School Funding Practices Keep Dollars in Districts for “Phantom Students”
Protection clauses and hold-harmless provisions discourage districts from adapting to make the best use of funds when enrollments decline
CAMBRIDGE, MA—Members of the general public might conclude that declining student enrollment results in lower school budgets. In many cases they would be wrong, report Marguerite Roza and Jon Fullerton in a new analysis of widespread school funding practices that disconnect revenues from school enrollments. “Funding Phantom Students: State policies insulate districts from making tough decisions” will appear in the Summer issue of Education Next and is now available online at www.educationnext.org.
The authors examine four common practices that allow public funds to flow to schools for students who have left the district. These include: “protection” clauses against declining enrollment; hold-harmless provisions for districts competing with charter schools; subsidies to small districts; and minimum categorical allocations. “In each case,” the authors write, “affected districts receive funds in excess of what they would receive if only the students on their rolls were funded.” Among examples of such practices are:
• California funds districts on the basis of average daily attendance (ADA) but uses the previous year’s ADA as the basis for funding. According to the Public Policy Institute of California, the total cost of this protection in 2005-06 was $402 million, or enough “phantom students” to comprise the state’s third-largest district.
• Massachusetts regularly inserts a “hold harmless” provision into the budget that does not allow state aid to operating districts to go down, regardless of enrollment changes. The state also provides partial tuition reimbursement to districts that lose students to charter schools for six years, essentially providing districts with 225% of a year’s tuition for each full-time equivalent student lost.
• Connecticut districts receive revenues based on the enrollments of students living in their region, regardless of whether students attend a district’s schools or switch to charters or technical schools. Double funding students cost the state $186 million in 2008.
Policies intended to protect districts from the effects of shifting enrollments “weaken the incentives that should drive change and adaptation as enrollments fluctuate,” observe Roza and Fullerton. School district administrators tend to focus on high “fixed costs” involved in running schools and they refer to personnel salary and benefits as their largest fixed cost. “Few in other industries consider personnel costs fixed,” observe the authors, and in fact, “administrations could shrink, pay raises could slow, and schools could be closed if enrollment declines.”
Roza and Fullerton outline several policy options that states could take to encourage greater efficiency in the use of public dollars. These include:
• Fund schools on the basis of a specified dollar amount for each student so that its allocation automatically rises and falls with enrollment.
• Limit districts’ practice of making long-term commitments that they may not be able to fulfill by, for example, encouraging them to shift to defined-contribution pension programs and modifying tenure systems to allow for staffing adaptations.
• Limit state restrictions on use of funds requiring a certain number of students to be in class with a certain number of teachers. Encourage development of online learning capacity and rethink service delivery to maximize student learning and minimize cost.
Adopting more nimble expenditure structures, write Roza and Fullerton, will increase district leaders’ ability “to seek out and adopt promising solutions to their cost challenges as scale changes.”
About the Authors
Marguerite Roza is director of the Fiscal Analytics Unit at Georgetown University and senior research affiliate at the Center on Reinventing Public Education at the University of Washington. Jon Fullerton is executive director of the Center for Education Policy Research at Harvard University. The authors are available for interviews.
About Education Next
Education Next is a scholarly journal published by the Hoover Institution that is committed to careful examination of evidence relating to school reform. Other collaborating institutions are the Program on Education Policy and Governance at Harvard University, part of the Taubman Center for State and Local Government at the Harvard Kennedy School, and the Thomas B. Fordham Institute. For more information about Education Next, please visit: www.educationnext.org.