Background & Analysis

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Education funding across school districts varies widely. Some school districts have very high per-pupil expenditures, while other districts in the same state may spend a significant amount less per student. There are a variety of ways of measuring school finance equity.

Conveniently the federal government has developed a standardized measure, called the "equity factor" that can be used to determine how evenly (or unevenly) funding is distributed across school districts in a state. The equity factor is defined in federal law under Title I Part A of the No Child Left Behind Act. In fiscal year 2012, $3.3 billion in Title I No Child Left Behind aid will be distributed in accordance with the federal government’s equity factor.

The School Finance Equity Factor

The federal government’s equity factor is a measure of how much per-pupil expenditures vary across districts within a given state. The U.S. Department of Education calculates the equity factor for each of the 50 states, DC, and Puerto Rico by comparing per-pupil expenditure for each school district with the average per-pupil expenditure for the state, weighted according to district population size and poverty level.

Specifically, the equity factor is calculated by using a "weighted coefficient of variation" in district per-pupil expenditures. The weighted coefficient of variation is essentially the average per-child deviation in education spending from the state mean – expressed in percentage terms. For example a state with an equity factor of 0.1 has an average variation in per pupil spending of 10 percent from the state mean per pupil spending. The lower the coefficient of variation is in a state, the more equitably education funding is distributed across districts.

The District of Columbia, Hawaii, and Puerto Rico have only one school district (and therefore no disparity in funding across districts) so they are assigned an equity factor of 0.0, indicating the maximum level of equity. In 2009, the five states with the most equitable funding across school districts within a state are: Hawaii (which only has one district), West Virginia, Washington, Florida, and Iowa. States with an equity factor of 0.2 and above are considered the least equitable. The five states with the least equitable funding across school districts in the state in 2009 were: Louisiana, Illinois, Virginia, Montana, and Massachusetts.

Certain safe-harbor standards exist for states with large numbers of federally-impacted students (as defined by the federal Impact Aid program). These states, Alaska, Kansas, and New Mexico, cannot be assigned an equity factor of above 0.1 regardless of their actual distribution of spending.

A detailed graph ranking each state based on the equity factor is available here.

An Example: Pennsylvania

Pennsylvania had an equity factor of 0.18 or 18 percent in 2009, meaning state per-pupil expenditures by school district vary, on average, by 18 percent from the state average. In contrast, Iowa had an equity factor of 0.08 or 8 percent. That means that district spending, on average, only varies by 8 percent in Iowa.

Multiplying Pennsylvania's equity factor of 0.18 by the average per-pupil expenditure in the state, which was $12,299, shows that the average Pennsylvania school district spends $2,214 above or below the mean state per pupil expenditure. For an average size district of 4,300 students, that is a difference of more than $9.5 million dollars from the state mean.

School Finance Equity Factor Background & History

The federal government uses the school finance equity factor to calculate a portion of the federal grants made to local school districts under Title I Part A of the No Child Left Behind Act. This subset of Title I grants are called Education Finance Incentive Grants ("EFIG").

Source: U.S. Department of Education

The EFIG formula is unique among the Title I distribution formulas in that it takes into account the distribution of expenditures across school districts and rewards states that more equitably distribute funding. Once money is allocated at the state level, the formula provides greater grant aid to high poverty school districts in less equitable states (i.e. "bad school finance states"). While school finance is largely left up to states and local school districts, the federal EFIG formula aims to encourage states to ensure equitable funding. The grants were first authorized as part of the Improving America’s Schools Act of 1994, but funding was not appropriated until the authorization was amended as part of the No Child Left Behind Act of 2001.

The EFIG formula provides funding to school districts based on four variables: (1) weighted low-income student population, (2) per-pupil expenditure, (3) effort, which measures the State’s effort in providing funding for education per pupil compared to it’s relative wealth as measured by the state’s per capita income and (4) equity, which measures the degree to which education expenditures vary among school districts within the state.

EFIG Funding = (# Poor Children ) * ( Per-Pupil Expenditure ) * (Effort) * [1.3 - Equity Factor]

As was stated before, the EFIG formula targets more grant aid to high poverty school districts in "bad school finance states." It does so by doubling the weighting of the variable in the formula for the number of poor children. As a result, the EFIG formula for distributing Title I No Child Left Behind aid is traditionally the most highly targeted of all federal education funding formulas nationally. Its leading Congressional proponents have been Senator Tom Harkin (D-IA) and Senator Orrin Hatch (R-UT).

Published Dec 13 2012 19:21