School Funding Evaluation Focuses on Equity for Students—and Taxpayers
As states prioritize equity in education—an equal opportunity for all students to succeed—school funding looms large as a factor that can accelerate or hinder progress.
For nearly two decades, AIR researchers have conducted increasingly sophisticated evaluations of school funding in California, Hawaii, Nevada, New Mexico, New York, Pennsylvania, and Vermont. AIR’s most recent study of school funding in New Hampshire, a collaboration with Professor Bruce Baker of Rutgers University and Professor Tammy Kolbe of the University of Vermont, exemplifies how conventional and novel research methods can provide states with a deep understanding of the impact of school funding on student success.
In this Q&A, AIR Principal Research Economist Jesse Levin and Senior Researcher Drew Atchison explain the findings and implications for New Hampshire—and for other states committed to equity.
Q. How do state decisions about funding allocations affect their provision of adequate education to all students?
Atchison: Achieving educational adequacy is really about ensuring that all students are provided an equal opportunity to achieve the state’s educational goals—which is about generating student outcomes. All state constitutions include clauses that either implicitly or explicitly indicate that all students must be provided an education that enables them to meet these educational goals.
Funding formulas aim to ensure that enough funding is provided for education and that the funding is distributed in a way that provides equal opportunity, recognizing that certain students need more supports and interventions, and therefore, more funding to achieve outcome targets.
Q: What prompts states to reconsider their school funding formulas?
Atchison: State finance reform often comes in response to a state court case finding the current system of funding to be unconstitutional. For instance, if students from some districts are systematically underperforming relative to other districts, and those districts where students are underperforming are also disadvantaged in terms of the educational resources they are receiving, that would be evidence that a state is not meeting its constitutional obligation and needs to remedy its system of funding.
Other times, a state may preempt court cases and take on the task of funding reform due to the recognition that the current system of funding is not meeting the needs of the state. Less frequently, stakeholders, including philanthropic organizations and researchers, will independently undertake investigations of educational adequacy. AIR has performed adequacy studies prompted by each of these motivations.
Levin: In New Hampshire, AIR's involvement came after the state Legislature set up a commission to “review the education funding formula and make recommendations to ensure a uniform and equitable design for financing the cost of an adequate education for all public school students.”
Q: What type of research did AIR conduct in New Hampshire?
Levin: AIR was engaged to do what we call a costing-out study, or adequacy study. In a nutshell, an adequacy study is designed to answer two fundamental questions:
- How much does it cost to provide an adequate education to all students, regardless of their circumstances or needs?
- How must you distribute funding equitably, to allow for this equal opportunity for all students to achieve at an adequate level?
More simply, the questions ask how large the funding "pie" must be and how should it be divided across districts?
For any adequacy study, you have to specify what “adequacy” means. The commission in New Hampshire drew upon its state statute to define an adequate education as one that provides an opportunity to develop knowledge and skills and meet the state’s academic and content standards, made up of the subjects and concepts that must be taught in the curriculum. The state also monitors indicators of success, such as student proficiency rates on standardized tests, graduation rates, and attendance rates.
Any respectable adequacy study must also control for three sets of cost factors—things outside of the control of districts that drive the cost of producing student outcomes:
- Student needs. Student poverty is a big factor. We also looked at students with disabilities and English learners.
- Scale of operations. This is essentially the size of a district, and it’s very important. Districts that are smaller by necessity, such as those in rural or remote areas, face what we call diseconomies of scale, which means it costs more per student to deliver services.
- Geographic variations in the price of resources. This is influenced by the cost of living as well as other factors such as local amenities, which affect how much individuals must be paid to work and live in a particular area. Districts have to pay the going local rate to hire and retain staff and procure non-personnel resources, whether they’re in a high- or low-cost geographic region.
A school funding formula should take such cost factors into account and accommodate any differences in costs that are driven by student needs, scale of operations, and geographic variations. Under the hood of an adequate funding formula is both a projection of the amount it costs to provide a given level of education to all students, regardless of their circumstances or needs, and an equitable way to distribute funding to cover these costs.
Atchison: For the study, we performed three different kinds of analysis:
- An equity analysis to determine whether funding for education is distributed equitably, according to the needs of students, and whether the system of raising revenue for education is fair for taxpayers;
- A risk analysis to determine which types of students have the lowest outcomes in terms of state assessment scores, graduation rates, and attendance rates, and which types of districts have a greater challenge to meet state standards; and
- An adequacy analysis that combines data on student outcomes, student needs, and educational spending to determine the amount of funding districts should receive to provide an equal opportunity for all students.
Q: What are the main takeaways from this work?
Atchison: An initial observation was that New Hampshire provides a relatively high level of funding per student, as a statewide average, compared to other states. However, averages do not tell the full story.
The equity analysis found that in New Hampshire’s current system, the highest-poverty districts receive less or, at best, equal amounts of funding compared to lower-poverty districts. Unsurprisingly, the risk analysis found that the highest-poverty districts have lower student outcomes than lower-poverty districts.
We also found that the highest-poverty districts generally must impose higher property taxes to raise revenue for their districts—New Hampshire has no state income or sales taxes. So, not only are the highest-poverty districts getting less funding overall, but they also have higher property taxes to get the less funding they receive. The bottom line: This is a doubly inequitable system, both in terms of student equity and taxpayer equity.
These are among the most striking aspects of this study—it clearly lays out the evidence of inequitable distribution of funding, inequitable tax rates, and inequities in outcomes for students.
Using the results from the adequacy analysis, we proposed a set of cost-based funding weights that, if applied, would provide more adequate and equitable funding across New Hampshire’s school districts. In addition, our work suggested alternatives for generating tax revenues in a more equitable fashion that would enable high-poverty districts to obtain the funding necessary to support an adequate education in a less burdensome manner.
Q: Were there novel aspects to this project?
Levin: With this project, we set up a formalized framework that had not been done before—at least systematically—with separate equity and risk analyses supporting the adequacy analysis. These have been done separately in individual studies before. But incorporating them as necessary precursor steps to developing an adequate cost-based funding formula is huge. First, it identifies the justification for doing cost analysis by establishing whether funding inequity exists. Second, it identifies those cost factors that are most important to addressing funding disparities.
Atchison: Our approach is somewhat unique in that we don’t just stop at defining cost. We go further with a process to define a funding formula and identify ways in which revenue could be raised more equitably as well. By translating our results into a funding formula and suggesting revenue solutions capable of supporting the formula, we provide a set of actionable steps that are ready for legislation.
We also developed a simulation model for policymakers. This tool makes it very easy for them to adjust the funding weights we used for different cost factors to be more or less aggressive, and to see how such adjustments would change funding calculations across districts. The simulator also works on the revenue side, to see the knock-on effects to local tax rates under different scenarios.