Study Shows that Funding Increases for Disadvantaged Schools Boosts Results

A path-breaking study published by the US National Bureau of Economic Research shows conclusively that school finance reforms over the last 25 years succeeded in lifting the results of disadvantaged students. It concludes that “money can and does matter in education” [p. 35].

The study shows the reforms led to larger increases in funding for low income school districts than for high income districts and that this increased the absolute and relative achievement of students in low income districts. It adds to the weight of evidence supporting the full implementation of the Gonski school funding plan.

Court decisions in the last 25 years have required many US states to increase funding in low income school districts to ensure an adequate level of educational quality. Nearly 30 such school finance reform cases have been decided since 1990. The new study is the first to use nationally representative data to examine the impact of the reforms on student achievement.

The study shows that the finance reforms lead to immediate and sustained increases in state funding for schools in low-income districts that were larger than in high-income school districts. However, the impact on the total revenue per student in the low income districts compared to high income districts was less because school districts in the US are largely financed by local property taxes which delivers higher revenue to schools in high income districts. Nevertheless, overall funding for low income school districts increased relative to that of high income school districts as a result of the increases in state government aid to schools.

The overall increases were relatively small. The average increase in total revenue per student in the lowest income school districts was about 10% and the relative increase compared to higher income districts was about half as large.

The funding increases generated gradual increases in test scores in low-income districts over ten years following the reforms. Scores in low-income districts increased relative to high-income, indicating that the extra school resources received by the former districts were used productively. The study found that the average effect of an extra $1,000 in per-pupil annual spending raised student test scores ten years later by 0.18 standard deviations, which is a significant improvement.

The results complement those of an earlier NBER study that examined the long-run impacts of earlier school finance reforms and found substantial positive impacts on a variety of long-run outcomes. It found that a 10% increase in per-student spending each year for all 12 years of public school extends the schooling of low income students by nearly half a year. It increases their adult earnings by nearly 10% and family income by 16%. The annual incidence of adult poverty is also reduced by 7%. These benefits, it said, “are large enough to justify the increased spending under most reasonable benefit-cost calculations” [p.40].

One qualification to the new study is that it found little impact of the school finance reforms on reducing the achievement gap between high and low income students or between white and minority students in a state. It said that the reason for this result is that low income and minority students are not very highly concentrated in school districts with low average incomes and changes in the distribution of resources across districts are not well enough targeted to meaningfully close these gaps. The reforms analysed by the study were not directed at changing the allocation of resources within school districts.

Thus, while our analysis suggests that finance reforms can be quite effective at reducing between-district inequities, other policy tools aimed at within-district resource and achievement gaps will be needed to address the overall gap. [pp. 32-33]

This is precisely what Gonski is designed to do – it focuses on need in individual schools rather than regions or school districts. Thus, it can be expected that the Gonski funding increases would have an even larger impact on student achievement that the US school district based finance reforms.

Trevor Cobbold

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