The New School Finance

Abstract

School finance analysts need to identify the cost of education programs that work and the costs and structures of teacher salary systems that can find and keep high-quality teachers. Next, says Mr. Odden, they must incorporate these cost findings into school finance structures that provide each district and school with an adequate level of fiscal resources. Schools then need to use the resources for those effective programs. SCHOOL FINANCE is changing fundamentally. Long focused on fiscal equity, school finance is shifting toward fiscal adequacy in the context of standards-based education reform. The new school finance encompasses not only inputs but also educational processes and results, including teacher compensation. For the past five years, a large portion of the finance-related research of the Consortium for Policy Research in Education (CPRE) has been organized around the new school finance issues involved in this shift. The first section of this article describes the two primary factors that require a rethinking of school finance. The second section summarizes five sets of research findings related to these new directions in school finance. Two Major Factors The shift in school finance from equity to adequacy is caused by many factors, but two dominate: the goals and demands of standards-based education reform and the focus of current school finance litigation. Standards-based education reform seeks to educate students to high performance standards. The benchmark of the new school finance is whether it provides adequate per-pupil revenues for districts and schools to employ educational strategies that are successful in educating students to those standards. Determining adequate revenue levels entails first identifying the costs of effective programs and strategies and then translating those costs into appropriate school finance structures. Implementing this approach should also produce gains in fiscal equity because in most states it requires a leveling up of low-spending districts. This new focus for school finance was recommended by the recent report of the National Research Council's Committee on Education Finance Equity, Adequacy, and Productivity.1 These shifts in school finance have already changed the core of school finance litigation from equity to adequacy.2 The legal test for adequacy is whether a state's school finance system provides sufficient revenues for the average school to teach the average student to state- determined performance standards and whether sufficient additional revenues are provided to help special-needs students also achieve at those performance levels. The legal problem is not really whether district A has less than district B but whether both districts - indeed all districts in the state - have revenues that are adequate to pay for the programs and strategies they need in order to educate students to high achievement levels. CPRE Finance Research Findings For the past several years, the CPRE agenda for research on education finance has addressed many of the issues raised by standards-based education reform and the legal shift to adequacy. This next section describes key aspects of the new school finance, and the five sections that follow discuss research findings on those aspects: determining the adequate spending level, formula funding of schools, resource reallocation, teacher compensation, and how to tie new approaches to teacher compensation into the funding structure. Shape of the New School Finance Drawing both from the definition of adequacy in school finance litigation3 and from the implications for finance of standards-based education,4 CPRE has been working to identify the shape of the new school finance. Allowing districts to select their own spending levels is no longer sufficient, because all districts and schools must spend at least at an adequate level to meet the new performance standards. …