School funding reform comes with large cost

But until now, no one has taken a deep dive to examine how much these ideas will cost. A new report by the nonprofit Public Policy Institute of California, a San Francisco-based research center, examines the main ideas, each with trade-offs. 

“The gains aren’t as significant as people might assume,” said Carrie Hahnel, senior associate partner at Bellwether, a national nonprofit education research and consulting organization, who co-wrote a 2021 study of the funding. “So this is helpful for advocates who have been asking for things like duplicated weights (for students with multiple needs) or shifting from attendance- to enrollment-based funding to see exactly how much that’s going to cost and which districts are going to benefit from it.”

The report comes at a time when many school officials worry that record TK-12 spending from a post-COVID surge in state revenues will falter. Meanwhile, declining student enrollment in most districts, potential teacher strikes for higher pay, and probable staff layoffs in many districts are heightening tensions that could reinforce urgency to modify the funding formula or chill efforts to do so.

How the formula works

The Local Control Funding Formula, passed through the efforts of then-Gov. Jerry Brown, was novel in its commitment to uniformly increasing funding for four underserved student groups: 

• English learners;

• Low-income students;

• Homeless students; and

• Students in foster care.

A district receives a supplement of 20% of base funding for every student who fits one of those categories. Districts with large concentrations of those students receive significantly more on top of the supplement and base funding.

The funding formula accounts for about 70% of the districts’ general budget. Because of income taxes on the wealthy and a booming economy, funding for the formula has nearly doubled since 2013, to about $15,000 per student, according to the report.

Since phasing in the formula, there has been improved achievement for low-income and other high-needs groups by some measures, among them higher graduation rates and the percentage of students meeting course requirements, known as A-G, for admission to California State University and the University of California. A study by the PPIC in 2023 found statistically significant improved scores on standardized tests by students in high schools where nearly all students qualify for extra funding. Their schools received about 50% more money than those with very few qualifying students.

Still, the achievement gaps between high- and low-poverty schools, and between Black or Hispanic students, and between white or Asian students have remained stubbornly wide.  

“Despite (the formula’s) improvements to California’s school funding system, lagging test scores, rising achievement gaps, and stubbornly high chronic absenteeism suggest something more is needed,” the report states.

PPIC takes no position on whether the formula should be adjusted or changed. Instead, authors Julien Lafortune, Iwunze Ugo and Brett Guinan conclude: “To some, this is evidence that the level of funding growth thus far has been inadequate, while others cite these facts as evidence that funding alone will not be enough to address the state’s challenges and that state allocations or district practices should be changed.”

Stagnant achievement gaps have fed calls to take a closer look at the formula. Assemblymember David Alvarez, D-San Diego, who chairs the education subcommittee of the Assembly Budget Committee, this year introduced legislation that includes key ideas in PPIC’s new report. He plans to hold hearings in 2026 with the goal of reaching a consensus on priorities for legislation.

Savings from declining enrollment

PPIC bases its calculations on the assumption that additional revenue would be needed to hold districts harmless from formula adjustments that would adversely affect them. The source could be the savings the state will get from paying school districts less as a result of declining enrollment. Statewide enrollment is projected to drop from 5.8 million to 5.5 million students over the next five years, saving $7.5 billion — $1,500 per student, according to the report, which the governor and Legislature could choose to throw back into the funding formula or use for other educational purposes.

Phasing in the formula fixes is one option. Here’s a summary of the main proposals:

Factor in regional costs

Rationale: The cost of living is a lot higher in coastal California, particularly the San Francisco Bay Area, with teachers and staff facing higher rents and home prices, which makes it harder to recruit and retain them. However, a regional cost factor, though briefly debated, wasn’t included in the funding formula.

Cost: $2.5 billion using a teacher wage index distributed by the county, adding 5.4% to the formula. 

Winners: Populous coastal districts with high costs; some big winners would be the Alameda Unified School District, Cupertino Union School District and Evergreen Elementary School District in San Jose, which get little funding beyond the base grant under the formula. 

Losers: Inland, rural districts like Madera and San Joaquin, with large proportions of high-needs students. 

The trade-offs in shifting dollars from less populated regions to urban areas would be uneven. Inland rural and suburban districts would see a $400-per-student funding decrease, according to the report; coastal districts would gain an average of only $50 per student, according to PPIC. 

Rural districts will argue they, too, face severe challenges attracting teachers to their regions.

Fund by enrollment

Rationale: Districts with high proportions of low-income students and English learners tend to have lower attendance rates and therefore lose anywhere from 7% to 10% in potential yearly revenue, compared with districts with attendance rates of 94% to 96% that lose on average only 4% to 6%. High post-COVID spikes in chronic absences, combined with declining enrollments, have compounded the problem.

The switch to enrollment-based funding would increase the number of students being funded, but proportionately reduce the per-student amount. 

Winners: Districts with the lowest attendance rates would receive $260 more per student (1.8%) under the current formula.

Losers: Districts currently with the highest daily attendance would see a drop of $220 per student (1.5%), according to the PPIC, and would likely oppose any reduction in base funding, which they complain is already too low. 

California is one of the dozen states funded by attendance. The Legislative Analyst’s Office plans to release a study soon that examines the impact on student attendance when states switch to funding by enrollment.

Fund duplicate needs

Rationale: Under the current formula, students qualify for the same percentage of extra funding, regardless of whether they are low-income and English learners or English learners in foster care. Some other states allocate extra money for multiple needs. This is especially relevant when homeless children or English learners are concentrated in poor neighborhoods. According to the report, one-quarter of low-income students are English learners.

Cost: $1.7 billion (2.4%) overall, or $279 per student on average.

Winners: Districts in which more than 7 of 8 students qualify for extra money would see an average increase of $659 per student; districts with fewer than 4 in 10 high-needs students would receive only $43.

Even out the funding spike

Rationale: The formula’s extra concentration funding starts when 55% of students in a district qualify as high-needs. Like a jet taking off a runway, extra funding rises sharply as the proportion increases to 100%. Districts whose high-needs students make up around 50% of enrollment complain they are given short shrift. 

Cost: $1.5 billion, estimates the PPIC, by gradually sharing concentration funding and “smoothing the funding curve.”  

Winners: Moderate-need districts with 45% to 65% of high-needs students would gain the most, the report said, receiving an average of $669 per student (4.9%) in more funding. 

It’s too soon to predict how the case for modifying the funding formula will play out. The California School Boards Association is making raising base funding its high priority. Gov. Gavin Newsom may advocate for using all or part of the $7.5 billion “declining enrollment dividend” to shore up funding for community schools, teacher residencies, or student mental health. Others, Hahnel said, may lobby for putting more money into Career Technical Education programs. 

The coming debate promises to be intense.

John Fensterwald writes about education policy and its impact in California.