components to those who need them and include funds sufficient to pay for them.

Implicit in the factor-cost-accounting approach is a test for reasonableness. The constitutional requirement that legislatures provide adequate funding should not be construed, as many educators would argue, as an open checkbook for educational interest groups to fleece the taxpayer. The marketplace should be used to set the real cost of providing these services. For example, it is not reasonable to require that instructional tutorial services provided to public school children must be delivered by certified teachers who are paid the union scale--college students looking to make some extra money would do just fine.

Because adequacy is so important, we suggest that the formula require the local school to provide the essentials for learning before the funds become discretionary or unrestricted. Targeting funds to specific educational activities can be achieved through many devices. Traditional funding models allow local school boards to ignore the essentials, resulting in students without textbooks, roofs that leak, and a majority of the money going to noninstructional activities or to increase teacher salaries.

The second component of an integrated funding formula that promotes learning is equity. We believe that equity is best achieved through a child-centered funding formula where the money follows the child to the building, not the district. In short, give money to children, not districts.

With few exceptions, current systems fund districts, not children. Consequently, most battles over funding revolve around the effects of an idea or proposed change on the school system, not what effect it has on children. Funding children rather than districts represents a fundamental shift in the funding paradigm. A child-centered approach also gives policymakers more options and flexibility in designing programs to improve student achievement.

The unit to which money is distributed should be the school, not the district. When you distribute money on a per-capita basis to districts, you do not get an equitable distribution by school. Districts generally get state and local money and then distribute goods (including staff positions) and services to schools. But if one school gets a $50,000 teacher and another a $30,000 one, the second school does not get the $20,000 difference in cash or other resources. In large districts, more politically potent areas (for example, where money for school board candidates comes from) are more likely to have the ears of the board, and so the least leaky school roofs. If one school in a district grows and another shrinks, inertia and the desire to avoid controversy often prevent commensurate shifting of resources within the district.

If we give the money to students rather than districts, it is by definition equitable. Due to the variance in local wealth and tax potential, some districts will not be able to spend the consensus per-student amount without financial help from outside the district. Funding will be required at the state level.

Child-centered funding should be portable. By allowing families to decide in which schools to spend their allocation, the most local type of control possible is being provided--at the household level. Child-centered funding does not require a shift to a voucher system. A funding system that requires that money follow the child is totally compatible with movement within a system of public schools.

Policymakers should be mindful that voter patience is wearing thin. The ‘more money’ mantra has limited appeal.

It has become obvious over the years that the interests of the education bureaucracy are not always identical to the interests of students and their families. Job security is more important to teachers and administrators than it is to parents. Teachers may justifiably use a particular teaching method, even though certain parents feel it is not the most appropriate one for their kids. With portable, child-centered funding, parents are not forced to accept the staff and policies in the school to which their children are assigned. They can select a school that reflects most closely their own needs and desires. As schools in demand grow and others decline, families can control the types of schools they get.

We don’t have to take equity literally. It will be less expensive to deal with high-cost-per-student districts separately than to try to bring all districts up to the level of small, rapidly growing districts. The highest-cost districts should not define adequacy.

In many states, a very high proportion of students attends schools located in a very few districts, and a large group of districts serve very small numbers of students. The small districts often require the highest per-student expenditures because of their isolation, fixed costs that can be divided among only a few students, and their inability to benefit from economies of scale. Often states are torn between cutting the per-student payments in small districts or raising every district’s per-student spending to the levels of these small districts and thereby bankrupting the state. In fact, we have found that if all small districts were allowed to spend at their group’s (high) per-student average, the total cost would be small because so few students are in these districts. Then the additional cost of bringing all larger districts up to some minimum level above the average of the large districts is relatively small as well.

Our third principle focuses on efficiency. Efficiency is best achieved through the use of market incentives and disincentives. There must be a consequence for failure and a reward for success. Sticking to past spending patterns is not inherently desirable. If the new formula reflects the old patterns on spending, then you will essentially maintain the current system, and this is exactly what most conventional funding models do: put more money into the same funding framework.

One frequently asked question during a school-finance-reform debate is whether all districts will be able to maintain current spending patterns. That is the wrong question. Perhaps districts that have already built new schools do not need to build more. Perhaps districts that have been accelerating salaries across the board should slow down and reward performance. If we keep doing the same things, we are very likely to get the same results.

A focus on performance is the fourth component. Performance is a function of high expectations and focused effort. It is also inextricably linked to the efficiency factor and market forces. The funding formula should have incentives for high achievement and disincentives for poor performance. For example, when schools fail to meet the needs of children, the rules governing the rights of employee groups should change. Barriers that make it difficult to institute new programs and teaching models should be eliminated in nonperforming school buildings. The issues that are subject to collective bargaining should be severely limited in nonperforming schools. Conversely, schools with high achievement should be given more flexibility, relief from regulations, and financial rewards.

Stewardship is our fifth principle. It is not even recognized as a factor in most conventional funding models. Why should taxpayers from school districts where they take care of their buildings be overtaxed in order to send money to repair and build buildings in districts where the buildings are neglected? The funding formula should require districts to set aside money for routine maintenance and building repair. Perhaps the administrative licenses and certificates of those administrators who allow their buildings to become unsafe and hostile to learning should be suspended or otherwise affected. Presently, there is no consequence for poor stewardship.

We can learn a lot by looking at the numbers, but bad data makes bad models.

Funding formulas that promote learning must include our sixth principle: a strong accountability component. Accountability requires reliable measurements of academic performance and accurate tracking of expenditures, program components, student demographics, and resource allocation. Imagine a business in today’s fast-changing world remaining competitive if it is incapable of tracking its expenditures, sales data, customer demographics, manufacturing costs, and product quality right down to the production-line level. In the world of public education, it is the exception rather than the rule that detailed data are collected in a usable form to guide investment and strategic decisions.

Talk about management information systems is rather boring to the public and most policymakers. It is offensive to most educators. Yet, it is a critical part of building a funding framework that promotes learning. Jefferson once noted that “information is the currency of democracy.” Information is every bit as important to building a “thorough and efficient” system of public education.

We can learn a lot by looking at the numbers, but bad data make bad models. In any funding system, the numbers upon which the formula is based do not necessarily reflect reality accurately. Administrators and teachers are inundated with requests to provide data--to the federal government, to the state, to researchers, and to the public. Sometimes, to save time, they just “fake it” by guessing or making approximations. Often it is not clear what is being requested. Also, most of the information collected by schools is “program data” rather than cost-accounting data. Definitions and time periods covered vary from place to place and over time. For example, what is a “modern” computer? What do we mean by “teaching staff”? Should aides be included? Some districts keep better records than others do.

All of this leads to the implication that the conventional models being promoted to suggest new finance formulas may not be as precise as they seem. They are built on a thin veneer of pseudo-data generated from within an education bureaucracy where little attention is paid to the importance of producing accurate, management-relevant data. Just because someone shows us data does not mean that he knows the facts.

The final principle essential to building a funding framework that promotes learning is recognition of the importance of the tax effort. The funding formula should build the community’s tax effort into the distribution formula.

The method of finding money for the schools is not irrelevant. Every property-tax dollar does not have the same impact on voters. Maintaining stability and acceptability requires that voters believe the system embodies a basic sense of fairness and rationality. In most areas of the country, schools still rely on voter approval for a large portion of their funding. Obviously, voters are never enthusiastic about paying more taxes. Their natural resistance to paying more for schools hardens when their sense of fairness is offended. Why should voters in one district who are paying above the state average effort be called on to pay more taxes that are funneled to a district where the voters make half the effort? When it comes to building a funding system that has longevity, paying attention to tax equity and tax effort is important.

Few of the funding formulas in use and proposed around the country build these seven factors into their models. We believe their significance is self-evident. We believe funding frameworks that fail to include them do not have much hope for improving learning opportunities for children. With the public’s attention focused on the school funding issue, we fear that policymakers are about to miss a strategic opportunity to build funding formulas that actually work to promote learning.

Policymakers should be mindful that voter patience is wearing thin. The “more money” mantra has limited appeal in most parts of the country. While voters are willing to pay more to support schools under certain circumstances, they also want policymakers to focus on efficiency and performance. They not only want their funding formulas to provide equity and adequacy; they want the systems to be thorough and efficient. Anything less will be “more of the same” in a world where more of the same may have devastating consequences for public education---the public may just give up on it.

Lewis C. Solmon is an economist and a former dean of the graduate school of education at the University of California, Los Angeles. Michael Fox is a former state assemblyman from Ohio, where he was the chairman of the Assembly education committee.

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A version of this article appeared in the June 17, 1998 edition of Education Week as Fatally Flawed


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