Missouri’s public education funding formula is due for a tune up

Each year, the Missouri General Assembly appropriates billions of dollars in public school funding using a formula built in 2005. Given the age of the current funding formula and the level of investment made by the state, are we ready to trade it in for a newer model or is it just time for a tune-up?

Lawmakers built the formula on a rationale for determining funding based on the spending levels of high-performing school districts. While this underlying rationale is sound, is there rattling under the hood of the formula that suggests we may not be allocating resources in a way that serves students best?

Because of the strong relationship between poverty and lower academic outcomes, the formula includes a weight that sends additional funds to districts with higher concentrations of poverty. However, districts only receive additional funding if their poverty thresholds exceed an average determined by high-performing districts. Missouri needs a better way to measure poverty, one that’s accurate, comprehensive, and allocates resources with greater precision.

Free and reduced-price lunch (FRL) eligibility has historically been the proxy used to measure low income for funding and accountability purposes. FRL was arguably never a good way to capture long-term, deep poverty as a risk factor for student outcomes.

But, a change to the National School Lunch Program worsened the problem by allowing districts or individual schools to claim 100 percent of their students as qualified for free lunch if their FRL percent is greater than 40%. This obscures the actual percentage of students in poverty forcing Missouri to use FRL percent from the year prior to implementing the 100% provision when calculating poverty to determine funding for those districts.

U.S. Census poverty estimates are a stable, more accurate a measure of poverty than FRL. Census data are available at the school district level through the Small Area Income and Poverty Estimates (SAIPE) program. A few states have taken identification of low income a step further by creating an index variable from several risk indicators such as foster care, homelessness, and average educational attainment of parents.

The formula needs a better metric to reflect the depth of poverty in a district. Whether it’s an index variable or the Census poverty estimate alone, this improved metric should include multiple tiers for weighting to accurately account for the district’s poverty level.

Another formula variable that lawmakers could improve is the additional weighted funding for students who have special needs and are served under an individualized education plan (IEP). Like the weighting for students with low income, the IEP weight is currently only added for the number of students with an IEP that exceeds the threshold established by high-performing districts, rather than for all students served by IEPs.

Further, the range of need for students with an IEP varies greatly and with that so do the costs to serve these students. Under Missouri’s funding formula, the IEP weighting is the same regardless of the costs associated with serving students. Many other states that add weighting for students with special needs incorporate two to five different tiers of support based on costs.

In theory, the current formula is responsive to disparities created by a funding system reliant on local property wealth. The formula determines state aid relative to the local tax revenue collected by a district.

However, that “local effort” calculation is based on 2004 assessed valuation and is not updated to reflect changes in assessed valuation in over nearly two decades. The assessed valuation total for the state has increased nearly 61 percent from 2004 to 2021 indicating that a change in this variable could cause significant shifts in funding. While 17-year-old property values may appear to be an obvious place to consider improvements to the current funding formula, the potential for dramatic changes in a district’s funding suggests that caution is warranted.

As Missouri moves forward, the state could evaluate other formula variables.

For example, some districts were “held harmless” when the current formula was enacted, meaning that they receive state funding according to what they received prior to 2006 because their share under the new formula would have been less. Missouri’s hold harmless provision does not phase out over time.

Like the frozen assessed valuation, the hold harmless provision will continue in perpetuity. Currently more than 180 districts are held harmless. For some districts, adjustments to formula variables could push their formula calculation higher than their previous hold harmless funding level, in which case, they would see a benefit.

Other districts received substantially more funding under the previous formula and without major changes to the funding formula will remain hold harmless indefinitely. In addition, supplemental funding for small schools based on sparsity rather than enrollment, weight for gifted student needs, and use of enrollment rather than attendance for the student count are all ideas worthy of discussion.

The funding formula may be aging, but a tune-up in the right places could help Missouri get a few more miles out of it. For the near term, changes to low income and special needs weights are formula improvements at the intersection of principle and practicality that the Missouri General Assembly can and should address immediately.