How Are Schools Funded and Why Does It Matter?

K-12 Education

How Are Schools Funded and Why Does It Matter?

Author Christine Schneider
Christine Schneider

Senior Communications Officer, K-12 Education

Marguerite Roza, the director of the Edunomics Lab at Georgetown University, has spent the last two decades studying education finance. She chatted with us about the evolution of school finance policy, what works and what’s next. Learn more about school finance in our latest EdFacts flashcards.

What is it about school finance that first attracted you?

Marguerite: Years ago, I spent my days teaching thermodynamics in the Navy nuclear power school, while at night teaching math in a GED program. The enormous contrast between the two models fascinated me, particularly because the students were actually quite similar in age, demographics, and other characteristics. It made me think about how many options we do have when it comes to delivering schooling, and whether we had done enough to figure out how best to leverage public dollars to do the most for students.

So, you see better school finance as a way to improve education?

Marguerite: Yes! I’m always discouraged when finance meetings are separate from meetings about strategies to improve student outcomes. How we spend our money IS our strategy, whether we recognize it or not. In the past, you never knew how much was spent on one school versus another. There was no way to find that out. But digging into the finances is one way to surface a lot of clues about how we ultimately might be able to improve schools. 

What big themes stand out in your two decades studying this?

Marguerite: I’ve been studying education finance long enough that I’ve essentially seen three waves of finance policy. The first I’ll call “leveling up” — that wave throughout the ‘80s and early ‘90s came with finance policies designed to ensure that more schools had access to a baseline level of resources. Before this wave, there were schools in many states that were so grossly underfunded — the kind profiled in the book Savage Inequalities. This wave of efforts helped improve funding in many of those schools. I would not argue that we’ve now reached a desirable level of equity, but we really did see some leveling up in many places.

Phase two is what I call the “best practices phase.” A lot of states and districts started asking whether their new investments were doing enough to improve results for students. With this phase came a flurry of research to identify those expenditures that lead to better outcomes, and accompanying finance policies that required that schools use their money in prescribed ways. There were policies to require minimum class sizes, or specific investments in professional development or reading coaches. There was an idea that there was a right way to spend the money. I think that phase didn’t produce as many positive outcomes as people had hoped. 

We’re now entering phase three, and it appears that this phase is more about what I’ll call leveraging “school effects.” This phase seems to recognize that even when using the “best practices” there is a lot of unexplained variation in student outcomes. The idea here is that the school matters more than we knew. The question is how we tap into these “school effects” and put them to work for students? From a school finance perspective, this line of thinking might involve loosening the reins on school spending choices and engage schools in this task of doing the most with the resources they have.

What is the secret sauce for school spending?

Marguerite: Well, my sense is that it is the people inside schools are the secret sauce. Schools are very human, organic, dynamic organizations, where the daily interactions probably do more to drive learning than any particular mix of expenditures. If we accept that, we may also need to accept that those in schools need to be part of deciding how to get the most out of the resources they have. Everything we thought we knew about finance early on — that there was some sort of production function where you stuck in inputs and it would increase the outputs on the other side — only helped so much. In this sense, school teams may need to get out of compliance mode and be empowered to figure out what their students need and how to apply their resources that yield success. 

How do policymakers react to that?

Marguerite: Some state leaders believe that when there is state money in the mix, it is their job to prescribe how spending decisions are made. I think the reassurance for state legislators is that their role is to focus on measuring the total spending at each school and the total outcomes. That’s the best signal of whether funds were used well. 
What’s new and exciting in education finance?

Marguerite: In the Every Student Succeeds Act (ESSA), there is a requirement that states make finances transparent down to the school level. This requirement will be a game changer in the field of education finance — producing a mother lode of finance data. For states, it means they’ll have the data to focus more on that relationship between spending and outcomes. 

We’re working with a network of over 20 state education agencies on this. They’re interested in developing common reporting standards across states so that a school in one state might be able to compare its spending and outcomes to a school in another state.

What will be possible with this new dataset?

Marguerite: We’ve had student outcomes by school for years because of No Child Left Behind. What we didn’t know is how many resources each school had. Even the school leaders didn’t know. Ask principals how much was spent in their schools and most don’t have access to that information. This new requirement allows for an important pairing of financial data and student outcomes data. 

For school districts, the financial data can help inform decisions about how to deploy funds across schools. Schools will be able to use it to compare their spending and outcomes across peers with similar mixes of students and benchmark their efforts to leverage resources to do the most for their students. They’ll be able to explore what’s working somewhere else and consider if those same choices are a good fit for their school. 

Then there are research and policy questions: Are there innovative practices that show great promise? Are there schools that beat the odds with the students they have? How can we highlight and celebrate them? Are there schools that are underfunded compared to their peers? How can we use this data to ensure that they’re on a level playing field? For an education finance researcher, these are exciting times!

Learn more about school finance with our latest EdFacts flashcards >

Photos courtesy of University of Washington College of Education

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Al Lemke

At some point, we are going to have to provide more money to POOR DISTRICTS! Here in Arkansas, there is almost a 100% difference in funding per student between highest to lowest per student funding! As a teacher, why in heck would I go to a poorly financed district when I can go to another district, even if I have to move across-state? This inequality in funding perpetuates the disparity in education results. Really good teachers AND ADMINISTRATORS would be more inclined to go to these (now ill-financed) districts where they can make dramatic increases in performance! So! I think the efforts of The Walton Family Foundation, and all other education foundations would do well to implement policies to promote funding equality both directly and by using their leveraging capabilities to rectify these inequalities! These inequalities, in my opinion, constitute a CIVIL RIGHTS issue!