Money Matters When It Comes to Education

Last Updated: January 27, 2012

This article appeared in the January 2012 Rural Policy Matters.

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Arguments that money doesn't make a difference in education and that across-the-board budget cuts won’t hurt student outcomes are completely unfounded, according to a report issued earlier this month by the Shanker Institute. The report, “Does Money Matter in Education?” authored by Bruce Baker, presents analyses of research on key investments and their impact on student learning outcomes.

Baker is a noted school finance expert, professor, and author who has testified in school finance cases and consulted with state legislators on designing state funding policies and reforms.

"Does Money Matter?" poses three basic questions in its review of several decades of studies on the effects of school funding. 

  • Are differences in school funding associated with differences in short- and long-term student outcomes?
  • Are differences in access to specific programs or resources - specifically smaller classes, higher teacher salaries, and instructional materials - associated with differences in student outcomes?
  • Do substantive and sustained reforms to state finance systems - those that increase funding and distribute it more equitably - lead to improvements in student outcomes?

Baker finds that all three types of funding improve student outcomes.

The report specifically refutes a 1986 paper by Erik Hanushek in which Hanushek asserted there was no "strong or systematic relationship between school expenditures and student performance." Baker demonstrates how that paper relied on older studies that used methodologies no longer considered high quality. A number of states have used Hanushek's arguments when defending school finance lawsuits, and political leaders often reference these assertions as justification for cutting education budgets.

Baker also exposes flaws in the arguments of critics who claim test scores indicate that educational outcomes are not improving in the U.S. Specifically, Baker explains differences in data scores across time, problems in comparing scores among states, the impact of changing student populations, and test score averages that mask significant improvements by groups of students.

The report documents that several important components of school funding that make a difference do cost money. It acknowledges that more information is needed to fully understand the impact of different types of investments and that money “must be spent wisely to yield benefits.” And it makes a compelling argument that "there is scarce evidence that there are more cost-effective alternatives."

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Read more from the January 2012 Rural Policy Matters.