Right on schedule, district officials, driven by self-interest, are airing their grievances over Governor Kasich’s school-funding proposal. Media outlets are encouraging the “winners and losers” storyline by showing funding increases and decreases for the districts in their areas.
As the policy debate on school funding gets heated—and leaves others “puzzled”—we offer three key points to help clear the air.
Point #1: The amount of overall public funding for districts is often very generous—which would be a surprise to many taxpayers.
To hear some groups tell it, public schools are grossly “underfunded.” But according to the National Center for Education Statistics, Ohio spent $13,063 per student in 2010–11—significantly more than the national average ($11,948 per student). Some Ohio districts spend more than others, of course, reflecting differences in operating conditions, tax bases, and student needs. According to the Ohio Department of Education’s Cupp Report, Ohio school districts spent anywhere from just over $6,000 per student to $20,000 per student in 2012–13. These statistics include all three major streams of public funding for schools—local, state, and federal funds.
Interestingly, surveys find that the public routinely underestimates the amount spent on education. A 2014 poll conducted by Education Next/PEPG asked respondents to estimate their district’s expenditures: On average, respondents guessed $6,490 per student; but in reality, their districts spent nearly twice as much. Accurate information about districts’ spending is paramount, and deliberate mis-reporting is utterly appalling. Ohioans are best served when they check out credible sources like the Cupp Reports, their district report cards, or their districts’ financial statements.
Point #2: The state funding formula provides more aid to districts with the greatest need—as it should.
The funding formula is the lever that Ohio uses to drive state funding to districts with the greatest need. Like most states, Ohio allocates the bulk of state funds to districts via the equivalent of block grants, which are based on a formula. In Ohio, the key variables that determine the amount of state aid are a district’s property values and household incomes—crucial indicators of whether residents can amply support schools through local contributions. Meanwhile, Ohio’s funding formula also recognizes the enrollment of a district, as well as the fact that some districts have more special-needs students who require additional support.
Overall, the state’s funding formula is a sensible arrangement (although one could imagine alternate ways of allocating aid, such as driving funds to schools directly, without a district pass-through). While funding changes can create the illusion of “winner” and “loser” districts, in reality, they are due to the nature of the formula itself (and any changes made to it—Governor Kasich’s funding proposal tweaks the formula, but on the whole, it is largely similar to the formula used in FY 2014 and FY15). And rightly so: Ohio’s formula recognizes that districts fluctuate over time; student enrollment changes, along with the mix of students, and so does a district’s wealth.
The measure of a successful funding formula isn’t whether each and every district receives the same number of dollars. Rather, an effective formula ensures that limited state funds are fairly allocated to those in the greatest need. In the end, there are rational reasons why some districts receive more or less state aid in one budget cycle versus another.
Point #3: Funding caps and guarantees “short-circuit” the formula—and they should be ushered out.
For years, Ohio’s funding policy has included a wrinkle that distorts the foundation funding formula: caps and guarantees. Ohio’s budget director Timothy Keen told the House Finance Committee in testimony earlier this month that the “guarantee short-circuits the formula.” He’s absolutely right. But what are these caps and guarantees?
Guarantees (a.k.a. “temporary transitional aid”) set a binding floor on how much a district receives through the funding formula. It’s something like the minimum wage. In the case of Ohio’s current funding formula, the guarantee floor is based on districts’ prior-year foundation funding amount. Consequently, districts are ensured that they won’t receive less state funding than the previous year.
Consider a district that lost one hundred students in the last two years. Holding other factors constant, such a district would probably lose state aid under the foundation formula (as it should), and it might be a fairly significant amount. But the guarantee effectively picks up the tab on the lost state aid associated with enrollment losses. Thus, in this case, the state helps to fund “phantom students.” So while the guarantee can protect districts from the fiscal pain of enrollment decline, it also ignores the logic behind the state’s own funding formula and, worse still, shields districts from having to make hard decisions.
Caps are the opposite of the guarantee. They fix a ceiling on how much a district’s foundation funding can increase year over year. It’s like rent control, which sets a ceiling on the price a landlord may charge. Under Ohio’s district funding formula, a district with a growing enrollment, for example, might be entitled to a big state-funding increase. But the cap limits that increase in funding, effectively depriving districts of funding for students they educate.
The overall fiscal effect of the guarantees and caps: In the 2014 fiscal year, Ohio allocated more than $187 million in guarantee funds to two hundred Ohio districts while denying $893 million to 341 districts because of the cap.
Governor Kasich’s budget proposal makes some adjustments to reduce the effect of caps and guarantees. The projected result of the governor’s plan would allocate roughly $165 million in guarantee funding while withholding $588 million to districts via caps in FY 2016. The projected fiscal effect of caps and guarantees would decline even more in FY 2017. The legislature should support the governor’s effort to phase out the cap and guarantee—or better yet, it could take even more aggressive steps. If they were removed, policymakers would get a clearer idea of whether the formula is working as intended, which may better ensure the fair allocation of state aid.
So there you have it. Let’s take a break from the school funding rhetoric and keep these three simple ideas about school funding in mind: (1) Ohioans invest quite a lot in public schools when all funding streams—state, local, federal—are considered; (2) Ohio’s funding formula drives state funding to districts that need it most; and (3) Ohio’s cap-and-guarantee policy continues to circumvent the funding formula.
 When it comes to changes in districts’ wealth (holding enrollment and other factors constant), the cap and guarantee would work as follows: A district with increasing wealth (and thus less state aid) would be more likely to benefit from the guarantee, while a district with decreasing wealth (and thus more state aid) would more likely be affected by the cap.