Increased School Funding Increases Post-Secondary Attainment

A new academic study has found that increased expenditure on primary schools has positive long-term effects on educational attainment. The study, published in the November issue of the journal Applied Economics, found that a 10% increase in spending for grades 4-7 in Michigan resulted in a 7% increase in college enrolment and an 11% increase in college completion. It also found that the additional expenditure led to an increase of 3–5 percentage points in high school graduation rates.

The study analysed the long-term effects of a change in school funding requirements in Michigan in 1995 under which state revenue replaced local property taxes as the source of school revenue. Prior to 1995, schools were funded by local property taxes and education funding across the state was highly unequal.

Under the new arrangements, each district was assigned a per student spending amount known as a foundation allowance. Districts were not allowed to spend less than the allowance on per student expenditures and, with few exceptions, were not allowed to raise funds locally to spend more. The allowance was designed to equalize school funding through the early 2000s by boosting funding in initially low-spending districts without reducing the funding of initially high-spending districts. It substantially increased school spending among previously low-spending districts.

The study found that how school districts allocated expenditure increases affected the distribution of benefits. It found that school districts allocated the increases mainly to schools serving wealthier families within the district. For example, the funding increase for schools with higher-income families was four times that for schools serving low-income families.

As a result, the increase in college entry and completion was concentrated among urban and suburban districts, low poverty districts, and higher achieving districts. It appears that decisions by local school districts subverted the original intention of the school finance reforms. As the study noted, this demonstrates that local government responses to state or federal education policies can result in benefits accruing to students who may not have been the intended beneficiaries of the policy.

The study replicated earlier studies of the effect of increased spending on student achievement in grade 4 and later grades. It found that a 10% increase in expenditure increased the proportion of students passing the 4th grade test increased by 2 percentage points, which was about half the effect found in the earlier studies. It found no effect of the 4th grade increase in expenditure on student achievement in grades 7 and 11.

The study also examined how the increase in school expenditure was used. The spending increases led to smaller class sizes and increased expenditure on administration, but little to no change in teacher salaries. The increase in funding led to a decrease of 1.8 in the student-teacher ratio for grades 4-7, which represented an 8.4% decrease in class size relative to the mean student-teacher ratio of 21.7. However, school districts spent a large share of the increase in funding on administration, which accounted for about 50% of the increase.

The new study is one of many in recent years demonstrating positive effects on student attainment and achievement of increases in school expenditure. It differs from other US studies which have found larger effects for students in low-income school districts. However, as the study shows, school districts in Michigan appear to have directed the funding increases to schools serving wealthier families, in contradiction of the original intention of the school finance reform. Districts also spent a large part of the funding increase on school and district administrators. Better targeting the funding increases to schools serving low income families may well have resulted in larger increases in student attainment and achievement.

Trevor Cobbold

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