Top Down or Bottom Up – Two Approaches to Funding Education

One of the most important roles of state government is to fund public education. Funding such an important, but inherently divisive function invites equal amounts of kudos and criticism. This post, the first in a series, sets up further discussion about how state governments balance constituent desires, state budget realities and social good to create quality education systems.

Budgeting 101
In some states, creating an education budget is simple top-down mathematics. The executive and legislative branches review available revenue, consider which public programs the state must fund and determine a topline education budget. In the most basic model, that topline number is then divided by the number of K-12 or pre-K to 12 students to come up with a per-pupil funding allocation. From there, local school districts augment the state allocation with other revenues, most commonly a proportion of real estate taxes. In this model of school funding, budgets are determined upon available resources, not the actual cost of education.

This model for determining an education budget is straightforward, but leads to inequities. The state contribution to education can be subject to the priorities and perspectives of the legislative and executive branch. These perspectives and priorities affect both the amount of funding allocated to education as well as the programs that are supported, or not supported, with those funds.

Perhaps more concerning is the reliance on local revenues to make up the balance of funds for education. This blunt figure leads to inequality across the state. With this model, urban centers, blighted cities and rural areas typically lose due to low tax revenues. The most common strategy for paying for capital expenditures for education—the school construction bond—exacerbates this inequality. Even formerly “wealthy” suburban districts are beginning to struggle due to property tax caps.

Another Option
The good news is a growing number of states and districts are choosing a data-driven approach to determining the per-pupil allocation and conducting cost studies. Cost studies are often conducted as a result of legislative action or a court settlement but, no matter the reason, the studies do result in a per-pupil funding allocation that is derived from a review of the actual cost of providing an education that is benchmarked against desired outcomes.

Cost studies—sometimes termed adequacy or equity studies—address the inherent inequity of top down funding approaches. Normally the result of a cost study is the determination of a foundation formula that identifies a base per-pupil funding allocation and as well as “weights” that are applied to accommodate the additional cost of education in particular circumstances. Most weighted formulas provide additional funding for students that require additional educational services, such as special education services. But the state of Maryland, for instance, has applied a geographic cost of education index to its per-pupil funding formula to deal with radically different education costs across the state.

Conducting cost studies is a time consuming and expensive process, however, the resulting transparency, confidence and community engagement makes the effort well worth the time and money.