Safeguarding the right to a sound basic education in times of fiscal constraint.

• Author: Rebell, Michael A.
• Position: V. A Framework for Constitutional Compliance D. Create Fair Funding Formulas that Reflect the Actual Costs of Providing Educational Services in a Cost Effective Manner through VI. Conclusion, with footnotes, p. 1964-1976 - Chief Judge Lawrence H. Cooke Sixth Annual State Constitutional Commentary Symposium: The State of State Courts

4. Create Fair Funding Formulas that Reflect the Actual Costs of Providing Educational Services in a Cost Effective Manner

   Once the state has promulgated requirements regarding the essential components of a sound basic education, cost-effective methods for providing them have been identified and a cost study has determined the actual funding level that is needed to meet these requirements, then the state must devise a fair funding formula that can "ensur[e], as a part of that process, that every school ... [will] have the resources necessary for providing [an] opportunity for a sound basic education." (470) Ensuring adequate funding requires the state to (1) establish a true foundation funding system; and (2) fully fund the foundation formula on a continuing, stable basis.

   1. A True Foundation Funding System

      Ever since states began to appropriate money to local communities to assist with the cost of education more than a century ago, state education finance systems have purported to provide sufficient funding for a basic education. (471) In its first incarnation, such state funding took the form of a fiat state grant for each school child, theoretically in an amount that would provide a minimum education. (472) During the 1920s, insufficiencies in state funds and the inequity of providing the same amount of funding for students in both poor and wealthy districts led many states to adopt "foundation" programs. (473) These required local school districts to levy taxes at a rate that was aimed at generating enough revenue to fund a minimum education, with the state supplementing the amount actually raised by poor districts when the required rate did not yield the minimum "foundation level." (474)

      From the beginning, however, good intentions to support a meaningful foundation level were never realized. No clear methodology was established for determining basic student educational needs and for calculating the cost of providing necessary resources. In practice, the foundation amount would be set by the legislature largely on the basis of the amount of money it had arbitrarily determined was available to fund education in any particular year. Budget pressures would often reduce amounts originally set as the foundation, without any explanation or justification for the reductions.

      Over the years, many states have grafted onto the base foundation amount a motley collection of additional formulas, grants in aid, and other special categorical funding streams. In California, for example, over one-third of the state's K-12 education budget is distributed through forty-six categorical programs, ranging from class size reduction to high school counseling and professional development for math and reading. (475) New York, at the time of the CFE trial, had in place over fifty separate formulas and funding categories. After reviewing this evidence, the trial court held:

      The evidence demonstrates that the State aid distribution system is unnecessarily complex and opaque. It is purportedly based on an array of often conflicting formulas and grant categories that are understood by only a handful of people in State government. Even the State Commissioner of Education testified that he does not understand fully how the formulas interact. However, more important than the formulas' and grants" needless complexity is their malleability in practice. The evidence at trial demonstrated that the formulas do not operate neutrally to allocate school funds .... Rather the formulas are manipulated to conform to budget agreements reached by the Governor, the Speaker of the State Assembly, and the State Senate Majority Leader. (476) This situation has not been unique to California and New York. Although currently forty-one states utilize some version of foundation funding as part of their education finance system, (477) virtually all of them substantially compromise the foundation concept by creating a limited foundation category that does not cover all basic adequacy needs, adding to the formula a confusing array of categorical funding streams and additional formula programs, and then failing to fund the formula at an adequate level. (478)

      Development of requirements for implementing the essential elements of a sound basic education, and formulation of cost methodologies based on the actual cost of efficiently providing the essentials, provide strong mechanisms for overcoming past deficiencies and implementing a credible foundation approach. Because these procedures can identify "the actual cost" of providing students a sound basic education, the funding amount that emerges from such deliberations should become the foundation amount for the state's education finance formula. Additional categorical funding should be available only for supplemental or enrichment activities that go beyond that base constitutionally-mandated figure.

      Once fair and adequate foundation amounts are established, the state has a constitutional responsibility to ensure that funding is actually provided to all students at this level. (479) Most state foundation systems call for a combination of state and local funding to meet the designated foundation amounts. Through guaranteed tax base and other mechanisms, states can identify a fair figure that local school districts can contribute, based on their relative property wealth; the state would then assume the obligation to make up the balance of funding needed to meet the foundation requirement. This type of system can work well if (1) localities are required to actually expend the amounts identified in the guaranteed tax base formula; and (2) the state fully funds its share, including the full amount of subsidies required for low wealth districts.

      New York State made important progress toward the creation of a true foundation system when it combined thirty previous funding streams into its revised foundation category in the 2007 reforms. (480) Now, in order to achieve constitutional compliance, the state must expand the foundation to include any and all additional funding streams and categorical grant programs that relate to these elements of the operational definition of sound basic education. Additionally, since the expanded foundation amount will include all justifiable cost savings, all of the caps, gap elimination adjustments, growth ceiling indices, and any other devices in the current funding system that reduce the funding amounts actually made available to the schools below the foundation level would be unconstitutional and unacceptable. Local districts must be required to contribute their designated foundation contribution amounts, and if the state imposes a property tax cap that prevents a district from doing so, it must raise the state's foundation share for that district to compensate for the lower local contribution. When a constitutionally acceptable full foundation funding system is first implemented, it may make sense for a reasonably short phase-in period to be allowed, but the length of the phase-in should relate to the time the system needs to adjust efficiently to the major changes, and the phase-in should not be manipulated to prolong the date by which the state meets its constitutional obligations.

   2. Funding Stability

      A true foundation funding system would ensure the maintenance of constitutionally required levels of service during times of fiscal constraint. Once the core funding amount required to provide the basic constitutional level of services becomes synonymous with the foundation funding level, governors and legislatures would know that in times of budget constraints they must look to the enrichment activities beyond these levels for possible savings. The public and the courts would also be on notice that any attempt to reduce the foundation funding level would constitute a clear constitutional violation. If sufficient savings cannot be generated in other areas of the education budget, then the state's policymakers would have to either pursue additional cost-effective ways to provide requisite services at a lower cost, find savings in areas of the state budget other than education, or find other revenue sources.

      Knowing that they will be held constitutionally accountable for maintaining foundation funding levels in good times and bad will induce state officials to make greater efforts to stabilize the revenues available to meet educational needs. (481) The basic mechanism needed to accomplish this end is quite simple. States need to follow the biblical example of Joseph in Egypt and store surplus during the good years so that resources will be available to maintain stable services in the bad years that will inevitably follow. Most states, in fact, already accept this principle. They maintain stabilization or "rainy-day funds" into which a percentage of revenue growth or budget surpluses are deposited in flush years, so that these funds will be available to help forestall budget cuts in the lean years. (482)

      There are, however, two problems with current stabilization-fund policies. First, the amounts set aside are far less than the amounts needed to respond to the actual deficits that arise during bad economic times. Second, in the overwhelming number of states, stabilization funds are not earmarked for education, despite the general primacy of education among constitutional requirements, and, as a result, children's needs do not always receive priority treatment when economic downturns occur.

      Based on experiences in past recessions, the Center on Budget and Policy Priorities has estimated that, on average, states "would need reserves equal to [eighteen] percent of spending to weather a simulated [moderate] recession without substantially cutting spending or raising taxes." (483) As of the end of 2007, before the current recession began, only nine states had reserves at or greater than this suggested level. (484) Most states, in fact, have caps on their stabilization funds that...