A Policy Analysis Paper
April 14, 2014
Missouri has undergone several revisions to its K-12 funding formula since the 1970s. Before the 21st Century, funding formulas were largely driven by property valuations. After two lawsuits, the General Assembly devised a formula that would tie funding to academic proficiency targets. However, the General Assembly has refused to raise the tax revenues necessary to fully fund the formula. This has led to political deadlock between the General Assembly and the governor, and left Missouri’s schools in a financial bind. While this crisis is ongoing, the General Assembly continues to attempt to pass an income tax cut that benefits the wealthy. This tax cut policy has already been implemented in Kansas, which is now experiencing a chronic education funding crisis. In the midst of the large debates over taxation and proper education funding, several bills have been proposed that would alter the funding formula, and the governor’s education funding powers. Finally, the long-term implications of the current funding environment on social and racial equality are explored.
History of Education Funding: 1970s to Today
This brief history of education funding in Missouri begins in the 1970s. This time period has been chosen as a starting point because it is first decade after the major civil rights cases were decided. During this period fiscal aid to school districts was decided by two formulas: the foundation formula and the guaranteed tax base formula (Biles & Ward 1981). The foundation formula determined a school’s funding by determining a base level of funding per student and subtracting a minimum local district contribution. The base funding component was calculated by determining the school’s average number of students and the portion of needy students, and multiplying each by an annually determined funding level. The local contribution was calculated by multiplying the following: a district’s adjusted property value, the statewide average tax levy per student, and an income adjustment factor. The guaranteed tax base formula determined additional state appropriations that were intended to alleviate inequalities between poor and wealthy districts (Biles & Ward 1981).
By the 1990s, less wealthy school districts filed a lawsuit against the state, holding that the prevailing formula violated the state constitution’s guarantees for minimum funding of public education, and the state’s equal protection clause (Committee for Educational Equality v. State of Missouri, 1994). In response to the districts’ win at the trial level, the General Assembly passed the Outstanding Schools Act of 1993 (Ogle 2007). This act was modified several times during the 1990s and 2000s. In essence, this formula started with a minimum funding level–or the foundation formula. First, the guaranteed tax base was calculated. That was determined by taking the per student asset valuation in the district that is in the 95th percentile of wealthiest districts. Then this was multiplied by a minimum tax levy per $100 of property value. If a district’s local tax base fell below the guaranteed base, the state would make up the difference (Ogle 2007). The next funding component was the district entitlement. This level was tied to a complex formula that determined the districts number of “eligible pupils”, and distributed state funds accordingly. This amount was then adjusted to compensate for the districts’ wealth–less wealthy districts were paid more of their share of the entitlement (Ogle 2007). Under this formula, wealthier districts would have lost funding. In order to ensure passage of the bill, a “hold harmless” provision was included. This ensured that funding for these districts would not dip below the levels they received in 1992 (Podgursky & Springer 2006). The end result of the OSA funding regime was that the amount of funding per student in a district would be equal on a per dollar of property tax revenue raised basis, across all districts. In time though, objections were raised to this funding formula. Since the formula was heavily dependent on property values, districts that had lots of high value properties were able to raise far more revenue than property-poor districts (Shuls 2012). Although the foundation formula was designed to rectify this property inequity, it was expected that a poorer district would raise its property tax levels in order to make up any shortfalls. However, since real estate inflation had been greater than the rise in the real income of district voters, this option was not realistic. This led to a second lawsuit, Committee for Educational Equality v. State of Missouri in 2004.
While the 1994 lawsuit was primarily about funding equity, the 2004 complaint focused on funding equity and adequacy. The Committee relied on Article IX, section 1(a) of the state constitution for their adequacy argument. This section of the constitution mandates that the state is responsible for ensuring that all citizens, up to 21 years of age, will have access to free, public education. The justification provided by the original framers was that education was necessary for preserving liberty and freedom (Mo. Const. art. IX, § 1a). The plaintiff school districts held that the then prevailing formula (and the subsequent formula) did not satisfy the intent of this amendment (Committee for Educational Equality v. State 2009). The state countered that the state constitution only requires that more than 25% of annual revenues be set aside for education (Mo. Const. art. IX, § 3b), and the state was in compliance with that requirement. The state’s arguments prevailed at both the trial and appellate levels (Committee for Educational Equality v. State 2009).
The Current Formula
Since the passage of the OSA, Congress had passed the No Child Left Behind Act (NCLB). NCLB mandated 100% testing proficiency by 2014 (Podgursky & Springer 2006). Bearing in mind these new, nationally dictated benchmarks, the General Assembly sought to create a funding regime that would (theoretically) give districts the resources they needed to meet NCLB’s standards. Thus, the current funding formula was born.
The modern foundation formula is a weighted average daily attendance (WADA) multiplied by the amount of money the state determines is needed to meet adequacy standards (or state adequacy target, SAT), modified for cost of living per district (dollar-value modifier, DVM). If a school’s local taxation falls short of this amount, the state makes up the difference (Committee for Educational Equality v. State of Missouri, 2009). The WADA is the number of students that attend in a full calendar year, with regular school year and summer school calculated separately. This enrollment figure is adjusted based on the number of students who are on free or reduced lunches, have learning disabilities, and/or have limited English proficiency. These students are given a greater weight in the enrollment figures, due to the increased cost of their education (Shuls 2012). The state adequacy target is determined by the median per weighted-student expenditures of the best performing school districts in the state. This level of funding is assumed to be adequate for all districts to reach high student achievement and parity.
The SAT does not consider the socioeconomic composition of these districts, a factor that figures considerably into student achievement (Desimone & Long 2010). This target is recalculated every two years. If the SAT declines in a biannual period, the SAT stays constant; otherwise, the increase is phased in over two years (Shuls 2012). The dollar-value modifier component of the funding formula adjusts the amount of foundation funding received by a district, if its cost of living is relatively high. The addition of this component recognizes that higher cost of living makes educating children in these districts correspondingly more expensive. The DVM does not lower the amount of funding received by districts with lower cost of living. The DVM itself is calculated by a ratio of a district’s regional wage per job over the state’s median wage per job (Shuls 2012). Finally, the local amount of support is calculated. The state determines the local tax base by referring to a table of local property valuations, and multiplying that by a fixed property levy (3.43% as of 2012) (Shuls 2012). This amount is adjusted down to account for local government fees, and adjusted up to account for other local revenue sources for education. Once this amount is determined the amount of state aid for the school district can be calculated. Like the 1993 OSA formula, there are several hold harmless mechanisms that prevent funding cuts for school districts.
Underfunded: The Current Political Controversy
The modern formula is dependent on the amount of money it is thought to take to bring all the state’s students to academic proficiency, regardless of their location or community wealth. Unfortunately, this means putting forth an amount of money that the state’s legislators have been unwilling to raise. As of 2014, the general assembly is underfunding school districts statewide by $656 million (Missouri Budget Project 2014). Columbia Public Schools is estimated to be underfunded by $803 per student, while Boone County-wide the shortfall is $818 per student (Missouri Budget Project 2014). The GOP-dominated legislature and the Democratic-controlled executive branch have struggled to agree to a solution. The governor has proposed that $278 million be distributed to the state’s public schools. He has said that releasing this money is vital to maintaining a trend of high IT job growth in the state (Office of the Missouri Governor 2014). One solution offered by the GOP would release $122 million to the state’s school districts, or $278 million if revenues reach the governor’s projections. Either plan would still under-fund the state’s schools by over $350 million (Blank 2014).
Recently, supplemental appropriations for education have also been under pressure. On April 10th, 2014, the Governor announced that $15.6 million in previously promised funds would be withheld from K-12 schools. This promised money had to be rescinded because gambling and lottery revenues had fallen under projections. The General Assembly was not willing to make up the whole difference (Bergquist 2014). The governor accused the Republicans of having misplaced priorities, singling out the appropriations for the State Historical Society in Columbia as an example of money that could be better used for education. The Republicans counter that schools are still receiving an increase in funding, both this year and next (Keller 2014).
Education funding may yet see further cuts. Republicans are planning an income tax cut that would reduce tax revenues by approximately $120 million per year. The governor, who vetoed the last tax cut in 2013, believes that the tax cut would actually cost Missouri $800 million per year (Young 2014). The reality may be closer to the governor’s projections. Kansas has already begun an experiment in conservative-style tax policy. The results have not been good. Tax revenues have declined by $800 million in this year alone. The revenue shortfall will reach $5 billion by the end of this decade (Leachman & Mai 2014). The loss of revenues has hit Kansas’s schools very hard. While state revenues for schools nationwide has been recovering since the recession, Kansas has still been cutting. A reduction of 1.8% was proposed by the Governor in the next budget year, which would have put Kansas funding at 19% below pre-recession funding levels (Leachman & Mai 2014). However, a recent decision by the state Supreme Court has forestalled the possibility of more severe cuts, for now (Marso 2014).
The underfunding of the foundation formula comes at a difficult time for Missouri’s schools. Morgan R-I in Stover, MO has had to cut 25 full-time positions in the last two years, despite a pressing need to hire more teachers. The district’s attempts to rectify their fiscal crisis have largely been self-defeating. Not only have cutbacks hurt their ability to provide quality education, their reductions in per-student spending has cost them federal funds (Dryer 2014). They are not the only district that is in the red. Rolla’s school district is also facing similar trouble. The district’s superintendent has warned that next year the district will begin deficit spending (Hohenfeldt 2014). The uncertainty of the proposed state two-tier education budget has made crafting the school’s budget all the more difficult.
While the governor and the legislature battle over funding the current formula, there is pending legislation that would alter the formula. Sen. Kurt Schaefer (R) of Columbia has introduced SB 756 (2014). This bill would adjust the WADA calculation to add a weight for gifted students. If the percentage of gifted students in a district exceeds a threshold, a 0.6 weight is added to each student. This bill is currently in the senate education committee. The companion bill is HB 1571. Sen. Ryan Silvey (R) of Kansas City has introduced SJR 45 (2014). This joint resolution would authorize a vote on a constitutional amendment that would remove the governor’s executive powers related to K-12 education. If this were passed, the governor would no longer have the power to reduce K-12 appropriations when revenues drop below projections (which is a controversy that is currently taking place). Sen. Maria Chappelle-Nadal (D) of Saint Louis County has introduced SB 825 (2014) that would alter how the WADA counts students receiving free and reduced lunches. This bill would also trigger a recalculation of local effort.
Whenever a school district’s boundaries change, the property value assessment of the district will have to reflect the new boundaries. Lastly, Sen. Lamping (R) of Saint Louis County has introduced another joint resolution, SJR 54 (2014). If passed by voters, this amendment would mandate a reevaluation of the foundation formula every decade. This would formalize the current formula revision pattern that has persisted since the 1990s.
Local Taxation as a Driver of Inequality
Since the 1970s, Missouri’s education funding formulas have failed to remedy the persistent inequities between poorer and wealthier districts. As was mentioned in the 1993 Committee for Education Equality lawsuit, wealthy districts have the property valuations and incomes to provide near-lavish funding levels. Even assuming that the current formula was fully funded, and that each district received enough funds to provide “adequate” education, the reliance on local funding still ensures Missouri will suffer endemic education funding inequality. This endemic funding inequality may have long-term implications for social inequality in Missouri. Chetty and Friedman (2010) found that parental income, mediated through the variable of school quality, was responsible for 40% of their children’s adult income. Wealthier families,
congregating into their own school districts, are able to finance high performing schools and impart a class advantage to their children. The authors propose that changes in the school finance tax structure, including potentially abolishing local finance entirely, would erase a large amount of structural income inequality (Chetty & Friedman 2010).
Race and Education Funding
This brief policy analysis cannot do full justice to the topic of race and education, but the topic will be briefly touched upon. Baker (2011) analyzed the relationship between school district racial composition and school funding adequacy. Specifically, he tested the adequacy of current school funding levels in black majority schools compared to two models that predict optimal funding levels–one that included race and one that approximated race with poverty and urban population density variables. His models did not give consistent results for either type. The race-model predicted that black majority schools in Saint Louis County should be receiving substantially higher funding to achieve adequacy than what was predicted by the poverty-density model (Baker 2011). However, the opposite occurred for Saint Louis City–the poverty-density model predicted higher funding was needed than the race-model. These conflicting results do not provide a clear guide on how to use education funding adjustments to eliminate the racial disparities in Missouri. Possible solutions may come from crafting alternative policy interventions for black majority schools, rather than just relying on increased state assistance derived from formulas. Desimone & Long (2010), provides data to support this idea. In a study on racial and socioeconomic achievement gaps, they found that increased instructional time in mathematics for first graders reduced the achievement gap between white and black students by 10%. The authors stress that this is not due to the type of instruction used, only to the amount of time spent on teaching. They hypothesize that students from privileged backgrounds have increased opportunities for learning at home, that other students lack. The extra time of instruction may mitigate this household disadvantage (Desimone & Long 2010).
Given Missouri’s recent history of decennial revisions of its funding formulas, and the persistence of income and racial inequities, a critical examination of the utility of funding formulas may someday be warranted. The appeal of formulas is obvious–an objective measurement of variables for each school district that in turn leads to a consistent amount of funding would appear to be the least controversial political choice. However, numerous exceptions (such as hold harmless provisions), chronic underfunding, and long-standing inequities show that the time may be coming for a fresh approach to education funding, assuming that the political will exists.
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