State-level school funding reforms are common means by which state policymakers can make broad changes in the flow of money to districts, schools, and students—usually aiming for increased funds to students with the most need in a quest for improved student outcomes. Still, research on the impacts of statewide funding reforms is not clear cut. A widely-cited 2018 study, for example, estimated that state education expenditures increased by approximately $500 per student in high-income districts and $1,200 per student in low-income districts following a specific reform, while another found that states without school finance reforms (SFRs) weren’t that different from those with them since they tended to adopt similar formula components. A working paper aims to add more nuance through a deep dive into how various states responded to SFRs and how per-pupil funding changed as a result.
Analysts Shelby McNeill and Christopher Candelaria use state-level finance data from the U.S. Census Department covering fiscal years 1987–2007 and a list of SFRs that occurred between 1989–2005, a period also known as the “adequacy era” of finance reforms. They examine the text of legislative statutes that were passed around the same time as—and often because of—the SFRs in order to glean data on local property tax revenues and record changes in state financing schemes intended to fund the proposed increases. They also merge into their dataset state-level population data and student enrollments. Their analysis purposely avoids the Great Recession due to the larger finance changes brought on by that upheaval. There were 24 states that had at least one SFR during the sample period; twenty-six states did not have a reform during this period, and these never-treated states serve as a comparison group. McNeill and Candelaria examine average effects up through ten years post-reform to allow sufficient time for all of the changes to play out. They use an approach similar to difference-in-differences that helps to improve the quality of the match between the treatment and control states before the SFR intervention.
McNeill and Candelaria find that six of 24 state SFRs significantly increased per capita state education expenditures in the years following the reform. There is no clear indication as to why such a large-scale reform would not show impacts within ten years in those other states, but speculation centers on funding changes that result in redistribution of funds rather than increases, potential tax revolts from citizens (!), and what can be politely called legislative foot-dragging. By zoning in on the six states that did increase and sustain spending after the SFR—Vermont, New Hampshire, Kansas, Arkansas, Maryland, and New Jersey—the analysts observe the average effect on state education spending ranging from a high of $5,553 per pupil ($914 per capita) in Vermont to a low of $479 per pupil ($77 per capita) in Maryland.
The report includes a plethora of details on the mechanisms by which each state funded these increases, but it appeared to boil down to two things: 1) States took control of property taxes—by imposing, collecting, and/or distributing them. In Vermont, for example, that meant total property tax revenues remained largely unchanged but got redistributed using a foundation grant program, which guaranteed a base level of funding per pupil. The state assumed primary responsibility for funding the foundation grant program, so the total amount increased while local property tax revenues tended to decrease. 2) States increased a variety of taxes aside from those on property, including on hotels, meals, gas, and cigarettes, as well as sales taxes, corporate income taxes, and a bank franchise tax.
McNeill and Candelaria find minimal evidence that non-education state expenditures were reduced or that state debt increased in the years following an SFR, but they can’t be sure given their data limitations, including their small sample of six impacted states.
By and large, we know now that students from traditionally disadvantaged backgrounds no longer attend poorly funded schools. Beyond the scope of this study, however, is whether these funding increases create meaningful improvements at the district, school, or classroom level.
Other research on that topic has identified unintended consequences of state-level reform (such as additional funding boosting already-advantaged students and populations via less-than-diligent implementation) and the shortcomings of increased funds that do not also address equal access to classroom resources. In the end, knowing what happens at the policy level is important, but change on the ground is what really matters.
SOURCE: Shelby M. McNeill and Christopher A. Candelaria, “Paying for school finance reforms: How states raise revenues to fund increases in elementary-secondary education expenditures,” Annenberg Institute at Brown University (May 2024).
