Ohio’s new school funding formula—challenges with the base cost model

In anticipation of debates about school funding in the coming months, I recently began a series on Ohio’s new school funding formula. The previous piece presented a high-level overview of the old and new funding formulas, the mechanism that determines state allocations to districts and charter schools. This piece will start a deeper dive into some of the key features of the new formula. Here, we’ll look at the “base cost” model, one of its most distinctive elements and the source of its higher cost (an estimated $2 billion in additional state spending—if fully funded—or a roughly 20 percent increase).

Under both the old and new formulas, the bulk of state formula aid is delivered through a core funding component. Each district’s core amount is calculated using the basic equation displayed below.[1] On the right side, the base amount could be seen as the minimum funding that the state presumes is necessary to support a typical student’s education. Meanwhile, the state share percentage is an “equalizing” mechanism that accounts for districts’ varying capacities to raise local revenue, including a state-required 2 percent property tax that contributes to the base. Higher wealth districts have smaller state shares, and vice-versa for poorer districts.

Things get more complicated after that, especially under the new formula. Let’s start by looking at the base amount (we’ll discuss the state share next time).

Under the old formula, the state simply set a “fixed” base that applied to all districts and charter schools. That approach had the benefit of simplicity and transparency, and lawmakers could easily adjust the base to increase or, if necessary, decrease education expenditures each year. Opponents of the fixed base argued that the number was arbitrary—and, in their view, at levels that didn’t cover the costs to educate the average student. The new formula seeks to address these concerns by implementing a set of calculations—called a “base cost model”—that yields a “variable” base amount that differs for each district.

This model uses staff-to-pupil ratios, statewide average salary data, and other expenditure data on things like supplies and building operations to “cost out” the “inputs” of a typical student’s education. Table 2 illustrates the teacher-cost calculations using FY 2023 data for Columbus City Schools. Note that teachers are just one dimension of the base cost model; other “inputs” include—among other items—support and administrative staff and their average salaries.

Table 1: Illustration of teacher component calculations in Ohio’s base cost formula

At this point, we must remember that there is no scientific way to determine the cost to educate a typical student (and to what, if any, educational standard). Yet there is some appeal, largely political, in attempting to cost out the inputs of a student’s education. Rather than being accused of setting an arbitrary base, this approach allows legislators to “show their work.” That being said, the framework also poses significant problems for the state. Let’s take a look.

Problem 1: The base cost model drives much higher funding amounts, leading to a statewide “cap.” Under the old formula, the most recent base was $6,020 per pupil in FY 2021. Even at that amount, the state didn’t fully fund its formula, “capping” some districts’ state funding allocations—i.e., not sending them the full amounts prescribed under the formula. Between 2016–18, caps withheld about $500 million per year to roughly 175 districts. The new formula’s statewide average base is $7,352 per pupil, thus explaining its approximately $2 billion per year cost above and beyond current state expenditures (good for an additional $1,250 per pupil average statewide). At such a price tag, legislators declined to fully implement the new formula and instead phased in the additional spending, with 33 percent of the added expense being implemented by FY 2023. The phase-in, however, represents a statewide “cap” of sorts—this time, on all districts and charter schools. One of the goals of the new formula was to get away from caps and fund schools strictly according to the formula. But the costs generated by the new model effectively create another type of cap and thus Ohio still isn’t truly following its own formula.

Problem 2: Updating salary “inputs” will generate new, additional costs for the state. The challenge of fully funding the new formula is doubly difficult because the state is currently using FY 2018 average salaries to calculate base amounts. Lawmakers will inevitably face political pressure—perhaps even this year—to update these salaries, creating an even bigger hole to fill. On the teacher salary front, for instance, the statewide average in 2018 was $62,353 but rose to $67,654 in 2022 (up 8.5 percent). Those salaries could escalate even faster in 2023 and 2024 as schools spend billions in federal Covid-relief money, a decent portion of which is likely going into salaries, in part to keep up with rising inflation. Local revenues, and employee salaries in turn, could also rise if districts are able to raise taxes at the ballot box. When and if state legislators update the salary and benefit data, base amounts will soar, causing an increase to the overall cost of the formula. That leaves open questions about whether the state can ever truly afford this formula.

Problem 3: Guaranteed staffing minimums that wildly inflate the base amounts of small districts. For certain positions, the base cost model prescribes a minimum staffing number that deviates from the “normal” calculations. For instance, all districts receive at least six special teachers (e.g., art, music, or gym), even if the ratios would otherwise yield lower numbers. Consider a district with 600 students. Normally, the formula would prescribe four special teachers at a 150:1 student to teacher ratio. But instead of that number, the district receives six special teachers along with their salaries and benefits. Other minimums also apply for student wellness, fiscal support, and a few other staff positions.

Table 2 shows the result. Districts with fewer than roughly 700 students—representing about one-sixth of Ohio districts—have base amounts of more than $8,000 per pupil. A handful of extremely small districts receive incredibly high bases above $10,000 per pupil. Charter schools, despite their comparable size to a small district, do not receive such staffing minimums.

Table 2: Base cost per pupil by district enrollment size, FY 2023

There are several problems with this policy. First, it creates an unfair system that gives special treatment to small districts, thus contradicting one of the purported aims of the overhaul—to create a “fair” system that treats all schools evenhandedly. Second, it discourages districts from operating efficiently. Rather than assuming that a 600-student district absolutely needs six special teachers or two fiscal support staff, the state should be encouraging it to pursue shared services and staff. Third, one might ask whether it actually makes sense to assume that it costs 25 to 50 percent more to educate a typical student in small districts. It’s possible that they actually face lower costs of living or need fewer expensive supports than larger districts serving students in metropolitan areas. Fourth, the minimums add unnecessary costs to the formula, making it more expensive than it needs to be.

State lawmakers have two options to address these issues in the base cost formula.

• Return to a flat, universal base amount. This is the most straightforward, simple way of setting a base, and one that many other states use. If legislators decide to reverse gears, they need not go entirely back to the future. They could implement a base of, say, $6,800 to $7,000 per pupil—an amount that would be more affordable within Ohio’s budget but also above the “old” formula base of $6,020. This option, however, would require political backbone, as it would almost surely upset proponents of the new formula who see the base cost model as its centerpiece—and perceive it as more science than the art—and are fond of the mechanism as it tries to put the state on the hook for much higher spending.

• Modify the base cost model to bring it under control. There are several ways legislators could continue to work within an “inputs” driven framework while also addressing its problems. First and foremost, they should ditch the nonsensical staffing minimums and prescribe positions strictly via the staffing ratios. As for salary escalation, legislators have a couple options. One, rather than using average statewide salaries, they could tie them to some multiple of the state’s minimum teacher salary schedule. This approach would give state lawmakers more control over the salary dimension of the base cost model, instead of allowing the formula to be impacted by federal decisions and local ballot issues that allow districts to tax constituents at a much higher level than the base formula calls for (both of which influence salaries). It would also reduce the costs of the formula, as the minimums are lower than average salaries. Another idea is to include a multiplier that would be applied to salaries based on the percentage of revenue that districts receive through federal sources and local supplemental revenues (i.e., local taxes raised above the state’s 2 percent floor). For instance, the statewide average salary and benefits could be multiplied by 80 percent. This, too, would insulate the state from having to spend more when salaries rise because of decisions at other levels of government. It would also help reduce the overall price tag of the base cost model and create a more affordable formula.

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Like a game of whack-a-mole, the new formula’s base cost model tries to fix a perceived problem—the lack of an explicit link between the base amount and costs—but it also creates several other problems in turn. How state legislators address the base cost dimension of the formula will be one thing to watch in the coming months.