School Finance Expert Demonstrates Flaws in Ohio Senate’s Proposed School Funding Formula

Ohio Senate Finance Chair Matt Dolan penned a disingenuous column for the June 13 Plain Dealer to brag about the new school funding formula his Senate Finance Committee has substituted into the proposed state budget. Dolan is wrong when he claims that the Senate’s substitute for the House’s proposed Fair School Funding Plan would be “sustainable, stable and predictable” and when he claims that his plan “will alleviate the pressure on local school district budgets.”

Dolan has said that the legislature should be careful about initiating a plan whose phase-in might cost more over six years than the legislature can afford, but his argument lost any credibility last week when the Director of the Ohio Office of Budget and Management Kimberly Murnieks announced that “she expects the state to have a surplus of $1.7 billion by the end of the fiscal year on June 30, and a $1.6 billion surplus in June 2022.  That’s $3 billion more than the deficit the state had predicted.”

Dolan and the Senate Republican majority have also insisted on a 5% income tax cut that will lower taxes for the wealthy. Policy Matters Ohio’s Wendy Patton explains: “Nearly half of the tax reduction would go to those in the top 5%, who are paid more than $221,000 a year. The top 1% percent, who have income of at least $526,000, would average a cut of $1,712 and receive a quarter of the tax reductions. The tax reductions in the Senate bill come on top of huge tax cuts the richest Ohioans have received over the past 16 years. While lower-and middle-income Ohioans on average saw little change or paid more in state and local taxes, the top 1% received more than $40,000 a year in tax cuts.” It is troubling that Ohio’s state senators favor tax cuts for the wealthy when they could instead rectify decades of underfunding the state’s school funding formula.

The Senate’s plan adds some money right now for he state’s public schools over the upcoming biennium.  The House plan, by contrast, was designed over three years by a panel of experts to be sustainably updated  over time after an initial  six year phase-in to remedy what has been frozen state funding—at the FY 2019 level—for the entire FY2020-2021 biennium.

At the most basic level, the Senate plan would penalize public school districts. As the Ohio Coalition for Equity and Adequacy of School Funding’s Bill Phillis pointed out last week, “The Senate whacked about $30 million out of the House budget for the transportation subsidy and $90 million from school bus purchase.”  Rural school districts which must bus children long distances have no spending latitude within their transportation budgets, and Ohio mandates that public school districts pay transportation costs for busing students to private, religious, and charter schools, adding expensive distances to cover and complicating school bus routing.

The House Fair School Funding Plan accomplishes precisely what a state school funding formula is supposed to do. Here is how Bruce Baker, the Rutgers University school finance expert defines the function of a school funding formula: “School funding is largely in the hands of states (mandated by their constitutions), and the primary job of states’ finance systems should be to account for differences between their districts in the cost of providing that minimal level of educational quality, and then to distribute funds in a manner that compensates for the fact that some districts have less ability than others to pay these costs (e.g. via property taxes).  For instance, districts serving large proportions of high-needs students will tend to have higher costs; if those districts lack the local capacity to pay those costs, state revenue needs to fill the gaps.”

The school funding expert at the Ohio Education Policy Institute, Howard Fleeter has released a complicated analysis which examines the flaws in the Senate’s school funding proposal Matt Dolan brags about. While the Ohio House’s Fair School Funding Plan was developed over three years by legislators, educators and policy experts to cost out the services school districts are required to provide and to measure accurately each school district’s capacity to generate local funding, Fleeter explains that the Senate’s substitute proposal “is essentially a recalculation of the FY19 funding formula with a handful of changes.” But, Fleeter adds, there are serious problems in the way the recalculation was done: “Most of these issues are related to the Senate funding proposal not properly updating the data used to compute the FY22 and FY23 foundation formula funding amounts.”

For example, “The property valuation and income data that is used to compute the State Share Index (SSI) in the Senate’s FY22 and FY23 funding plan is the exact same as was used in the FY18/FY19 State Share Index… The data mentioned above presumably would have been updated by two years to compute the SSI in FY20 and FY21 had the funding formula not been frozen, and then updated by an additional two years for use in FY22 and FY 23.”  And to figure out per-pupil data, “The Senate’s enrollment figure used to calculate the SSI is still based on FY17 data.” And the Senate’s formula “uses FY18 teacher salary data to calculate the FY22 formula amount.”   For all these reasons, Fleeter explains, the per-pupil base cost amount in the Senate’s proposed formula “does not keep pace with inflation.”

The state school funding formula has lagged behind the real cost of public education for years now.  Fleeter explains: “FY 09 is the last year the base cost per pupil amount was based on a defensible adequacy methodology. Measuring inflation from July 2008 (the beginning of FY09) and now (April 2021) reveals a 21.4% inflation rate.  In contrast, $6,110 (the per-pupil amount produced by the proposed Senate plan)… shows an increase of only 6.6%. Thus, inflation since FY09 has been more than three times the rate of increase in the (school funding) foundation level proposed by the Senate. Looked at another way, if the $5,732 per pupil amount from FY09 were simply increased by inflation, it would have reached $6,959 as of April 2021, implying it would be nearly $7,000 per pupil by the time that FY 22 begins.” Fleeter believes that the Senate’s proposed substitute formula is inadequate to cover necessary costs school districts face today, while the House’s Fair School Funding Plan, when fully phased in will fund services at their real cost.

Fleeter adds that a serious mistake in the state’s current school funding formula—a technical problem in the way the State Share Index (SSI) is currently calculated—is replicated in the Senate’s new proposal. The problem has been corrected in the House’s proposed Fair School Funding Plan. The current SSI calculation mistakenly creates a local school district “wealth index which serves to intertwine Ohio’s 609 school districts with one another. This means that changes in property values (and income) in some districts will affect the amount of state aid received in other districts… Because the SSI property value index compares property values per pupil to the state average, districts with no agricultural property now appeared wealthier than before because their unchanged property values were now compared to a lower statewide average. This change then caused these districts to receive less state aid even though their circumstances did not change.”  Fleeter concludes: “Under the House funding plan, districts will see their state aid change from year to year based only upon how their property value and income have changed while changes in the circumstances of other districts will have no impact… As a final note, the House’s state/local share calculation is based upon the most currently available data, as is their Targeted Assistance calculation.”

Thankfully, both chambers of the legislature plan to eliminate the state’s punitive and disequalizing school district deduction method for funding vouchers and charter schools. But the Ohio Senate’s budget exacerbates several other problems for public schools across our state on top of the primary problem in its inadequate school funding formula. The Senate budget expands the size of taxpayer funded, private school vouchers from by from $4,650 to $5,500 for K-8 students and from $6,000 to $7,500 for high school students; adds a neo-voucher tuition tax credit program for families with income below $300 percent of the federal poverty line; and creates tax payer funded education savings accounts for home schooling.  All this is in addition to the Ohio Senate’s 5% cut in income taxes.

The Ohio Legislature’s budget conference committee should put the Ohio House’s Fair School Funding Plan back into the budget to repair longstanding problems in our state’s funding of public schools, forget about expanding vouchers, and leave out the tax cut. The Ohio Constitution does not envision education as part of a marketplace where individual parent consumers seek the perfect educational choice for each individual student.  Instead the state constitution defines public schools as an essential part of the social contract—the embodiment of our mutual responsibility to each other as fellow citizens and to Ohio’s children. Paying taxes for government services including public schools is a civic responsibility of individuals and businesses, with the greatest obligation assumed by those with the greatest financial means.

This blog has covered problems in this year’s Ohio Senate Budget proposal here, here and here.

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