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More money, more evidence being used to revamp school aid

by Katelyn Tye ~ January 2017 ~ Stateline Midwest »
K-12 education consistently makes up the largest share of state general fund spending each year, hovering between 34 percent and 36 percent since 1996, according to the National Association of State Budget Officers. In fiscal year 2015, more than $260 billion went to elementary and secondary education.
Although no two states distribute education dollars exactly the same way, the vast majority of funding formulas are built around a “foundation” or “base” amount of funding that is the minimum each student receives.
State formulas then further adjust per-pupil funding depending on the type of student (for example, special needs, English-language learner, low-income) and the wealth of the school district.
The systems that work best are based on research — specifically, tying the amount that flows to each school to the cost of providing an education that meets the state’s academic standards, says Michael Griffith, a school finance strategist with the Education Commission of the States.
North Dakota, for example, used an evidence-based approach developed by an outside consulting firm as it made multiple improvements to K-12 funding over the past decade. The firm was hired in 2008 to make recommendations on an “adequate funding level,” or how much the state should spend per student based on the state’s curriculum standards.
“We look at literature on educational reform and improvement and, given what we know about that, determine what resources a state needs and what they would cost,” says Larry Picus, a principal partner in Picus Odden & Associates, the consulting firm that has worked in North Dakota and many other states on school finance reform.
By understanding the literature, he adds, “we’re beginning to get a better feel about what types of strategies we can use in schools to help students learn.”
In North Dakota, the state’s evidence-based model was founded on strategies such as investing in teacher training, providing extra instruction for struggling students, and establishing a rigorous curriculum that prepares students for college and career. The next step was to determine the level of spending needed to implement those strategies in all schools.
North Dakota passed legislation in 2009 (HB 1400) that enacted many of the adequacy provisions recommended by Picus Odden and Associates, including funding for extra guidance counselors; offering summer school courses in math, reading, science and social studies; and providing state-sponsored scholarships to encourage students to complete additional coursework in career and technical education. The legislation also increased K-12 education appropriations by $100 million, which allowed the state to raise per-pupil funding to the recommended adequacy amount of $7,293 (from approximately $7,024).
“The evidence-based model was helpful because it provided validity and supported the overall framework of the reforms,” says Jerry Coleman, school finance director at the North Dakota Department of Public Instruction.
In 2013, lawmakers passed additional changes to the K-12 finance system (HB 1013), most notably a switch to a foundation formula of funding. The legislature set a minimum per-pupil foundation level of $8,810 in 2013-14 and $9,092 in 2014-15, and established a uniform local funding requirement of 60 mills ($60 per every $1,000 in taxable property value) plus a percentage of other local revenues. Under the formula, the state makes up the difference between the foundation level and what the district can raise in local funds.
North Dakota’s oil boom also allowed the state to increase K-12 education appropriations by $500 million that year — the state’s share of K-12 education funding shifted from 37 percent in 2008-09 to nearly 60 percent in 2013-14, according to the National Center on Education Statistics.
In 2014, the state doubled-down on HB 1013 and passed legislation that made additional increases to per-pupil funding over the current biennium.
South Dakota’s new K-12 investment
A second Midwestern state to make major changes in school funding in recent years has been South Dakota, a state where hiring and retaining qualified teachers had become a challenge — in part because its teachers had the lowest average salaries in the nation.
South Dakota Gov. Dennis Daugaard created a task force in 2015 to “collect and analyze data, engage with stakeholders and seek public input” on how the state could provide the following:
The Blue Ribbon Task Force for Teachers and Students began by collecting feedback from the public during listening sessions and meetings, says former South Dakota Rep. Jacqueline Sly, who served as co-chair of the task force. The task force asked three specific questions of stakeholders:
The responses to those questions were categorized and some general themes emerged. For example, citizens perceived a current or looming crisis in education, and believed new revenue and equitable funding for teacher salaries and benefits were necessary to retain and recruit high-quality educators. Lastly, cost-saving measures — such as relying on more technology to deliver education, sharing services, and partnering with the business community — were viewed as imperative.
The task force also reviewed quantitative data on levels of state funding for K-12 schools, teacher pay, and the workforce needs of K-12 instructors. Additionally, the task force found problems with the state’s funding formula, which had not been reformed by the Legislature since 1995.
“The group that made the 1995 reforms basically took a pot of money, divided it by the number of students, and that became the formula,” Sly says. The problem was that the “pot of money” wasn’t enough to support South Dakota’s K-12 education system: The state needed to allocate more money. The task force ultimately made 30 recommendations to the Legislature.
Based on those recommendations, South Dakota legislators enacted a package of education reform bills (HB 1182, SB 131, SB 133) in 2016 that made multiple changes to the school finance system, including a new funding formula that calculates a district’s state aid based on a target teacher salary, a target student-to-teacher ratio, and other expenses.
Central to the reform package, though, was finding a source for the additional state investment in K-12 education. South Dakota, which does not levy an income tax, turned to its broad-based sales tax structure for the answer. Lawmakers agreed to raise that tax by a half-cent, from 4 cents to 4.5 cents. That change allowed millions of dollars in additional state revenue to flow to K-12 schools.
Proposed changes in Midwestern states
Discussions on school funding reform will continue in states across the Midwest during the 2017 legislative sessions. In Ohio, Rep. Andrew Brenner plans to reintroduce legislation (HB 628) that he hopes will “get the conversation about school funding started.”
The Ohio Supreme Court found the state’s education funding system unconstitutional four times between 1997 and 2002 — due to an overreliance on local property taxes and a failure to deliver a “thorough and efficient system of common schools throughout the state.” After the fourth ruling, the court decided not to retain jurisdiction over the case.
Although the General Assembly has increased funding for K-12 schools since the original court ruling in 1997, Brenner says more work needs to be done. His plan is to replace local property taxes with a new statewide property tax and prevent districts from passing any school levies.
He also wants to move to a system “where the money follows the student”— meaning school districts that are growing in student population would receive additional money, and districts that are shrinking would receive less. He says this would solve a problem in districts like the one he represents: a major increase in students, but very little additional state funding because of caps on high-wealth districts.
Brenner plans on reintroducing his proposal in early 2017 and will start gathering feedback from schools, parents and communities. If the measure is passed by the General Assembly, voters would need to approve a constitutional amendment to create the state property tax.
Balancing the state and local share of education funding is also a priority in Wisconsin, where Superintendent of Public Instruction Tony Evers has proposed an education reform plan that would increase general state aid by $514 million over the biennium.
The additional dollars requested in the department’s proposed budget would allow changes to the state’s funding formula under Evers’ “Fair Funding Plan,” as well as provide property tax relief. The proposed formula would provide all districts with a foundation amount of $3,000 per pupil — including property-rich school districts that currently receive little or no general aid from the state — and would also incorporate a poverty factor (20 percent) into the formula for students who are eligible for free and reduced-priced lunch.
The budget proposal estimates that 94 percent of districts would receive more general state support under this plan than under current law.


Article written by Katelyn Tye, CSG Midwest staff liaison for the Midwestern Legislative Conference Education Committee.


School finance in the Midwest: A look at notable state policy actions, proposals and statistics


A reform of school funding has been a longtime, but elusive, legislative goal in Illinois, whose system is heavily reliant on local property taxes and is considered one of the “least equalized” among the 50 states (only about 45 percent of the money that goes to the state’s school districts is adjusted based on the wealth of each district). A bipartisan commission of Illinois legislators was formed last July and tasked with recommending revisions to the current school-funding formula by February.
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In Indiana’s last biennial budget (HB 1001), lawmakers enacted a three-year, phased-in adjustment in the way that the state calculates additional aid for low-income students — known as the “complexity index.” Extra aid is being based on the number of students who receive services under the Supplemental Nutrition Assistance Program and Temporary Assistance to Needy Families, or who are in foster care. Under the previous formula, the complexity index was based on how many students qualified for free or reduced-price lunches under federal guidelines.
Schools in Iowa saw an increase in state funding after the passage of legislation in 2013 (HF 215) that established the largest statewide teacher-leadership system in the country. Under this system, school districts receive a bump in funds (a little more than $300 per pupil) after their locally developed Teacher Leadership and Compensation plans get approved by the state. As of March 2016, all of Iowa’s 333 school districts’ plans to improve pay, career paths and mentoring for teachers had been approved.
In 2014, the Kansas Supreme Court ruled that the state was not meeting its constitutional requirement to provide an equitable and adequate amount of funding to all school districts. After a subsequent change to the funding system was still deemed unconstitutional, the Kansas Legislature was charged with finding an equitable solution, or the state’s public schools would be forced to close. A new formula to equalize funding was adopted last year. The court is now considering the adequacy portion of the lawsuit, after which the Legislature is expected to make further changes.
According to the National Education Association, the state of Michigan provides 67 percent of the funding for its K-12 schools, the second-highest rate in the Midwest (Minnesota ranks first). The origins of this school-finance structure date back two decades. After the Legislature repealed local property taxes as the primary funding source for K-12 education, Michigan voters in 1994 approved Proposal A, which increased the state’s sales tax rate enough to cover the operating costs of school districts.
Minnesota increased its income tax rate on the state’s highest earners in 2013 (now 9.85 percent on incomes of more than $150,000, compared to the previous rate of 7.85 percent). With this influx of new revenue, the state has increased spending on K-12 education by $485 million over the next two years, as well as begun to offer all-day kindergarten statewide. According to federal data, in fiscal year 2014, Minnesota provided more state dollars per student ($7,910) than any other Midwestern state.
A decade ago, Nebraska lawmakers created a “learning community” that, in part, created a common levy among 11 school districts in the Omaha area. The goals of establishing this shared property tax included providing more resources for high-poverty districts and closing gaps in student achievement. In 2016, legislators eliminated the common levy but also increased the amount of state aid for high-poverty districts. In addition, the 11 districts of the learning community will receive state funding for working together on efforts to close achievement gaps in the metropolitan area.
North Dakota adopted a new K-12 formula in 2013 that provides each school district with a base amount of state funding to ensure an adequate education regardless of the district’s taxable wealth. The legislation established per-student rates based on a study conducted for the North Dakota Commission on Education Improvement. According to the Center on Budget and Policy Priorities, between 2008 and 2017, North Dakota has had the greatest increase in per-pupil general-fund spending (27.2 percent) among the 50 states.
As part of its FY 2016-2017 budget bill (HB 64), Ohio added two components to the state’s school funding formula to reward a district’s performance in two categories: 1) high school graduation rates and 2) third-grade reading proficiency. Bonuses under the new formula will be provided annually. Gov. John Kasich vetoed a part of the bill that would have safeguarded wealthier school districts from a cut in state aid; he said this provision would divert state resources from “lower capacity” districts.
In 2016, the South Dakota Legislature reformed the state’s school funding system by passing legislation to increase the state sales tax by a half-cent (HB 1182), establish a target teacher salary and a target teacher-to-student ratio (SB 131), and provide incentives for school districts to share employees (SB 133). The sales tax increase will provide an additional $67 million for K-12 education in South Dakota. The target statewide teacher salary is $48,500 a year.
Wisconsin Gov. Scott Walker told reporters in late 2016 that he will seek a “sizable increase” in state aid for education in his next biennial budget, particularly for rural schools, and propose a raise in the state’s revenue limits on school districts. According to the Wisconsin Department of Public Instruction, more than half of Wisconsin’s public school districts have passed referenda to exceed state-imposed revenue controls since the start of 2012.