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Center for American Progress

RELEASE: CAP Calls on State Governments to Reform Outdated, Ineffective, and Bureaucratic Forms of Education Funding
Press Release

RELEASE: CAP Calls on State Governments to Reform Outdated, Ineffective, and Bureaucratic Forms of Education Funding

Read the report.

Washington, D.C. — Too many state governments and school districts are employing outdated and ineffective forms of school funding, according to two new reports released today by the Center for American Progress. The reports detail how outdated approaches for funding and managing schools can hinder school-improvement efforts. While categorical grants—funding streams for schools with strict limits on their use—provide a stable way for districts to fund important programs and services, they do so at the expense of local flexibility. The reports argue that better approaches exist and recommend states empower local decision-making at the district and school level by moving toward weighted student-funding systems that more efficiently drive resources to schools based on the population of their students and students’ needs.

“While categorical funding streams provide a relatively stable form of funding for districts and schools, this is not an either-or scenario. We can achieve both equity and empower local school leaders to carry out their own funding priorities by moving toward weighted student funding systems,” said Cynthia G. Brown, Vice President of Education Policy at the Center for American Progress.

States generally allocate dollars to school districts based on funding formulas determined by state law. These formulas take two forms: foundation grants or base grants, which cover the basic cost of education, such as salaries and textbooks; and categorical grants—money that must be used specifically for the purpose designated by the legislature or state education agency. Because of their designated-use requirement, categorical grants often discourage school leaders from using their dollars in ways that might best address their students’ needs.

Categorical grants, however, are extremely common in the state education finance systems. New survey data included in the CAP report released today titled “Categorical Funds: The Intersection of School Finance and Governance” provides a national overview of which states have embraced more flexible funding streams and which are still using rigid bureaucratic categorical grants to fund schools. Authored by Joanna Smith and a team or researchers at Rossier School of Education’s Center on Education Governance at the University of Southern California, the data included in the report show the extent to which categorical grants comprise state education budgets and reports on what state finance and district officials think about this form of funding.

Smith’s findings show that the use of categorical grants varies widely across the country, with many states moving away from them—providing hope for innovation in these states. However, in many states, categorical grants remain a key component of education funding, and it is these states that need the most reform. According to the report, the states with the highest percentage of their education budget being funded by categorical grants are South Carolina, Pennsylvania, New Jersey, North Carolina, and Utah. Those with the largest number of categorical grants in the 2012-13 school year were Iowa, California, Michigan, Massachusetts, South Carolina, and West Virginia.

A second report released today, authored by CAP education policy expert Melissa Lazarín, outlines a series of recommendations for how governors, legislatures, and state departments of education can address important issues about how their schools are funded. Lazarín argues that state policymakers, education leaders, and advocates should recognize the disconnect in accountability systems that hold school and district leaders responsible for student achievement without giving them funds based on their students’ needs nor decision-making control over how best to use the funds they do receive. The report also highlights the dramatic reforms in school funding that California has undertaken under Gov. Jerry Brown’s (D) leadership. Recommendations include:

  • States and school districts should adopt weighted student-funding systems that provide all operational dollars through a formula that distributes, down to the school level, resources based on the specific needs of a school’s students.
  • States should provide increased school-funding transparency so parents and key stakeholders can play an active role in identifying priorities and designing and implementing strategies.

Read the reports:

To speak with an expert on this topic, contact Katie Peters at [email protected].