Tackling Ohio's toughest education challenges: Pay schools of choice directly from the state

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Editor’s Note: As Ohioans await the start of the new governor’s term in January, and as state leaders look to build upon past education successes, we at the Fordham Institute are developing a set of policy proposals that we believe can lead to increased achievement and greater opportunities for Ohio students. This is the ninth in our series, under the umbrella of creating transparent and equitable funding systems, and the second to be published following the election of Mike DeWine as Ohio’s next governor. You can access all of the entries in the series to date here.

Proposal: Repeal the statutory provision that prescribes a pass-through method for paying schools of choice—public charter schools, independent STEM schools, and the bulk funding for private school scholarship programs. Instead, they should require ODE to pay schools of choice directly—apart from districts—out of the state Foundation Funding appropriation. However, a separate budget line item (subject to a line-item veto) should not be created to fund schools of choice.

Background: The vast majority of state funds allocated to public charter schools, independent STEM schools, and private school choice programs are passed through local district budgets. Here’s how it works: the state (1) counts choice students in their resident districts’ headcounts for funding purposes; (2) subtracts funds designated for choice students from their districts’ state allocations; and (3) transfers dollars to students’ schools of choice. Although this method ensures that state money follows students to the schools they actually attend, it also creates problems. First, with deductions starkly displayed on districts’ state funding reports, the method perpetuates the falsehood that choice programs “take” money from districts and creates an adversarial and hostile relationship between districts and schools of choice. Second, this approach distorts districts’ funding formulae, as choice students are included in district per-pupil wealth calculations that determine their state aid. Consider the illustration below. Based on the number of students that the hypothetical district actually educates, its property wealth per pupil should be $33,333. But when all resident students—both district and choice pupils—are included in the denominator, that number changes to $25,000 per pupil, which would in turn generate higher levels of state funding.

Table: An illustration of how counting choice students affects districts’ funding formula

Proposal rationale: The circuitous pass-through method is a source of frustration for all public schools, adds unnecessary complexity to the funding system, and distorts districts’ state funding amounts. Direct funding of schools of choice would be clearer, fairer, more straightforward, and less contentious.

Cost: Modelling should be done to estimate the impact on the state budget. In isolation, the state may experience modest cost reductions by removing choice students from district funding formulas; however, such reductions would likely interact with the guarantee that today shields districts from losses in state aid. With the guarantee in place, the state may incur additional costs to transition to direct funding. Note, too, that to the extent that this transition results in extra funds, those dollars would remain with district schools rather than charters.

Resources: For discussion on pass-through and direct-funding methods, see A Formula That Works: Five Ways to Strengthen School Funding in Ohio, a report written by Bellwether Education Partners’ Jennifer Schiess and colleagues and published by the Fordham Institute (2017). For a brief overview of the charter/district funding system in Ohio, see the Fordham Institute video Ohio’s Method of Funding Charter Schools is Convoluted (2017). The ODE provides a detailed description of deductions in School Finance Payment Report (SFPR): Line by Line Explanation (2018).