Indiana Legislature Starves Small Districts; Feeds Voucher Program

Last Updated: June 25, 2011

This article appeared in the June 2011 Rural Policy Matters.

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Small and rural school districts in the Hoosier state will have to overcome major financial shortfalls now that the Indiana Legislature has implemented a new school funding formula that reduces state funding for smaller districts and eliminates grant programs for districts with fewer than 600 students and for districts with declining enrollments.

Three suburban districts with rapidly increasing enrollment have withdrawn a school funding lawsuit that they had filed against the state after reviewing the new budget.

The new formula also incentivizes consolidation by providing an additional $150 per student to districts with 500 or more students. "I hope it will force the discussion," said Senate Appropriations Chairman Luke Kenley, R-Noblesville. Of the ten districts with enrollments under this limit, two have already consolidated and the superintendent of a third district has resigned in order to save the district his salary. Funding for the high-performing New Harmony district, Indiana’s smallest, will be cut by a third in the coming school year. (For more background on consolidation, including research results on Indiana elementary schools, see RPM’s February edition at

Meanwhile, a new Indiana school voucher law will begin a three-year phase-in, eventually making vouchers available to an unlimited number of students. In the coming school year, 7,500 voucher slots will be available. The voucher program will transfer a portion of the state’s education funding to parents who enroll their child in private or parochial school. The law requires that eligible students be enrolled in Indiana schools for at least one year. It also provides a tax deduction of $1,000 for parents who home school their children or enroll them in private school. The non-partisan Legislative Services Agency estimates the tax deduction will reduce revenues to the state by $3 million. The legislation is being called the most expansive voucher program in the country.

Democratic legislators left this year’s session in an effort to prevent a quorum and returned only after winning concessions on school funding and the voucher program.

Read more:

Coverage of school funding formula changes:

Coverage of suburban districts’ lawsuit:

Coverage of voucher legislation:

Read more from the June 2011 Rural Policy Matters.