RSFN Special Series
Financing Rural Schools: Characteristics of Strong Rural School Finance Systems

Last Updated: February 24, 2011

This article appeared in the February 2011 Rural Policy Matters.

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In this series, Rural School Funding News is reviewing general principles of school finance and sharing information about school funding systems that support rural schools and their unique characteristics and needs. While there are no easy answers to questions about how to fund schools, especially in this economic climate, we hope that these articles will provide you promising practices, ideas for advocacy, and guidelines that are easily transferable in your analysis and work on your own school finance systems.

If you are new to the series, you can review a brief introduction to the subject and discussion of Characteristic 1: A Strong Foundation Formula, here; Characteristic 2: Effective Use of the Judicial System, here; Characteristic 3: Fair Accounting for Cost of Living and Geographic Differences, here; Characteristic 4: Recognition of the Benefits of Small Schools, here; Characteristic 5: A Balance of Revenue Sources for Schools, here; Characteristic 6: Efficiency in the State Revenue System, here; and Characteristic 7: Equity and Adequacy, here.

Characteristic Eight: An Accurate Match of Resources to Needs

An important characteristic of a strong funding system is its sensitivity to the needs of special populations of students. As discussed in the last installment of this series, it is not enough for a funding system to provide the same amount of funding for all students; those with special needs should receive additional educational programs and financial support. Many states group types of student need or specific student characteristics into categories. Additional funding targeted to students with those characteristics is usually referred to as categorical aid.

Some of the most common categorical funding streams are for students needing special education services, students living in poverty, and students learning English for the first time (English Language Learners/ELLs). Some states also provide categorical aid to students based on other characteristics, for example, students enrolled in high school or in vocational programs. In some states, small and/or rural schools receive additional state aid through categorical funding.

Not all states provide categorical aid. But those that do typically use one of three methods for distributing the additional funding.

The first and most common method is per pupil weighting. This method involves counting the number of students in each district who are eligible for each of the state’s “categories,” and then providing some additional percentage of the state’s per-pupil funding amount. For example, if a state provided “weighted” funding for high school students of 1.25, it would provide an additional 25% in per pupil funding for students enrolled in high school. The categories and the amounts vary among states, but some examples might be a 1.20 weight for each ELL student, a 1.25 weight for each student living in poverty, and a weight of 1.05 for students living in sparsely populated areas.

In the second method states address categorical needs by allocating an additional percentage of school funding (or school spending) based on the percentage of students in each category. In some states, districts are grouped according to a variety of demographic and local wealth factors, and funding is allocated based on the district’s group.

In some states additional funding for meeting student need is made through separate grants to districts.

Regardless of the method, these additional amounts of funding for special circumstances are not always a result of careful consideration and research on what is needed. Often they are an arbitrary figure that is derived from political circumstances or a continuation of what has been done in the past.

For example, many states use a categorical weight of 20 – 25% for students in poverty. Socioeconomic factors are the strongest predictors of educational performance and need, so a categorical weight is appropriate. Unfortunately, the significance of poverty factors is not fully recognized in most state aid formulas: a wealth of research has concluded that the actual amount needed to educate a student living is poverty is about twice the amount needed for a student who is not confronted with the educational challenges presented by poverty, so a 25% weight, while helpful, is too meager to be truly effective.

In some cases, categorical funding can be even more problematic for low-wealth districts. This is especially true when schools are mandated to provide a program or service, but categorical aid falls far too short of what is required to actually provide the service. The categorical aid suggests that the district has the resources it needs when it reality the district simply cannot pay for the mandated programs.

Analyzing Your State’s Formula

There are several steps involved in analyzing whether categorical aids in your state are helping students who have unique educational needs. First, determine if and how your state addresses the needs of students in special learning circumstances. Then, consider the size of the categorical multiplier — that is, the additional funding. Does it represent a realistic estimate of the added cost of educating a student in that category? How were those costs determined? Is there legislative history describing how the figures were chosen, or are there studies demonstrating how much funding is needed? Don’t be surprised if this documentation is missing.

In addition to state categorical funding, there may be other dollars available to help students in need. Rural school advocates should be aware of those funding mechanisms as well.

For example, the federal Individuals with Disabilities Education Act (IDEA) provides additional funding for students receiving special education services, and the federal Title I program provides funding for very poor students. But neither of these programs fully cover the additional costs of educating students who qualify. Further, under the formulas used to distribute Title I funding, smaller high-poverty districts generally receive less funding per eligible student than larger districts, including larger districts with lower poverty levels. (See the Formula Fairness Campaign for more details on Title I funding.)

Foundation formulas (see Characteristic #1 in this series) in states are meant to enable districts to meet a minimum amount of funding (determined by the state) for education, regardless of local wealth. Foundation formulas, however, rarely account for poverty at the district level. Generally, they use some mechanism to give greater support to districts where property values are lower than to districts where property wealth is higher. This helps make up to some extent for lower revenues for schools in property-poor districts.

But measuring community wealth primarily by property wealth is not the most reliable way to measure student needs. In some districts, property wealth is relatively high, but student income level and/or parent educational attainment level is relatively low.

It is generally accepted that the combination of general state funding, state categorical funding — especially for poverty, and federal Title I funding fail to provide enough money to overcome the educational challenges faced by students living in poverty.

A strong state funding formula that provides schools the resources to serve all students must include funding for students living in poverty, learning English, living in remote rural areas, and those facing other challenges. If you would like more information or assistance, contact the Rural Trust.

Read more from the February 2011 Rural Policy Matters.