Financial Inclusivity, School Administration

K-12 Families Left Behind As a Result of the Current School Finance Formula


by Pay Theory Team

 4 min read

 June 13, 2022

How the Current School Finance Formula is Leaving Families Behind

In a broad scope, the goal of the current school financing formula is to create equal opportunity for all students. The formula aims to account for different public school circumstances. A variety of factors influence the formula including:

  • Revenue Raising Ability
  • Taxable Property Values
  • Residential Area Income


Although these three goals are a great starting point, school finance falls short leaving some students significantly behind, despite the formula’s intentions. This comes down to both the setup and execution of the formula being put into practice. 


Breaking Down the Formula

So, what is the current school finance formula? School Finance 101 breaks down school finance into 3 stages. Those are goal setting, projections/modeling, and applying costs to the funding formula. The third stage of the funding formula can be laid out simply as distributing funding by attendance and geographic area cost.


Geographic Factors x Attendance = School Finances


But it’s much more complex when it comes to measuring the impact on students and their families.


Attendance and the Formula 

Public schools’ finances are usually funded on the basis of current student enrollment. But especially since COVID, some states have changed models to be based on student attendance. For example, one California school pays $41 per student that walks through the door. “When a student doesn’t show up at school – whether it’s because of illness or a suspension – neither does that $41.” Over time, a value of $41 can quickly add up for a school district. Just 10 students transferring throughout the year, would equate to a loss of about $75,000 for the district. That’s about as much as 2 educator salaries!


This is especially problematic for low-income districts that historically experience higher numbers of truancy and dropout rates. These rates include the children who need to stay home to watch other siblings or help family members receiving medical care. 


Districts in areas with higher poverty rates are the districts that need the extra support and learning resources the most. Thus, having a formula that grants funding based on student attendance is especially detrimental in these districts. 


Funding Distribution and Geographic Cost

To account for this, the school finance formula is set up on the “assumption that districts with weaker local revenue-raising capacity also tend to be higher in poverty concentration” (NEPC). 

This is calculated as the “Target Funding per Pupil = Foundation Level x Student Need Adjustments x Geographic Cost Adjustments”. 


So why doesn’t this formula account for lower-income areas like it’s intended to? 


State and local funding is being distributed by state and local revenues rather than the individual student need in the districts’ school finance model. Distribution by revenue doesn’t work because areas with lower property value are, correctly so, allotted more funding. However, this puts more taxes on the areas that actually have lower property values to generate taxes, making the formula work against itself. Alternatively, if it were based on gaps in student achievement, overall tax distribution would be more evenly distributed to districts – whether in wealthy or poor areas.


The Largest Secret Factor: Cash

Something majorly overlooked in the structure and impact of the school finance formula is how cash is a major factor for many families. Cash impacts student attendance rates, throwing off the formula’s balance. One-third of US families are under or unbanked, meaning they don’t have regular access to standard credit or banking. Bankless families struggle to find ways to pay for school expenses in districts that don’t accept cash as a form of payment. Without the ability to pay school bills, whether lunches or field trips, we’ve seen an increase in absence rates. 


Cash also impacts communities with lower property values and revenue-generating abilities. Since the number of underbanked families usually correlates to property value, their district is more often than not taxed higher. These higher tax rates are taking more of families' incomes that can only pay consistently in cash.


Although the formula is routinely improved, there is still room to become more inclusive. Luckily, there luckily are solutions to help students receive equal access to education.


Pay Theory: Paving the Way

Pay Theory is easily implemented for school finance administrators and easy to use for families. Pay Theory creates inclusive and embedded payments to battle the day-to-day problems created in a cashless society. The API and SDK compatible software allows online payment access to everyone, including the 30% of families identifying as unbanked or underbanked.


Sources Referenced

Washington Post | How some school funding formulas hurt learning and make schools more dangerous

School Finance 101 | When Evidence Based Isn’t: Informing State School Finance Formulas to Provide Equal Educational Opportunity for All

National Education Policy Center | Friday Finance 101: School Finance Formula & Money Matters Basics

American Progress | The Stealth Inequities of School Funding