Two Different Funding Approaches to Education Reform

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Welcome back to Route Fifty’s Public Finance Update! I’m Liz Farmer and this week, I’m looking at education funding proposals on two ends of the ideological spectrum.

In both cases, supporters of the two funding approaches say the proposals are about empowerment and increasing access to resources. But the way in which they do so highlights the longstanding divide between those who support school choice and those who believe such programs siphon money away from public schools.

For those in the school choice camp, the issue has gained more salience in 2023. Arkansas, Florida, Iowa and Utah have either expanded or created education savings account (ESA) programs this year. School choice programs were initially targeted only to in-need kids. But the current proposals cover all students, although Arkansas’ program works up to it—first serving at-risk families, and then all families in three years.

The way an ESA works is that it deposits  the state’s regular per-pupil funding or a portion thereof into individual accounts for kids who are home-schooled or otherwise receiving a private education. Parents can then withdraw the state funds to pay for things like school tuition, online learning, tutoring programs or other approved educational expenses. Since 2021, nine states have either established ESAs or expanded their existing programs. The difference between an ESA program and a school voucher program is that taxpayer funds go directly to the private school under a traditional voucher program.

Meanwhile, California is doubling down on its unique public school funding formula that directs more money to struggling schools. Gov. Gavin Newsom’s proposed “equity multiplier” is an attempt to get more money to underperforming Black students.

Marguerite Roza, director of Georgetown University’s Edunomics Lab, has been watching both proposals and said that they reflect “the two different theories of what's wrong with public schools.” One view holds that the school system itself is the problem to be fixed while the other says that more money is the answer.

Where Should Education Funding Be Increased?

An estimated 49 million students attend public schools while just under 700,000 are enrolled in private schools through a school choice program. School vouchers make up the majority of those programs, but thanks to the rapid expansion of ESAs, the number of students using the savings accounts has more than doubled to a total of 65,000 students. Consequently, state spending for private schooling has more than doubled too.

Arizona is one example where this is the case. Before it made its ESA program universal last year, there were nearly 11,000 kids using the savings accounts and the state was spending about $70 million, according to research by the think tank FutureEd. Now, the number of kids using the state-funded accounts has nearly tripled, and it appears that the vast majority of these new enrollees are students whose parents were already paying for private school. Arizona may end up spending as much as $100 million in additional revenue to support students who were attending private school regardless of state funding, according to FutureEd.

Opponents of the expansion to universal access say examples such as Arizona’s make ESAs nothing more than a “taxpayer funded coupon for the wealthy” and squeeze the state’s resources for public education funding.

But proponents argue that ESAs are about giving parents more control over their child’s schooling. “This is not an attack on public education. ESAs are simply acknowledging that there are 30-to-40% of families that would prefer a different environment,” Andrew Handel, director of education and workforce development at the conservative American Legislative Exchange Council, said recently on KWTO radio in Springfield, Missouri. “ ”We shouldn’t be locking them into that public school because they can’t afford a nearby private school.”

In California, the discussion is taking a different tack. Students of color have chronically underperformed in the state and the pandemic made it worse.. Last year, two-thirds of California students did not meet state math standards—but for Black students, 84% fell short.

To address these disparities, California has worked to ensure that school districts that serve high-need students get more funding. The state’s local control funding formula, enacted in 2013, is designed to shift more money to school districts that serve low-income children, English learners, and homeless and foster youth. 

Newsom’s proposed equity multiplier would add $300 million to the pot for school districts with schools serving high concentrations of poverty. The concept has support but many people say Newsom’s approach won’t help many Black students or reduce the achievement gap. According to an analysis conducted by EdSource, the governor’s proposal would benefit only 6% of Black students statewide who would be receiving an estimated $18 million. Those who want the state to better serve Black students say the funding formula should be based on student performance.

“We’re calling for the governor to think about this another way,” Natalie Wheatfall-Lum, a policy director at Education Trust-West, told Route Fifty. She added research has found that the Black student achievement gap persists even when controlling for socioeconomic status. “We think it’s a clear indication that this is not just about income—it’s about supporting students based on their racial background and history of institutionalized racism in the California public school system.”

Backlash from the Pandemic

Both tactics are an indirect response to the pandemic. Remote schooling exacerbated existing inequalities as shown in California and many parents became frustrated with school closures. Conservative households balked at subjects they saw being taught, like LGBTQ and Black history.

“Covid is what lit a fire under this,” said Handel. “Parents saw a glimpse of what’s being taught to their kids and support skyrocketed.”

Roza of the Edunomics Lab doubts either approach will meaningfully affect student performance because there’s more to improving outcomes than increasing funding.

That said, she worries that schools aren’t paying enough attention to the overall budget management challenges that will arise once the federal Elementary and Secondary School Emergency Relief Fund expires this September.

“That’s really going to challenge districts because that will happen right as state revenues are expected to tighten,” Roza said. “In some ways, these proposals are a really big distraction from the more urgent funding issue that's about to come.”