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Essential Building Blocks for State School Finance Systems and Promising State Practices

School Finance Series
Two young students working collaboratively on a task

Every year, in statehouses across the country, policymakers grapple with the task of making school funding adequate, effective, and equitable. Their decisions are critical to students, whose achievement and life outcomes can be deeply impacted—for better or worse—by the resources available in school. 

A new study from the Learning Policy Institute addresses the complexity of school finance issues facing state legislators and policymakers and discusses approaches to developing well-balanced, equitable, and efficient school finance systems focused on ensuring meaningful educational opportunities for all students. The report and brief are authored by David Hinojosa, National Director of Policy of the Intercultural Development Research Association (IDRA) and Director of IDRA EAC-South. 

The cost for failing to properly invest in a high-quality public education for all children has grave implications for both students and society at large. The study notes that a student who does not graduate from high school is estimated to cost the economy “approximately $240,000 over his or her lifetime in terms of lower tax contributions, higher reliance on Medicaid … higher rates of criminal activity, and higher reliance on welfare.” By contrast, a high school graduate today will earn about $765,000 more over his or her lifetime, paying higher taxes and reaping savings for lower rates of welfare, incarceration, and health care costs. 

The study, which is part of an LPI series on school finance reform, addresses critical foundational steps for effective and equitable school finance reform, describes the essential building blocks used for designing such systems, and includes a brief overview of three states examples for creating more equitable, high-quality school finance systems. 

Hinojosa identifies two foundational steps states should take to begin the process of building equitable and effective systems and then describes the building blocks that can follow. 

Foundational Steps to School Finance Reform

1. Creating Standards, Goals, and Revenues for a High-Quality, Equitable Education 

Developing high standards and goals for public education is the first essential step, as they provide a clear target to aim for when designing a school finance system. Most state standards and goals typically fit within one or more of the following categories:

  • Citizenship-based goals and standards, preparing productive and engaged citizens ready to participate fully in a democratic society 
  • Knowledge- and skills-based goals and standards, attaining the essential knowledge and skills necessary to master core subjects and a well-rounded curriculum 
  • Educational opportunity-based goals and standards, focusing on the importance of accessing essential educational opportunities to be successful in school

2. Identify steady and adequate revenue sources

Reliable revenue sources are essential to support the instructional, operational, and capital costs of a strong, equitable school finance system. Raising revenue for education primarily through local property taxes results in inequity. State lawmakers can help offset these disparities by providing additional state aid to low-wealth districts, preferably from a mix of tax sources to avoid economic ups and downs.

Essential Building Blocks for School Finance Reform

  1. The “Regular Program Allotment” (or “basic allotment”), which makes up the bulk of education spending, should cover all costs associated with providing a standardized, quality education. These costs include competitive salaries and benefits for essential personnel and non-personnel costs, adjusted by factors such as regional cost indices, diseconomies of scale for small or rural districts, and inflation.
  2. Special Student Programming allotments should reflect the special educational needs of certain student groups. For example, research shows that English learners; students deemed at-risk due to poverty, foster care status, homelessness or other conditions; and students with disabilities often require additional educational resources to achieve the standards and goals set by states. This can be provided by adding weights for different categories of students to the basic (equal) per pupil expenditure or by allocating funds for certain categories of services these students need.
  3. Other Special Program Allotments or Costs typically include career and technology education (CTE) and high-quality pre-kindergarten among other programs that address educational requirements necessary for a high-quality, equitable school system.
  4. Facilities funding, which is neglected by many states, should be structured to ensure adequate building and maintenance. Between 1994 and 2013, states assumed only 18% of total capital costs, with the bulk of the remaining costs falling on the backs of local taxpayers, which creates inequalities in access to safe, modern schoolhouses.
  5. Other Key Funding Areas, including transportation, technology investments, and innovation or improvement funds, need attention to ensure the system functions efficiently and effectively.

State Examples of School Finance Reform

Three states were identified for comprehensive, equitable school finance designs—Massachusetts, Minnesota, and New Jersey. Although some of their practices and outcomes have changed since the period this study covers, the practices Hinojosa reports reflect strong systematic approaches to providing meaningful opportunity for all student groups. All of these states have addressed the finance issues identified in the building blocks in ways that increased adequacy and equity and all experienced gains in student achievement as a result of their investments.

Essential Building Blocks for State School Finance Systems and Promising State Practices by David Hinojosa is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

This research report was supported by a grant from the Raikes Foundation. Core operating support for the Learning Policy Institute is also provided by the Ford Foundation, the William and Flora Hewlett Foundation, and the Sandler Foundation.