Education Funding Woes

By Del Stover

Students in Dorchester School District 2 are paying a steep price for a policy decision by South Carolina lawmakers five years ago. In the name of “tax relief,” the state legislature eliminated most residential property taxes for funding schools -- and put the burden for supporting public education on a local tax on business property and state sales and income taxes.

The problem is, the Dorchester schools serve a largely bedroom community outside Charleston, and it has little local industry to tax on behalf of its students. Worse, sales taxes have proven a volatile revenue source, with today’s economic downturn resulting in a painful loss of state funding for public schools.

“We are about $15 million short of what we would have collected” when residential property taxes were part of the state’s school funding system, says Allyson Duke, the district’s chief financial officer. “It’s like a three-legged stool -- once you take one leg away, the stool won’t stand on its own.”

A similar lament is heard among many local school leaders these days. Although a serious budget crisis was inevitable given the severity of today’s troubled economy, at least some of the fiscal pain conceivably could have been eased if funding systems were designed to be less vulnerable to the vacillations of the economy.

Meanwhile, whether through endless tinkering or benign neglect, the funding formulas used to distribute state and federal education dollars -- along with a plethora of new legislative mandates and prescriptive regulations -- hamstring the ability of local officials to respond properly when cuts are needed. So much money comes with strings attached that school officials can find themselves with extra dollars for non-essential services while being forced to lay off teachers and shut down summer school to make ends meet.

Perhaps most worrisome, however, is that, even when good times return, the funding system’s failures are likely to haunt public education by distributing money without, at times, adequate regard for its effectiveness in helping children learn. That must change if serious school reform is to occur.

“Like an old computer that has become so laden with new applications that it can no longer do anything well, our school finance system is a product of many unrelated policies and administrative arrangements that, in combination, freeze everything up,” notes the 2008 report, Facing the Future: Financing Productive Schools, by the Center on Reinventing Public Education. The existing funding system, it said, “tangles the connections between resources and academic goals that make money matter for student performance.”

Tax relief madness

When the economy tanked in 2008, a fundamental weakness in education funding became crystal clear. The decades-old movement to bring “tax relief” to homeowners -- by eliminating, lowering, or capping property taxes -- had undermined the stability of school revenue during economic downturns.

That’s not to say reducing property taxes is inherently a bad policy. As a 2007 report, The Property Tax-School Funding Dilemma by the Lincoln Institute of Land Policy, made clear, the devil is in the details. Much depends on how local schools are compensated for the loss of property tax revenue. Too much reliance on state dollars, for example, “could make school funding unstable,” particularly if education funds are heavily dependent on sales taxes that rise and fall with the health of the economy.

Such warnings fell on deaf ears while the economy was booming, but the dangers are all too obvious now. In 1978, California passed its infamous Proposition 13, which cut and then capped property taxes and made public education heavily dependent on state aid. But since 2008, the state legislature has cut or deferred education spending by more than $18 billion -- a $1,900 per-student funding drop that’s proven devastating to school programming.

In Texas, meanwhile, a 2006 tax relief law rolled back property tax rates by a third, with a promise that the state would make up the difference, says Catherine Clark, associate executive director for governance services for the Texas Association of School Boards (TASB). And, at first, the state lived up to its promise by tapping other revenue sources.

But no more. Earlier this year, Texas lawmakers were talking about public school cuts of as much as $5 billion.

“The business tax didn’t bring in the revenue they thought,” Clark says. “The cigarette tax ... people could be smoking 24/7 and not fill the budget holes. ... Tax relief is a fine thing, but it should have been done differently so that we didn’t end up with the situation we have right now. The state’s obligation ... is mammoth.”

Making matters worse is the fact that state policymakers keep tightening the screws. In New Jersey, where property taxes provide the majority of school revenues, a 2008 law put a 4 percent cap on growing tax revenue. Last year, state lawmakers cut the cap to 2 percent annually. For school officials needing extra revenue to offset budget shortfalls -- $820 million in state funding cuts last year -- it’s a daunting task to ask local voters to override the cap.

As a result, “last year was very difficult,” says Frank Belluscio, director of communications for the New Jersey School Boards Association.

Some policymakers recognized the potential weaknesses in their funding systems, but politics often trumped practicality. In 2007, then Connecticut Gov. M. Jodi Rell tried to push through a half-percent increase in the state income tax to bolster the revenue stream to schools. But she reversed her position when state revenues rose and Republican lawmakers balked.

Much of the problem, Clark concludes, is the nation simply won’t face reality. “Polls show,” she says, “that 82 percent of people don’t want schools’ state aid reduced, but 60 percent want big government cuts.”

Education is the biggest part of the state budget. But no one wants university spending or prison funding cut. “Everybody wants cuts, but nobody wants anything cut. If it wasn’t so tragic, it would be funny,” she says.

Flawed formulas

It’s tough to maintain a good instructional program when revenue dries up. It’s even harder when state funding formulas fail to effectively distribute what little money is available.

But that is too often the case. Most states start with the basics of a good funding formula, with categorical programs or a “weighted” system for distributing money according to the instructional needs of children. Every state has some provisions to boost funding to schools educating students living in poverty, struggling to learn English, or needing special education services.

The problem arises when these formulas fail to keep up with the times. In South Carolina, for example, the basic funding formula was written in the 1970s, when state aid bolstered revenue collected from property taxes -- and districts with low property values received additional aid to equalize funding with that of more affluent communities.

Those local taxes are gone, but despite years of revision, school officials say the formula for compensating districts for those lost funds remains flawed. And, they say, it fails to accurately reflect a school district’s cost for serving high-need students.

In California, meanwhile, a court decision in the 1970s prompted state policymakers to equalize general-purpose funding to schools, but districts with higher property values were allowed to keep their advantageous local revenue. As a result, district per-pupil spending levels can vary by thousands of dollars.

Categorical aid for at-risk students, however, does not fall under that old court ruling. Over the years, notes the Public Policy Institute of California, a “complex array of laws and formulas” has resulted in money going to schools and programs for reasons sometimes far removed from children’s educational needs.

Such inequities infuriate local officials. In Texas, the affluent school district of Alamo Heights has received as much as $1,000 more per student than Northside Independent School District, a school system where half of its 93,000 students live in low-income households. As the San Antonio Express News noted last summer, “That’s about $22,000 more to spend per classroom, or an extra $800,000 for an elementary school of 800 students.”

Not surprisingly, school officials have sought redress. Litigation prompted Texas lawmakers to revise the funding formula in 2006, and California made adjustments in 2008. In 2010, the California School Boards Association joined several school districts in yet another challenge to the state’s funding system, although this time the focus is on the adequacy of funding. In Indiana, Hamilton Southeastern Schools is suing the state over a long-outdated funding formula that provides $1,100 less per student than it gives to a school system only 60 miles away.

“If we could get the same per-pupil funding as the [nearby] West Lafayette schools, we’d receive $18 million more,” says Hamilton Southeastern’s Chief Financial Officer Mike Reuter. That money would go a long way toward bolstering the district’s $100 million budget. “Our administrators have gone two years without raises. Our teachers have gone without raises. We have kindergarten classes with 25 or 26 students.”

Confused priorities

Inequity isn’t just a problem at the state level. In Washington, D.C., some believe policymakers are beginning to lose sight of the original purpose behind federal education funding -- to target help to the nation’s most impoverished and struggling students. The Obama administration’s Race to the Top (RTTT) competitive grants, for example, threaten to divert funds from the students most in need.

“We’ve got issues with it because some schools have the cadre of professionals to manage a grant proposal,” says Deborah Rigsby, NSBA’s director of federal legislation. “Those are districts that will be successful versus a school district with schools that need the money more but don’t have the wherewithal to secure a grant.”

Policymakers mean well. But some educators complain there is a troubling tendency to focus on quick fixes, pet projects, and new initiatives -- and add yet more rules and mandates in the name of school reform. That simply diverts money from such basics as teacher training, academic intervention programs, and other efforts with a direct impact on the success of students.

In time, state funding systems have become incredibly complex and ossified, with older programs continually funded “with little understanding of whether they’re effective,” says Paul Hill, director of the Center for Reinventing Public Education and co-author of Facing the Future. That report noted how educational goals can succumb to the simple effort of maintaining the system. It added that “school finance systems fund programs, employ staff, sustain institutions, and provide resources so that district and school administrators can faithfully execute the thousands of laws and regulations that have grown around public education.”

The simple reality is that school funding systems try to do too much, says Dennis Snelling, director of business services operations for California’s Modesto City Schools. He can point to at least 40 state programs that tie his hands when it’s time to spend state aid. “Over the intervening years, there would be politicians with pet projects -- an after-school program or some kind of English-as-a-second-language program or a literacy program. Those funds get restricted ... because people in Sacramento didn’t trust school sites to spend the money wisely.”

A similar lament was offered in a 2008 briefing paper by school business officials in Washington state, which at the time told state legislators that, since their last updating of the school funding formula three decades earlier, new regulations, mandates, and targeted funding decisions had piled on schools “like a house of cards.”

For some, this reality might well explain why -- despite boosting per-pupil spending an average of nearly $2,000 between 1997 and 2007 -- the nation failed to make significant progress in improving student academic performance. This massive investment went into abstinence education, school choice programs, higher teacher salaries, anti-bullying efforts, and other initiatives whose significant impact on student learning is peripheral or unclear.

In Texas, a sizable chunk of new money put into education over the past decade ended up being spent by the state legislature on teacher pay, standardized tests, bilingual education, and other purposes, Clark says. It’s hard to argue against the value of such investments, but school officials aren’t always given the autonomy to put money where they think it will do the most good. “School districts are working against a headwind in regard to student needs and increased state requirements.”

New questions ahead

The debate over how to spend new education dollars is long gone -- but after investing what discretionary money was available in teacher training, reading programs, after-school programs, summer school, tutoring initiatives, and more, local school officials now are having to dismantle their efforts, Snelling says. And in some states -- most notably California -- every time school officials think they’ve stabilized their education program, the legislature comes back in the middle of the year to slash funding again.

“How can you make three- or four- or five-year plans when you have no idea what you’re going to get and how you’re going to be told to spend it?” Snelling asks. Such uncertainty -- and lack of flexibility -- “impedes the ability to put together a plan that’s comprehensive and really works for kids.”

States also need to stop tying the hands of local leaders, warns the Fordham Institute. In Stretching the School Dollar: A Brief for State Policymakers, co-authors Michael Petrilli and Marguerite Roza tell state officials that leaving in place costly policies -- such as requiring extra pay for teachers who earn master’s degrees or mandating the number of sick days a district must offer -- ”can tie the hands of local leaders and drive up costs.”

Indeed, they argue, “the worst-case scenario is to make across-the-board cuts to your education formulae while leaving all manner of harmful laws, regulations, mandates, obsolete programs, and practices in place. You may reduce the state’s spending but you surely won’t improve its education and you may well worsen it.”

That message is sinking in. At the federal level, the U.S. Department of Education last year granted waivers to some IDEA rules whenever state budget crises made it clear that regulatory relief was needed. This year, more states are seeking such relief.

Meanwhile, some states legislatures are taking a new look at their funding systems -- although their progress is mixed. In Washington state, the legislature two years ago approved an education funding reform bill, but with money running short, a coalition of school districts sued the state claiming funding was inadequate.

More recently, the New York State Senate voted to cap property taxes, a move that the New York State School Boards Association has made clear can only exacerbate today’s budget woes.

The impact of New Jersey’s revised funding system on schools hasn’t been clear since the recession forced stiff cutbacks last year, says Belluscio. But the budget crisis did embolden Gov. Chris Christie to push for major concessions from the teachers unions on costly pension and health benefits and block normally mandatory increases in salaries dictated by contracts.

That’s emboldened other governors to do the same, most notably in Wisconsin, where Gov. Scott Walker was campaigning hard this past winter to strip the unions of their collective bargaining rights regarding salaries. Meanwhile, in California, state officials last year granted local schools greater flexibility in sending money distributed under 40 previously restricted categorical programs.

California’s actions are a hopeful sign, suggests Margaret Weston, a research associate with the Public Policy Institute of California. “I think this idea of removing the strings from earmarked categorical programs is possibly a step in the direction of doing this permanently -- where local school districts have more control over how they spend the money.”

Time will tell. Even in today’s tough economic times, some question whether policymakers really can give up on the top-down control over school funding and spending. “Back in 1995, Texas rewrote its education code with an accountability system, and the mantra at the time was ‘we’re setting the standards. We’re telling you what we want you to accomplish. You must use your resources to get there,’” says TASB’s Clark. “That’s off the table today. They are telling us how to get there.”

And it doesn’t seem to matter, she says, “that it doesn’t work.” 

Del Stover ( is a senior editor of American School Board Journal




Snapshot: Texas

Would the caller like to hold for a moment, the superintendent’s secretary asks. He’s wrapping up a meeting with his principals.

All four of them, to be exact.

There are only four schools in the Tornillo Independent School District, a tiny school system serving 1,334 mostly disadvantaged students near the Texas-Mexico border. But what Tornillo lacks in size it makes up in heart.

Its schools, and the staff members who work in them, have been honored repeatedly by the state -- schools like Tornillo Elementary, which was the highest-rated elementary school in Texas’ Region 19 for six of seven years and a four-year Title I Distinguished Performance campus.

Paul Vranish comes to the phone but seems distracted and a little emotional. He apologizes, saying he’s just had to tell his principals they may need to cut as many as 14 teachers out of an instructional staff of just 88.

“We’re talking about letting people go -- people who are very passionate and good at what they do,” Vranish says.

The principal of that highly honored elementary school -- a man in his 50s -- was in tears, Vranish says. He thanked Vranish for his concern, saying, “I don’t know how you have carried this weight for so many months.”

Vranish considers himself “very conservative”; he believes government should live within its means. But he is angry at Texas Gov. Rick Perry for a colossal budget crisis that Vranish says is mostly self-inflicted.

“You have, in the Texas budget, a structural problem,” Vranish says. “And he created it, and won’t fix it.”

Five years ago, Perry and the state legislature pushed through a property tax cap that severely restricted the amount of money districts could raise. The lost property tax revenue was supposed to be offset by a new business tax, Vranish says, but lobbyists successfully watered down that provision so that districts were never fully compensated.

As a result, the state legislature is expected to cut $4.8 billion in aid to schools over the next two years even as enrollment continues to rise -- a move The New York Times called Texas’s largest cuts to public education since World War II.

“I’m a superintendent of a school district,” Vranish says. “If I screw up, I can say ‘I’m sorry’ and try to make things right. Why can’t he?”

In a speech to Texas lawmakers in February, the governor defended his policies, saying Texas families “sent a pretty clear message” with November votes that added to Republican majorities in the legislature.

“They want government to be even leaner and more efficient,” Perry said, “and they want us to balance the budget without us raising taxes on families and employers.”

Hundreds of miles south of the capital, Vranish met with his principals and did a “run through” of how they might cut about $550,000 from the district’s $14.4 million budget. Its shortfall is nearly $1.2 million -- but, unlike the state, which refuses to tap its $9.4 billion reserve -- Tornillo is making up about half that deficit with $600,000 in savings.

That still leaves a cut of up to 14 teachers, or 12 teachers and three teacher aides, Vranish says. Perhaps the only advantage is that Tornillo is in a “right to work” state, he says, so he doesn’t have to lay off by seniority. “So there’s an opportunity to get your house in order.”

Still, it will be tough to cut from a high-performing, high-needs district with precious little deadwood.

“I’m vastly underqualified to play God,” Vranish says. “But telling people they’ll lose their jobs -- that’s essentially what you’re doing.”

Lawrence Hardy ( is a senior editor of American School Board Journal.

Snapshot: Wisconsin

Have you heard about “the Cameron Mystique?”

No, it’s not a new luxury car. But in a way, the car analogy is appropriate, because Superintendent Randal Braun sometimes likens his small northwest Wisconsin district to a sort of retail business, a place where “customers” -- that is, families and students -- are king.

“We have a really positive PR image in terms of a warm, really caring environment,” Braun says. “We know all the kids’ names. We know the parents’ names. We probably also know the grandparents’ names.”

Yes, there really is something people here call “the Cameron Mystique.” It describes a school district that vows to go out of its way and do everything in its power to help your kids succeed.

A nice philosophy? Certainly. But also a shrewd business plan. Wisconsin has open enrollment, and because of its reputation, Cameron has managed to attract more than 150 of its approximately 1,000 students from nearby districts. In a state in which the governor is picking fights with the unions and is trying to push through more than $834 million, or nearly 8 percent, in cuts to state aid for schools, it helps to be especially caring -- and entrepreneurial.

In one of Cameron’s high schools, 75 of the teachers have advanced degrees.

“Because of the open enrollment, I can’t afford not to have 75 percent with master’s degrees,” Braun said. “Because it helps bring people in.”

Braun, who became superintendent in 2002, expanded the district’s music program and worked to create an environment in which students’ needs came first. He gives a lot of credit to school board members, who work hard on policy issues and have a good understanding of their role.

“They don’t come down and say, ‘You need to buy this lawnmower,’” Braun said. “I don’t even do that.”

All is not idyllic in this rural district, surrounded for much of the year by clear frozen lakes. As budgets have become tighter, Braun and his staff have cut positions through attrition, but they don’t know how long that strategy can continue. Cameron has an operating budget of $11 million, aided by every one of those out-of-district students, who bring in $6,796 apiece. But those figures pale beside the governor’s proposed cuts, which Braun said would cost the district $750,000 in revenue next year.

However, unlike some superintendents in the state, Braun isn’t sending out potential pink slips just yet.

“Let’s let all the snow melt first,” he says.

On a cold (what else would it be?) day in February, Braun was dealing with a typical high school transgression involving a handful students and alcohol. They were all good kids, Braun says: One had a 4.0 average, and this was uncharacteristic of them.

One of the students was especially distraught and asked Braun if her offense would go into her “permanent file.” Braun felt for her and took a typically conciliatory approach.

“Let me tell you something,” he told her softly. “There is no permanent file.”

Lawrence Hardy ( is a senior editor of American School Board Journal.

Snapshot: North Dakota

Tim Lamb has to chuckle when he talks about North Dakota’s new congressman, Rick Berg and how he wrote letters to state newspapers soon after taking office, saying that what the U.S. government needed to do to get its fiscal house in order was to emulate the Flickertail State, that is, lower taxes, provide a friendly business environment, and ...

And strike oil, Lamb adds helpfully. It’s always good to strike oil.

“They struck oil in the western part of the state,” says Lamb, a lawyer, retired Army major, and board member for the Grand Forks Public School District. “And they figured out how to get it.”

At a time when the vast majority of state governments are reeling from budget deficits, North Dakota and oil-rich Alaska are increasing state budgets significantly. The state legislature in Bismarck, N.D., recently proposed an overall 12 percent spending increase. At the same time, the state is poised to give school districts $342 million over two years as part of a continuing program of local property tax reduction.

Not every trend is optimal. Over the past 10 years, Grand Forks’ student population has dropped from 10,000 to 7,000 as family sizes decrease, Lamb says. But the healthy revenue environment has meant that, instead of cutting teachers, the district has been able to reduce class size over that period from about 35 to 20.

Recently, the district issued $30 million in bonds to renovate its huge downtown high school and make it more energy efficient. It has used some of its $10 million in federal stimulus funds to pay down the interest. And it’s expected to save thousands of dollars on energy in the long run.

“With energy efficiency, you’re pretty much picking up a huge amount of money on the backside of this,” Lamb says.

Unemployment is low in North Dakota. The population is well-educated. Or course, there is that small matter of the weather: When Lamb spoke to ASBJ in late February, it was 10 degrees outside, but a bright sun was shining.

Says Lamb: “You could actually sit in your car and get your share of Vitamin D.”

Lawrence Hardy ( is a senior editor of American School Board Journal.