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Educational Equity and Effectiveness: The Need for Fiscal Fairness and Fiscal Productivity

Students

SOURCE: AP/Ted S. Warren

Annette Wells, center, takes questions in her seventh to eighth grade language arts class at Komachin Middle School in Lacey, Washington, April 18, 2014.

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School finance reformers have long divided themselves into two camps. On one side, there are the advocates who argue for increased fiscal equity. They believe the primary issue concerning school finance is funding fairness and point to an abundance of evidence that shows high-poverty districts with needier students receive far less money than their wealthier counterparts.

On the other side of the debate are those who argue for increased fiscal efficiency. These advocates believe that school districts do not do nearly enough with the dollars they have. Stanford University’s Eric A. Hanushek—seen as the intellectual grandfather of this camp—put it succinctly, saying, “The real issue is how to organize the [nation’s school] system so that you get the most you can out of the resources you put in.”

Yet there’s a problem inherent to both points of view. Fiscal equity and fiscal effectiveness are not mutually exclusive, and this nation needs to do more to improve both the fairness and the productivity of public school dollars. In other words, we need to make sure that schools and districts not only get enough money to serve their student populations but also that they then spend those dollars wisely.

For educators, this is not some sort of “Ivory Tower” point. Given uncertain revenues, schools have to show that they are using public dollars in ways that clearly raise student achievement. As noted in the Center for American Progress report “Return on Educational Investment,” fiscal accountability promotes fiscal trust. Indeed, without some push for greater productivity, taxpayers will eventually lose their faith in public schools and thus be far less inclined to fund them.

At the same time, our nation cannot ensure that all students have a fair shot at a good education without greater fiscal equity. In too many parts of the country, students living in high-poverty communities simply do not receive their fair share of education dollars. In fact, in some areas, states systemically give less money to low-income districts. Consider Chicago: As Rutgers University Professor Bruce Baker suggests, because of a financial funding formula that is far too dependent on local property taxes, the wealthy suburbs around Chicago receive much more public money than needier schools in inner-city Chicago.

In the end, equity and effectiveness must be considered the same side of the fiscal coin. They support each other and depend on each other. To help improve both equity and the effectiveness of school funding, CAP is releasing three new reports today that address these issues.

CAP’s goal with this trio of papers is to rethink the approach to school finance. Specifically, the hope is to highlight how to do more to improve how school dollars are spent and to better understand who receives those dollars. CAP’s first report, “Return on Educational Investment: 2014” focuses on education productivity and seeks to understand how schools can increase their return, or student achievement, based on their investment in per-pupil spending. The second report, “Parallel Lives, Different Outcomes,” looks at the funding practices of similar districts—referred to as “twin districts”—and sheds light on the practices that boost educational productivity. Finally, there is the report by Bruce Baker, “America’s Most Financially Disadvantaged School Districts and How They Got that Way,” which looks at some of the most severely financially disadvantaged districts in the nation.

The reforms recommended in these reports will not be easy to carry out. Part of the difficulty is that some view equity and effectiveness as a zero-sum game. In other words, people believe that focus cannot be placed on one reform without losing focus on the other. However, this approach is too simplistic. First, it glosses over the fact that the ultimate focus must be on outcomes. It is clear in too many instances that seemingly plentiful school dollars have failed to boost the achievement of disadvantaged groups because of poor spending decisions. At the same time, the research also clearly states that high-poverty schools have been grossly underfunded given the greater needs of their students and that these schools will not be able to productively use their dollars.

Then there is the fact that wealthier districts often show lower levels of educational productivity. Our research suggests that high-wealth areas are often less productive than low-wealth areas. The bottom line is that in many cases, more could be gained from school dollars if they were invested in lower-income districts. While this notion might be a sea change, it is supported by a number of other recent studies. An analysis by the Boston Consulting Group released earlier this year suggests that school spending has a significant impact on the achievement of lower-income students. Another study released by the National Bureau of Economic Research, or NBER, shows that increases in per-pupil spending boost outcomes for disadvantaged students. According to the authors of the NBER report:

In districts that substantially increased their spending as the result of court-ordered changes in school finance, low-income children were significantly more likely to graduate from high school, earn livable wages, and avoid poverty in adulthood.

But the final—and perhaps most important—point is that CAP’s recommended set of fiscal reforms would help improve both equity and effectiveness. For instance, many states have not done nearly enough to build robust accounting systems. These three new reports show that some states allow districts to engage in weak budgeting practices, such as using two sets of financial statements. These findings suggest that schools and districts need more robust accounting methods, which will allow the public to track more easily where and how funds are being spent.

An example of an effective budget reform is student-based budgeting, which was for a long time known as weighted student funding. This practice allows state and district funds that are weighted by individual student needs—for example, whether a student is low income, has a disability, or is an English language learner—to truly follow the child to a school. Student-based budgeting eliminates all or most of the so-called categorical program grants—funds that are directed to specifically identified programs such as art and music, school libraries, tutoring programs, and more. The student-based budgeting approach can improve educational effectiveness by providing far more flexibility to schools. Moreover, the reform also provides for more equity both within and across school districts, since the amount of money dedicated to schools is tied to student needs rather than to programs.

Looking forward, states and localities must do more to address the issues of fiscal fairness and productivity. The following truth is borne out across each of these reports: Archaic school funding formulas contribute to both the unfair and the ineffective distribution of public education dollars. The research also shows that states must work to revise their budgets to better reflect the needs of students in the most disadvantaged districts. At the same time, states must also take a harder look at the ways they spend their dollars and the ways they assess the efficient use of that money. The reality is that even the fairest of school funding formulas will continue to leave the most needy students behind without a system in place that encourages productivity.

Ulrich Boser is a Senior Fellow at the Center for American Progress.

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