Reforming School Funding

What is the best way to divide a pie equitably? It’s simple enough when there are only two people involved–one slices, the other chooses. But this is child’s play compared to the division of the $3.2 billion school funding pie in the legislative playground of Massachusetts. We have 328 local and regional school districts operating, each with its own grievances over perceived historical inequities, spread over 351 towns and cities of varying wealth and demographics, represented by 160 representatives and 40 senators, courted by an array of organized interest groups, in an intensely political state. These are not the conditions for a smooth road to reform. This year the Swift administration led the journey to reform, but unfortunately–to stretch the metaphor–the Legislature not only took a wrong turn, but went off the road entirely. As a result, the Commonwealth missed the opportunity to recraft school funding for greater fairness and equity. However, it’s not too late for next year–and the future–if we draw the proper lessons from this year’s experience.

The political consensus for redistribution fell apart in 2000.

In 1993, the Education Reform Act established for the first time a “foundation budget” for the cost of providing an adequate education. Sixty-five percent of the Commonwealth’s students were in districts that fell below that standard, some substantially so, as in cities such as Holyoke, which fell short by $2,400 per pupil. The Education Reform Act committed the Commonwealth and its localities to bring all districts up to foundation spending by fiscal year 2000. To the amazement of many, this goal was accomplished, thanks to a firm bipartisan commitment and the then-booming Massachusetts economy.

A massive increase in state aid raised Massachusetts’s per-pupil spending to one of the highest in the nation; this allowed the state to improve its teacher-student ratio to one of the best in the nation. More importantly, the funding formula gradually broke the perennial–and constitutionally indefensible–association between spending and wealth. By fiscal year 2000, average per pupil spending in the poorer districts–especially the urban ones–actually exceeded that in the middle-income districts, and dramatically closed in on that of the higher-income districts. In one example of this turnaround, school spending in Holyoke was brought up to $1,100 per pupil above the statewide average, exceeding towns such as Belmont, Marblehead, and Milton. This was the result of a highly progressive formula–embraced by the legislative and executive branches alike–that distributed about half the increase in school aid each year to districts in the lowest quartile of income.

The extraordinary political consensus around this redistribution of educational resources fell apart in 2000, when all districts reached foundation-budget levels and the formula effectively expired. With the grossest disparities alleviated, complaints arose from various quarters about how state education aid was being distributed. The suburbs and the Cape, which typically received the smallest shares of state aid due to their high property values, argued for a higher minimum aid level. In addition, some districts that received less aid than others of apparently comparable means argued that inequities in place as of 1993 had been baked into the formula. The town of Stoneham, for example, argued that this resulted in their continuing disadvantage relative to neighboring Melrose and Reading. Finally, rapidly growing towns argued that their aid had not kept pace with enrollment.

With no political consensus on how additional education-reform funds should be distributed, the annual increase in education funding was doled out on an increasingly ad hoc basis. In the last two fiscal years, most new aid was distributed through a vehicle called “minimum aid.” This guaranteed each community an additional $175 per pupil in 2001, independent of growth or economic means. As a result, only 30 percent of new aid went to the lowest-income quartile last year, well below the share of previous years. A number of districts in high-income suburbs and on the Cape received aid increases in excess of 20 percent, including some districts that were losing students. In contrast, rapidly growing districts of more modest means did not see their aid keep pace, and districts with idiosyncratic inequities that persisted from 1993 saw no redress of their grievances.

Concocting a new recipe

This haphazard funding system no doubt quieted some politically squeaky wheels, but did nothing to settle the question of how school funds should be distributed in the future. A variety of proposals emerged addressing various pieces of the puzzle, but in the Administration’s view no single plan achieved the goals of fairness, simplicity, and constitutional compliance. Among the more useful offerings:

  • Jeff Wulfson, of the state Department of Education, wrote an influential memo stressing the need to make funding sensitive to growth and decline so that money would be more closely tied to the child than to the district.

  • The Massachusetts Association of School Superintendents drew attention to the underfunding of special education–a longstanding complaint of districts that felt the state washes its hands of a costly mandate it imposes on local government–in the foundation budget.

  • The Massachusetts Taxpayers Foundation and the League of Women Voters focused on the need to correct historic inequities among otherwise similar districts.

  • The Massachusetts Municipal Association drafted a plan that greatly simplified the calculation of the local contribution, the most complicated part of the formula.

The Massachusetts Teachers Association took a very different tack to justify its proposal for tripling the growth in state aid. MTA events featured the claim of some advocates from the McDuffy school finance case, which first challenged state school funding, that each and every district in the state was still underfunded by “50 percent to 100 percent” compared to what was “required” to provide an adequate education. Given the already massive increase in aid since 1993, this claim led House Speaker Thomas Finneran to comment that “someone has taken leave of his senses.” (In this case, the administration privately agreed with the Speaker’s characteristically blunt, albeit impolitic, observation.)

To arbitrate among these competing claims and proposals, then-Gov. Cellucci and Lt. Gov. Swift reactivated the Foundation Budget Review Commission in the summer of 2000 in hopes of developing a new, rational, and fair distribution plan for the coming year and thereafter. This body was created by the 1993 education reform law but had fallen into inactivity. The Legislature, however, immediately reconfigured the commission as an unwieldy set of 20 members, mostly lawmakers and members of various other groups. Though the group had a deadline of September 30, 2000 for its recommendations, as fall began it was not even scheduled to meet. So the governor and lieutenant governor directed the Executive Office of Administration and Finance to undertake its own review of education funding, with an eye toward developing a new formula that would restore progressivity to school-reform funding and assure that cities received a fair share of aid.

Minimum aid seemed fair but halted progress toward equity.

A&F’s research and development unit produced an in-depth policy report (Fairness in School Funding: Reformulating Local Aid for Phase Two of Education Reform, available at http://www.state.ma.us/eoaf) that demonstrated the flaws in distributing aid increases on a per pupil basis–the so-called “minimum aid” mechanism. Easily understood, this method seemed fair on the surface, since it treated all districts the same. However, since districts are not alike, this system halted progress toward equity between rich and poor districts, and created new inequities between growing and shrinking districts. Still, many legislators, especially those from slow-growing suburban districts, had become quite wedded to minimum aid increases.

In January 2001, as part of the fiscal 2002 budget proposal, Gov. Cellucci and Lt. Gov. Swift proposed a new formula that limited minimum aid increases to $50 per pupil and redirected additional funds toward growing communities. Under this proposal, the state would provide a share of each district’s growth in foundation budget costs, which are driven primarily by enrollment and inflation, with the specific share depending on the town’s wealth and income. As before, no community would be allowed to fall below foundation for want of state aid. The proposal included a number of other technical improvements and simplifications, as well as better coverage of special-education costs. Legislation filed at the same time mapped out a multi-year schedule for further increasing the state’s share of special-education costs, and for coverage of new technology.

The overall result was a shift of new aid away from slow-growing suburbs toward rapidly growing towns, often of more modest means. As by-now-Gov. Swift put it in her April testimony, “The schools that need the money most will get the most money”–a very real change from a system that allocated almost every district an identical increase per pupil.

The House has it both ways

Reaction to the administration’s proposal was mixed, but surprisingly muted, given the scope of the proposed changes. Groups such as MTF praised elements of the proposal, even though most continued to advocate for their own packages. Representatives of rapidly expanding school districts across the state supported the formula’s accommodations for growth. Framingham’s then-Rep. John Stefanini said, “That is like hitting the lottery for MetroWest communities.” Springfield received the state’s largest increase in aid–$13.5 million–and was by all accounts euphoric. (Boston was notably silent on the administration’s formula, even though it turned out to be the best one for Boston, as the budget season played out.)

Objections to the governor’s approach came from slow-growing or shrinking districts, especially suburbs that hoped for a repeat of the previous year’s irrational but politically appealing across-the-board increases. For example, Newton representatives Peter Koutoujian, Kay Khan, and Ruth Balser complained that their city was being “penalized” for declining enrollment because their district would get less than $175 more per student. For effect, Senate President Thomas Birmingham produced a list of 41 districts that would get no increase in aid, for which a Boston Globe editorial then expressed sympathy, even though most of these districts had declining enrollments; several, such as Rutland and Sandisfield, no longer had any students at all. Still, a few sizeable districts, such as Somerville, would have received no increase in aid, though none had their aid reduced. Ed Moscovitch, one of the architects of the 1993 formula, wrote that “the governor deserves credit” for level-funding districts that had previously received large chunks of aid that, as he pointed out, had “no statutory basis.”

The administration’s proposal did have one significant weakness: It did not directly address differences in aid that had emerged in the past among districts of similar wealth. Figure 1 plots each locality’s aid (as a share of foundation budget) against its relative wealth (income-adjusted property values per student). For example, this diagram clearly suggests an inequity between Amherst and East Longmeadow, towns of similar wealth but very different amounts of state education aid. Similarly, Holyoke receives quite a bit more aid than Worcester, which is of comparable property wealth per pupil, while Brockton’s aid lies in between.

Under the administration’s proposal filed in January, similar districts would be treated equally for any increase in aid. This would erode inequities over time, as long as districts continued to grow. However, it was impossible to quickly eliminate inequities inherited from the past among similar districts (and passed on through inequitable base levels of aid) without reducing or nearly level-funding aid for many more districts than were already level-funded under our formula.

This was precisely the problem faced by the House, when the Ways and Means Committee, led by its new chairman, Rep. John Rogers (D-Norwood), courageously presented the members with a formula that did try to rectify historic inequities. House Ways and Means crafted a formula based on a model developed by the Massachusetts Taxpayers Foundation. The problem–of which MTF was acutely aware–is that it is very expensive to bring more than a few low-aid districts up to par with their municipal peers without cutting aid to others that had been receiving relatively high amounts of aid. To keep the overall cost down, the committee proposed that most districts receive nearly level-funding in state aid. Even so, the committee’s plan cost $35 million more than the governor’s. Moreover, because of the formula used, the gains were highly concentrated. Two-thirds of the extra money went to just three cities–Springfield (which was slated to get $4.7 million on top of the governor’s $13.5 million increase), Brockton, and Lowell.

It was not at all evident that these dramatic increases truly represented correction of historic inequities. As Figure 1 shows, Brockton received 80 percent of its foundation budget in state aid in fiscal year 2001, which was not particularly low compared to towns of similar wealth. The House Ways and Means formula immediately raised Brockton’s aid level to 89 percent of foundation, resulting in a funding hike of 15 percent, or $14.7 million, even though its enrollment declined.

Predictably, Chairman Rogers and the House leadership faced an uproar from the ranks, since the vast majority of districts fared better under the governor’s formula. Rep. David Linsky (D-Natick) said the House Ways and Means proposal “takes what was a flawed system and makes it more flawed. This is something I just can’t live with.” Legislators from suburbs like Newton, who had just weeks earlier decried the governor¹s formula, now found themselves demanding its restoration. The Massachusetts Municipal Association was only too glad to exploit the difference between the formulas, passing out spreadsheets that showed which one was best for each legislator’s hometown. In the run-up to the House budget debate in May, the tenor quickly shifted from food fight to feeding frenzy.

In an attempt to bail out Chairman Rogers on his maiden budget, the House leadership rallied behind a Linsky-MMA proposal to give each town the higher number of the two formulas. The cost was an additional $18 million over the House Ways and Means budget, or $54 million more than the governor’s plan, passed in an amendment on the final day of the House budget debate.

Senate plays Three-Card Monte

The House did not cover itself in glory by its education-funding maneuvers. Editorials criticized the House for neither producing an acceptable formula nor standing by the formula it did produce. By choosing to buy its way out of a short-term political problem, the House abandoned the effort to rationalize school aid for this year. The Newton Tab, for instance, criticized the House for failing to make the system “any more fair or any more simple.” The Herald called on the Senate to do better than “playing multiple choice with two school aid formulas.”

Unfortunately, when the Senate’s turn came in June, that chamber outdid the House by playing multiple choice with four school aid formulas. The result was a set of minor adjustments to the House numbers, reflecting what the Globe called a “hodgepodge of funding formulas” that “leave the aid system even more difficult to comprehend than when the year began.” Worse yet, the Senate leaders did not even write their formulas into the budget or any other legislation. No ordinary citizen would have any way of even trying to figure out where the numbers came from. In addition to violating every precept of government transparency, this action also raised the question of whether the lack of explanation would jeopardize the state’s legal position, should it be called upon to defend its funding system in court.

The conference committee was thus confronted with two sets of numbers that were not terribly far apart, but were accompanied by very different specifications about how to hand out school funds in the future. Though the House budget provided funds that at least matched the governor’s recommendation for every district in 2002, it proposed writing into law the House Ways and Means funding formula for 2003 and thereafter. This simply sets up the same dynamic to repeat itself next year, since most districts would be no happier with the Ways and Means formula then than they were this year. Moreover, it would lock into the base the extraordinary aid hikes for a few cities such as Brockton, Lowell, and Springfield, which would make it all the more difficult to distribute funds more rationally. By contrast, the Senate remained completely and apparently deliberately silent on future funding, not only regarding new aid, but also on what constitutes base aid for 2003.

Michael Widmer, president of Massachusetts Taxpayers Foundation, surveyed the damage. Speaking to the Globe, he said, “It’s a classic political problem in which every city and town wants to do just as well as last year, and wants to do just as well as the highest number among the three branches. In that hugely complicated stew, politics always wins over reason. This year’s process illustrates that.”

Of course, it was precisely for that reason that the Education Reform Act established the Foundation Budget Review Commission. Indeed, legislators tried to explain their abandonment of formula-based reform in the 2002 budget by saying they awaited the commission’s report to inform the debate for this fall.

However, it was well known on Beacon Hill that the unwieldy commission was unlikely to provide firm guidance. When finally released in June, its report ended up reacting to the budget process, rather than leading it. In general terms, the report praised the approaches of both the governor and House Ways and Means, and endorsed a number of specific technical elements of the administration’s proposal. It boldly stated that state aid should follow the child, for both increases and decreases in enrollment. It also provided a thoughtful and valuable analysis of the thorny problem of allocating municipal contributions among members of a regional school district. But in the end only 13 of its 20 members voted to support the report, with six abstaining and an MTA representative voting against it. Perhaps the most notable vote was that of Senate President Birmingham. After leading the move to replace the governor’s appointees and presiding in the spring over the first Senate budget to produce no spending formula at all, Birmingham ended up abstaining from the report that was supposed to provide a blueprint for the future.

Proposing a new synthesis

That is largely where the complex, maddening, but vital debate over school funding reform stands today. But the Swift administration believes that, with a little leadership, it is still possible to move forward instead of backward. As the House debacle was unfolding in early May, we devised a method to combine the best features of the two formulas, instead of simply taking the highest number. In a rather simple synthesis, annual aid increases could be calibrated to both reflect growth (as in the governor’s formula) and close some fraction of the gaps deriving from historic inequities (instead of trying to close them all at once, as in the House Ways and Means formula). In addition, a feature adapted from the League of Women Voters plan could be used to reduce the formula’s sensitivity to small variations in wealth among poor towns, which led the House Ways and Means formula to produce such wild swings in aid for Brockton and Lowell.

Figure 2 depicts the aid curve in the governor’s proposed synthesis and that suggested by House Ways and Means. The governor’s curve is an extension of the one proposed in the budget last January, which applied only to growth. Under the synthesis, the aid targets still apply to growth but also correct past distortions. It is an approach that rectifies far more historic inequities than the House Ways and Means formula, but at a more measured pace. When calculated for the same level of overall spending as that passed by the Senate this year, even including the Senate’s one-time $75 per pupil guaranteed aid hike, we can still close one third of the equity gap in one year. Communities like Worcester and East Longmeadow, which lie below their target shares (72 percent and 40 percent, respectively), would receive growth aid equal to those shares times their growth in foundation budget, plus minimum aid, plus one third of the amount needed to close any remaining gap between their aid share and their target aid share (subject to an annual growth cap). Communities such as Holyoke and Amherst that lie above the governor’s target aid shares (76 percent and 42 percent, respectively), would receive no equity adjustment, but would get growth aid and minimum aid, just like every other town.

During the Senate budget debate, senators Bruce Tarr (R-Gloucester) and Richard Tisei (R-Wakefield) introduced a version of the governor’s synthesis as a floor amendment. This formula would have, for the same money, increased funding for more Senate districts than not and allocated it in a more rational manner. The Herald also editorialized in favor of the Tarr-Tisei proposal. Nonetheless, it was voted down without a roll call.

Still, the ideas in the governor’s proposed synthesis have now circulated and garnered interest in the policy community. In a letter to local officials in August, Gov. Swift offered her proposal as a compromise should that help to break the deadlock of the conference committee over the fiscal 2002 budget. As of this writing, the Legislature has still not sent the governor a budget, but even if her offer is rejected for 2002, it is not hard to imagine agreement on using the administration’s synthesis formula as a basis for the distribution of school aid funds for fiscal 2003 and beyond. The administration and the House are already not far apart in approach, but the Senate’s stance is unknown. Sen. Birmingham was a key player in the last round of education reform, in 1993. And yet, alone among the three branches, the Senate made no constructive contribution to funding reform in this year’s budget process.

Meet the Author
A fair and predictable plan for funding reform is now available for examination, discussion, and refinement. The question is whether the political will is there as well.

Stephen P. Crosby is secretary of administration and finance for the Commonwealth.