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NCSL Briefs Congress on State Education Finance

By Austin Reid  |  November 4, 2022

K-12 and higher education enjoy unprecedented public investment—and face unprecedented challenges.

NCSL recently briefed Congress and a national audience on the latest data on state education budgets and efforts to improve school finance systems, as well as challenges with the education fiscal provisions in the American Rescue Plan, known as ARPA.

NCSL was joined by Utah Senate Majority Whip Ann Millner (R); Washington Rep. Sharon Tomiko Santos (D), who serves as co-chair of the NCSL Standing Committee on Education; and Marcus Benjamin, senior adviser for the Ohio Senate Majority Caucus.

"What we all want to see is increased learning outcomes for our students." —Utah Senate Majority Whip Ann Millner

States make significant investments in education each year: Spending on K-12 and higher education makes up nearly half of the typical state’s annual budget. When the pandemic hit, many feared that the economic fallout would lead to drastic reductions in state revenues, and by extension, education spending. However, thanks to strong tax revenues driven in part by federal stimulus measures, education budgets generally look quite healthy as the nation recovers from COVID-19.

According to the National Association of State Budget Officers’ most recent Fiscal Survey of States, 41 states increased K-12 spending in fiscal year 2022 for a $29.5 billion increase in general fund appropriations. Additionally, 37 states increased spending on higher education by a total $8 billion over fiscal 2021. According to NCSL’s tracking of proposed fiscal 2023 budgets, at least 39 states have proposed K-12 spending increases, and at least 30 states have proposed higher education spending increases. This robust spending, along with the nearly $280 billion in support to education through federal stimulus measures, means that K-12 and higher education are receiving more public investment than ever.

“What we all want to see is increased learning outcomes for our students,” Millner said. This needs to be about helping every child succeed and being able to make the investment to do so. Utah passed legislation that will increase education funding on an inflation factor, as well as a growth factor. This year, we saw a 9% increase in public education funding.”

In Washington state, “there has never been a more intentional focus on what equity in education means,” Santos said. “Our goals for education funding must be equity-focused, student-centered and success-oriented. This is a pretty dramatic transformation from how we have always done education.”

Challenging Federal Provisions

Despite strong state education budgets, many states expect to experience issues with the federal “maintenance of effort,” or MOE provision, included for Elementary and Secondary Education Emergency Relief—ESSER—funding passed through ARPA. Unlike past MOE provisions, which required states to maintain the same aggregate levels of spending, the ARPA ESSER provision requires states to spend the same share of their total budget on K-12 and higher education separately as they had in the three fiscal years prior to the pandemic.

The impact of the provision is that, while they have increased spending on education, many states may not be spending the same share on education due to the need to bolster other areas of their budgets. If so, states will need to seek waivers from the U.S. Department of Education to avoid consequences, such as losing ESSER funding.

NCSL is advocating on behalf of states for flexibility from the MOE provisions and believes the provisions should only require states to maintain aggregate spending or serve as a guide for cuts. According to a NASBO survey of state budget directors conducted in February, 24 of the 44 states and territories that responded expressed concern about meeting the latest MOE provision, while eight were still unsure. State waiver requests can be found here.

Many states are also making efforts to improve how they distribute K-12 funding through their education finance systems. During the briefing, NCSL provided an overview of the state role in education finance and the principles of a sound state education finance system.

In Ohio, a bipartisan group of legislative leaders worked with school districts for over three years to determine the cost of providing education to students, Senate advisor Benjamin said, taking into account costs for economically disadvantaged students, English learners, the gifted and those needing special education. After another two years of negotiations, Ohio passed a funding model in 2021 that strikes a balance between state and local education funding such that “when the districts have less ability to raise funds from property and income valuation, the state can make them whole,” Benjamin said.

Millner said Utah continues to tweak its system. “We have a weighted per-pupil unit approach to funding, but we are trying to feather in a student-need component to get additional dollars,” she said. “We know having studied other states, when you make that investment, you can increase outcomes for all students.”

State education finance systems typically operate independently of federal policy. However, ARPA also includes a first-of-its-kind “maintenance of equity” provision for fiscal years 2022 and 2023 that addresses how states distribute education funding to local school districts. NCSL is monitoring the implementation of this new provision to ensure states follow their statutorily defined school funding formulas.

Austin Reid is the senior legislative director in NCSL’s State-Federal Relations Program.

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