APS Treasurer and CFO Weighs in on New Formula

The Cost of Education in Ohio
Posted on 09/27/2021
Image of Students With Masks(from CrainsCleveland.com)

As Ohio's K-12 schools start a new academic year, Crain's wanted to take a look at some of the legislative changes coming from the state. The 2022-23 state budget in particular held a host of changes for Ohio's schools, most notably in how they're funded.

Read on for a look at the state's new K-12 funding formula, the changes lawmakers made to school choice programs and how state report cards will be changing.

School funding
Changes to the state's funding formula have been a long time coming.

The state's school funding system, which has heavily relied on local property taxes, was found unconstitutional in 1997 under the DeRolph v. the State of Ohio case. There have been many attempts to create a more equitable funding system over the years. But Wendy Patton, senior project director at Policy Matters Ohio, thinks they resulted in a series of "Band-Aids and patches."

"What we found was that the old formula failed nearly all school districts but in different ways," Patton said.

Ryan Pendleton, chief financial officer for the Akron Public Schools, noted that, prior to the last two years when the funding formula was frozen, more than 80% of the state's school districts were not on the formula. Their funding was either capped or guaranteed by the state.

The new plan puts a cost on what it takes to educate a student today in Ohio, said Pendleton, who was part of the group of superintendents and treasurers who helped build the school funding model.

The model first defines a base cost for every student, accounting for costs like co-curricular activities and utilities, Pendleton said. Then it builds on that cost based on additional need in areas like special education, technology or transportation.

The plan also redefines the state and local share of education, relying less on property and putting more emphasis on a community's "ability to participate" by looking at factors like median income and tax returns, Pendleton said. The old formula would have assumed a district like Akron or Cleveland with a lot of property should take on a larger share of the education funding, without accounting for the high level of poverty in the cities.

The Ohio Legislative Service Commission's budget analysis notes that the formula actually calculates a unique base cost and a unique "per-pupil local capacity amount" for school districts. The funding is guaranteed, though not fully funded, for fiscal years 2022 and 2023.

Rather than being created as its own law, the formula is part of the budget. It's not yet fully funded, and changes could be debated in future budget cycles.

"It's easy to devise a school funding system," said Chad Aldis, vice president for Ohio policy at the Thomas B. Fordham Institute. "It's very hard to actually allocate the resources to fund it."

The old per-pupil system was based less on need and more on "what the state had to give," said Tom Sutton, director of the Community Research Institute at Baldwin Wallace University. Sutton has been following school funding for decades, having written his dissertation on DeRolph 20 years ago.

Districts with high levels of poverty among their students, whether they're in urban or rural areas, are going to have higher costs, Sutton said. There's no set solution for how to address those needs yet, and it's not something that can be solved in a short amount of time. It requires investment.

"The parallel is dealing with health conditions," he said. "It costs more to manage a chronic health condition that nobody's figured out how to fix."

Sutton thinks that, if this plan persists and is funded, it will address the inequities of a reliance on local taxes raised in the DeRolph case.

School choice
Ohio already is known as a strong school choice state, Aldis said, but he thought this budget represented the "single biggest year" of changes to school choice.

For example, funding increased for the state's voucher program, and the cap on the number of students who could participate in the EdChoice scholarship program was lifted. Additionally, the budget removed the restriction that charter schools could only open in "academically challenged" areas, he said.

And changes to how scholarship programs and charter schools are funded will actually benefit the Cleveland Metropolitan School District's bottom line, said the district's chief financial officer, Derek Richey.

The funds for students in those programs used to pass through the district but will now go straight from the Department of Education to the charters or other entities themselves. While the district won't have that funding on the books anymore, it used to pay out more than it brought in, Richey said. For example, districts received their funding per pupil and paid that amount to the charters. But the amount districts actually received was based on the state share index, which was less than 100%. So revenue will be down, but so will expenses.

Not everyone is pleased with the changes. Patton thinks the expanded funding and eligibility for school choice is a "danger" to the public school system in the state, creating two systems of schools and drawing resources away from the publics.

"We feel like Ohio is on the brink of great progress or great danger," Patton said.

Report cards
Starting this school year, the state's report cards for school districts and public schools won't feature a letter grade, but instead a star performance rating. And it changes some of the components used to create that rating.

By March 31, 2022, the State Board of Education must adopt rules on the new criteria, according to the Ohio Legislative Service Commission's analysis of the report card bill. And, by Dec. 31, 2024, the department is expected to issue a report on the effectiveness of the state report card.

The shift away from letter grades will probably get "all the headlines," Aldis said, but he doesn't think it's the most important change in the new law. The new approach to report cards will ultimately be fairer to schools that serve large numbers of students from low-income backgrounds, he said, as it will put more weight on the progress schools and districts make in helping students improve.

Additionally, by the 2022-23 school year, the report cards will feature what the legislative analysis called a "student opportunity profile," which will include data like student-teacher ratios, the ratio of take-home technology devices to students, and the percentages of students enrolled in courses like performing arts or world languages.
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