Three ideas on fixing school funding in Ohio

Trailing only Medicaid, school spending is the second-largest public expenditure in Ohio’s $65 billion annual budget. Over the next biennium, the state is slated to spend $12 billion per year on education (including $2 billion per year in federal funds administered by the state), on top of $8 billion per year raised via local property taxes. Altogether, annual education expenditures will clock in at around $11,000 per student.

The bulk of state education spending—$7.4 billion in fiscal year 2016 (FY 16) and $7.7 billion in fiscal year 2017 (FY 17)—is sent to districts via block grants, meaning that districts can allocate funds as they choose. The value of the block grant is determined by a funding formula. FY 16’s formula aid represents an increase of 4.9 percent relative to FY 15, and the amount in FY 17 adds another 4.2 percent on top of that. These are generous increases, especially since statewide enrollment is slightly declining; they also exceed the recent rate of inflation.

Without a doubt, Ohio taxpayers are making big financial contributions to education. But one of the perennial (and perplexing) questions is whether taxpayer dollars are being properly allocated. Oftentimes—and this spring was no different—funding debates devolve into “school funding fights,” particularly after budget projections reveal that not every district will receive more money. This usually leads to legislative scrambling to dole out more dollars everywhere.

Is there a strategy for ending the seemingly endless political wrangling over school funding? In my view, there is a way forward. In broad terms, here are three interrelated ideas that could move Ohio toward a clearer and more student-centered funding arrangement in the coming years.

1.       Simplify—and create more transparency around—the funding mechanism

Historically, and to this day, Ohio has allocated state funds based on the characteristics of districts. Like many states, Ohio employs a formula to determine the capacity—and thus the amount of state aid—of an entire district. (Higher-capacity districts with more local resources receive less aid, and vice versa.) The formula, however, is an elaborate assortment of economic variables that approximate the actual needs of students in a district. Meanwhile, the Byzantine nature of the formula also makes it extraordinarily difficult for the public to grasp how billions of education dollars are being distributed, rendering the formula subject to exploitation by the few insiders who actually understand how it works (a small change here or there can substantially alter the funding results).

To illustrate this complexity, the table below provides a high-level overview of how the “opportunity grant”—the largest of the twelve formula components—is calculated. The details of the funding formula are set out in state statute (e.g., ORC 3317.017 and 3317.022). Bear in mind that several other components of the formula, particularly the “targeted assistance” and “capacity aid,” are just as intricate as the computation displayed below.

Table 1: The Opportunity Grant calculation for FY 2016–17

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2.       Refine the weighted student funding amounts

Lawmakers should determine the proper amount of funding for students with varying characteristics and needs. To their credit, state policymakers already have a good deal of this infrastructure in place. For example, the state has set incremental funding amounts above and beyond the core per-pupil formula amount of $5,900^[1] for children with disabilities, English language learners (ELLs), and career and technical education (CTE) students. (For district students, the core and incremental amounts are adjusted based on their districts’ economic traits, as described above.) For example, ELLs who have been enrolled in a U.S. school for fewer than 180 days are funded at $1,515 above the core amount.

But further refinement of the weighted funding system is necessary. The most urgent task is to better distinguish between students from severe economic disadvantage and those from more modest disadvantage. Currently, Ohio bases incremental funding on a binary “economically disadvantaged” (ED) variable. (In FY 16 and 17, the amount is $272 per pupil, prorated depending on the district.) Yet ED captures half of Ohio students—including a good portion of lower-middle class children—while census data reveal that about one-quarter of Ohio children actually live in poverty.^[2] A potential starting point is to simply identify students eligible for free lunch versus those eligible for reduced-price lunch, thus creating a third income category for funding purposes. State policymakers might also explore more sophisticated data collection that could more closely link a student’s actual family income with a weighted funding amount.

Other tweaks could include creating other student categories. Why only provide incremental amounts for CTE students? What about for advanced or gifted children who may need enrichment beyond typical school offerings? Perhaps the state could also provide additional allotments for students who have been homeless or serially mobile, categories that can already be tracked in the state’s data systems. Combined with a funding model that drives funds to students’ individual schools, a carefully constructed weighted student funding system could be a powerful tool to ensure that children have the opportunities they deserve.

3.       Insist that funds follow children to the schools of their choice

Finally, state lawmakers should truly operationalize a “funds-follow-the-child” principle. It is true that state dollars generally follow the child at a district level (such as when students transfer across districts). But when state funds—and local property tax dollars—reach district treasuries, funding usually fails to follow the child to her school. The result is inequitable funding across individual schools (even within a district), as economist Marguerite Roza and others have pointed out. For example, a district may receive $15,000 in state funds to educate a special needs child, but we cannot be sure that those dollars actually arrive at the school she attends.

Yet another egregious example of funds failing to follow the child happens when she attends a charter school. In this case, property tax revenue collected by the district fails to follow the child to her non-district public school. (Virtually every Ohio charter receives zero local revenue, though the budget bill includes a provision that could open more opportunities for funding access.) Due to these distortions, state leaders should consider stepping in to ensure that public funds travel with students to the schools of their choice, whether district or charter. Taxpayer funds should be considered an entitlement for students and their families—not districts.

What to do? It’s time to shift instead to a school-centered approach to education funding. Instead of allocating funds based on district characteristics, why not base it on the needs of our education providers—individual schools? (Florida has adopted a law that better ensures funds reach schools.) Meanwhile, now that we have real-time data systems, why not fund individual schools based on the students (and their characteristics) who attend each month? While a school-centered approach is sure to be controversial—we may also need to rethink the roles of districts—it would be a more efficient and more transparent method of allocating education funds. Perhaps just as importantly, it would also ensure that an appropriate amount of funding actually reaches the building-level leaders whose decisions, including budgetary ones, can make a difference in children’s lives.

Conclusion

The amount of public investment in public schools is hefty by any standard—$20 billion per year when local, state, and federal contributions are accounted for. But while state lawmakers have made improvements to school funding policies in recent years, much more work remains to be done, especially when it comes to how these educational funds are allocated and the transparency around the funding formulae. In the coming years, state policymakers should create a simple and transparent funding model; they should continue to refine its weighted student funding structure; and they must ensure that taxpayer dollars are following children to the schools they attend. Overhauling school funding will be tough work, but an efficient funding structure will better ensure that all students have the resources they need to achieve.