Public School Funding in Indiana: Are We Spending Enough?

February 12, 2007

Indiana Writers Group column for release Feb. 14 and thereafter
618 words

Editors: This article assesses the current funding system for Indiana’s public schools. It may be used independently or with the introduction by Dr. Sam Staley. These are the first in a group of articles on education reform to be released this legislative session. Other topics include: all-day kindergarten; alternative funding systems; collective bargaining; charter schools; and local application of the No Child Left Behind law. Digital mug shots are available on request.

By Matthew Carr

Like many other states across the country, Indiana has for over a decade now been working toward creating a more equitable and adequate school funding system.

At the heart of the state’s school finance reform is an effort to overcome the inherent inequity that is created by a reliance on local property taxes. School districts with greater property wealth are able to raise more revenues than those districts with a smaller or more limited property tax base.

Compounding this inequity is the fact that property wealth is closely related to the socioeconomic status of the student body that is served, and the socioeconomic status of the student body is linked to a level of need for resources to provide a quality education. This creates an inverse relationship where less-wealthy districts, those with a smaller base for raising school revenues, also tend to have more students who require greater resources.

The current funding system uses a foundation program to determine the total amount of revenue each school system receives, and combines both state and local resources. This funding system takes a bottom-up approach, which first takes into account the ability of a local school system to generate revenues. Conceptually, this part of the formula represents the state’s estimate of the local school districts’ “ability to pay” on their own. The state then provides as much funding as is necessary to reach a minimum floor of per-pupil revenue — the “foundation” amount. In 2006, this per-pupil revenue floor was set at $4,517 in Indiana. For 2007 it will increase to $4,563.

Such “foundation” funding is intended to do two things: Ensure that each district has a minimum amount of revenue per student regardless of local ability to raise funds, and to compensate for the inequality among local districts in their ability to pay from their local property tax base. State funds are used to create a more equitable distribution of education dollars.

In 1993, the Legislature enacted major reforms to the foundation program. The law equalized property tax rates between school districts with similar expenditure levels, placed a maximum limit on local property-tax rates and provided for additional funding for schools serving disadvantaged student populations. These changes furthered the goal of creating greater equity in the school funding system by directing more state funds to those school districts with lower levels of property wealth and greater numbers of disadvantaged students.

According to the Indiana Department of Education, the state spent an average of $6,160 per student for general operating expenses in the 2004-2005 school year. Including capital expenditures, and using a smoothed average from 2002-2004 to account for year-to-year changes, this figure rose to $9,115 per pupil per year.

This is a significant increase, over 40 percent, from the roughly $6,318 spent per pupil in 1994 for all expenditures and about 25 percent faster than the inflation rate during the same period.

Examining the available data from the Indiana Department of Education for fiscal year 2005, however, a wide variation continues to exist in per-pupil spending across school districts. At the lowest end, some districts spent roughly $4,500 per pupil while at the highest end some districts spent upwards of $10,000 per pupil (excluding capital funding).

These data provide support for a 2005 report from the Center for Evaluation and Education Policy at Indiana University that the goal of equalizing school spending across the state still has not been achieved despite the equalization in property tax rates.

In conclusion, Indiana policy-makers have dramatically increased funding for public schools. In fact, spending has increased faster than the inflation rate, and property tax inequities are no longer a significant factor in local school funding

Matthew Carr, an adjunct scholar of the Indiana Policy Review Foundation, is a former staff researcher on education policy issues for the Manhattan Institute in New York City and recently completed his Masters in Public Administration at Kent State University. Currently, he is working on a Ph.D. at the University of Arkansas as a Distinguished Doctoral Fellow. He wrote this for the Indiana Policy Review.



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