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Finance & Taxation        < Previous        Next >


School Finance Overview


Q. Since education is such a major factor in our country and our economy, the way that we pay for it is very important. What's the lay of the land in school finance?


Big numbers and big issues. And with the soon-to-retire Baby Boom, immense federal debt, declining rates of productivity growth, and a smaller savings-to-debt ratio in this country, the ever-increasing costs of K-12 education are likely to swirl around in a "perfect storm" one of these days.


The U.S. Department of Education predicts that the echo of the Baby Boom, combined with immigration's effect on enrollment, will cause a peak student population of 53.2 million by 2009-10 or so. At the same time, K-12 school spending has now reached a half a trillion dollars in the United States, with average spending per pupil, per year of $9,154. The spending figures have doubled in real dollars over the past 30 years, while enrollment has mostly stayed beneath the peak year, 1971, with 51.3 million students, according to the federal education statistics keepers.


Property taxes are thought to be the most stable source of school funding, although outcries over increases have caused politicians in many states to rely more and more on state sales and income taxes. In addition, tax policies have basically subsidized the growth of suburban school districts, which in turn has created declining enrollment and declining revenue sources in many urban school districts. For property tax equity, courts and legislatures have attempted to shift more of the load for the urban schools onto suburban and rural taxpayers, which has been controversial. And moving sources of funding away from the local officials and into the hands of state officials shifts the power of the purse from local school boards and administrators, to statewide education bureaucrats that local parents and taxpayers don't have any way to influence the way they can local school boards, and to state senators who represent their parts of the state, and not necessarily those of other school districts.


What has held back a tidal wave of opposition to increased school spending is the simple fact that, so far, real estate valuations have kept ahead of the increases in school taxes. So the increases don't "hurt" individual voters and taxpayers as much as they would without the future realization of profit. Homes that are taxed more are also worth even more, so it will all work out all right in the end. But of course, if the bubble bursts, as it is in many places in this country, that will change rapidly. And there's always the ethical problem of taxing older people out of their homes if their everyday incomes can't keep up with the taxes.


Some of the biggest issues in ed finance:


Changes in funding systems. Because of court rulings, state laws, tax policies, voter-approved initiatives, and governmental regulations, the ways that we pay for our schools is changing fast. Relatively new and often controversial sources of funds, such as lottery or casino revenues, are in the mix, as are ways to get around voter-imposed spending lids, such as "interlocal agreements" between school districts that can obtain tax funding without being subject to the spending lids.


Funding sources. The trend is less and less local funding of schools, and more and more statewide funding. This is controversial, since the further away from the point of spending that you put the decision-making power and accountability tools, the less cost-effective the programming is likely to be. Hawaii's schools draw no local funding sources at all, but in states such as Nevada, well over 50% of the school budget still comes from local tax revenues. Ratios of federal spending on schools are higher where there are high populations of students living in poverty, including Native Americans, whose schools are mostly federally funded. With less local funding has come more and more state and federal control and the hated "unfunded mandates" in the form of new regulations, paperwork and imposed procedures.


Unfunded mandates. Even though the federal government makes up around 10% or less of most school systems' budgets, it still requires an array of policies, procedures and paperwork to comply with such laws as No Child Left Behind. The additional expenses of that are almost countless, from additional levels of assessment, to immense amounts of student record-keeping and the computerization required for that. To turn back federal funding in order to get out from under what many educators believe to be ineffective and counter-productive regulations is always an option, but then districts would have to do without about 10% of their revenues.


School spending characteristics. Costs in many industries don't go up nearly as fast as costs in education. Education happens to center on cost items that are going up faster than the Consumer Price Index and are more difficult to control or plan for. Examples: salaries, health insurance, retirement costs, fuel costs, transportation costs, and construction.


Student characteristics. Minnesota usually ranks high on standardized test scores, probably reflecting that state's high level of educational attainment among parents, who set high levels of expectations for their children. Similarly, Massachusetts students do well as a group, probably reflecting the spike in the average created by the children whose parents attended the top-level universities in that state or work in the high-tech industries there. But mostly rural Utah finds students generally rank very high on test scores even though that state spends near the bottom per-pupil, probably reflecting the high importance that families in that state place on education. States like Arizona, with high dropout rates, have relatively more poverty, Native American students, or non-English speaking students, all of which are known to be factors creating more dropouts than in the general student population.


Staffing. According to the National Center for Education Statistics, U.S. Department of Education, there is one staff member for every eight students in U.S. public schools. So the idea of one teacher going it alone in a classroom of 30 students is just not reality.


Special education. You can't just look at the overall enrollment figures. You have to consider the additional expense of educating a certain percentage of those students who have extra learning needs, along with the various funding mechanisms that may be enticing school districts to label children as having disabilities in order to get more money from federal sources. The variance appears to be greater than what statistics can usually explain: according to the 2005 State Fact Finder of Congressional Quarterly, for example, 20.7% of the children in their public schools were labeled as having disabilities, while California reported half that rate, 10.7%.


Poverty. While it is true that poor people have higher incomes and a better standard of living than a generation ago, the breakdown of the family and the array of social problems that it causes have indeed created more challenges in schools with relatively high percentages of low-income students. While low-cost solutions for underachieving academics and substandard student behavior are readily available - chiefly school choice and "direct instruction" that is more systematic as an instructional philosophy than what most suburban classrooms use - it is ironic that educators themselves oppose these innovations, causing school costs to explode for extra services for disadvantaged children and youth.


Immigration is also a factor. For example, from 1979 and 2004, the number of school-aged children in the United States who come from homes in which English is not the primary spoken language has increased from 3.8 million to 9.9 million, according to the Center for Education Statistics, U.S. Department of Labor. That's from 9% to 19% of the student body. Addressing their language-based student needs certainly costs money, as does addressing income-based learning needs and also the high cost of remedial reading and learning-disability infrastructure.


With all of these issues, finance and taxation can seem difficult to comprehend and try to improve. But that's happening, too:


         Merit pay for teachers and "battle pay" for those who accept challenges with the "hard-to-teach" student populations


         Tying additional state resources to demonstrated improvements in various facets of student development


         Giving school boards more leverage and more freedom in contracting


         Outsourcing more non-educational goods and services in school


         Privatizing wherever it's possible to get better service at less cost


         Exploring some of the exciting, more cost-effective models of delivering education, such as the hybrids between public, private and online schools.


Any way you slice it, the domain of the dollar remains a fast-changing and interesting facet in education.



Homework: Get data about education from the U.S. Bureau of the Census:


or the National Center for Education Statistics, U.S. Department of Education:


and for good graphs on the national picture, see:



By Susan Darst Williams Finance & Taxation 01 2008


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