What states can learn from Ohio about school funding

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School funding policies continue to be a subject of intense debate across the nation. Places as diverse as Alabama, Connecticut, Illinois, Kansas, Maryland, and Washington are actively debating how best to pay for their public schools. According to the Education Commission of the States, school finance has been among the top education issues discussed in governors’ State of the State addresses this year. 

States have vastly different budget conditions and a wide variety of policy priorities. No one-size-fits-all solution exists to settle all school funding debates. But there is a common idea that every state can follow: Implement a well-designed school funding formula, based on student needs and where they’re educated. Then stick to it.

A recent study commissioned by Fordham and researched by Bellwether Education Partners looks under the hood of Ohio’s school funding formula. Our home state’s formula is designed to drive more aid to districts with greater needs, including those with less capacity to generate funds locally, increasing student enrollments, or more children with special needs. In large part, Ohio’s formula does a respectable job allocating more state aid to the neediest districts. According to Bellwether’s analysis, the formula drives 9 percent more funding to high-poverty districts. This mirrors findings from the Education Trust which also found that Ohio’s funding system allocates more taxpayer aid to higher poverty districts.

Still, the Buckeye State has much room for improvement in its funding policies. And it’s worth highlighting three lessons from the study, as they illustrate challenges other states might face when designing a sound funding formula.

First, states should allow their formula to work—and not create special exceptions and carve outs. Our study found that the majority of Ohio districts have their formula aid either capped or guaranteed, meaning allotments are not ultimately determined by the formula. Instead, caps place an arbitrary ceiling on districts’ revenue growth, even if they are experiencing increasing student enrollment. Conversely, guarantees ensure that districts don’t receive less money than a prior year—they “hold harmless” districts even if enrollment declines. While caps and guarantees may be necessary during a major policy shift, allowing them exist for perpetuity, as Ohio does, undermines the state’s own formula. Ideally, all districts would receive state aid according to a well-designed formula. They shouldn’t receive more or less dollars through carve outs such as funding caps and guarantees.

Second, policymakers in choice-rich states need to make clear that funds go to the school that educates a student—and not necessarily her district of residence. Ohio has a wide variety of choices, including more than 350 charter schools, several voucher programs, and an inter-district open enrollment option. Yet the state takes a circuitous approach to funding these options, creating unnecessary controversy and confusion. The state first counts choice students in their home districts’ formula and then funds “pass through” to their school of choice. This method creates the unfortunate perception that choice pupils are “taking” money from their home districts, when in fact the state is simply transferring funds to the school educating the child. (For more on Ohio’s convoluted method to fund schools of choice, check out our short video.) To improve the transparency of the funding system in Ohio, we recommend a shift to “direct funding.” Under such an approach, the state would simply pay the school of choice without state dollars passing through districts.

Third, states should ensure the parameters inside the formula are as accurate as possible. Ohio, for example, faces a problem when assessing the revenue-generating capacity of school districts. A longstanding state law generally prohibits districts from capturing additional revenue when property values rise due to inflation, unless voters approve a change in tax rates. But this “tax reduction factor” is not accounted for in the formula, leading to an underestimation of the state’s funding obligations. Solid gauges of property and income wealth, along with sound measures of enrollment and pupil characteristics, are essential ingredients to a well-designed formula.

The realm of school finance is vast, encompassing a seemingly endless number of challenges. We don’t cover it all in this one report. But state policymakers would be wise to focus on the design and implementation of the school funding formula. It’s a key policy lever in efforts to create a fairer and more equitable funding arrangement for all students, regardless of their zip code or school of choice. Creating a solid formula—and ensuring its use—is hard work, but it might be our best bet for settling the debates over school funding.  

Aaron Churchill
Aaron Churchill is the Ohio Research Director of the Thomas B. Fordham Institute.