The Design of School Funding Formulas: Distributional Consequences across Federal and State Policy

Session Submission Type: Panel

Abstract

This panel examines how the design of education funding policies shapes resource allocation, behavioral responses, and student outcomes. While public education finance systems are often evaluated based on their intended goals—such as promoting equity in resource distribution—less attention has been paid to how specific design features of funding formulas and policies translate into actual distributional patterns and institutional behavior. Bringing together four complementary papers, this panel highlights the mechanisms through which funding design influences both the allocation of resources, the responses of local actors, and ultimately student outcomes.

The first paper studies state-level school finance reforms, distinguishing between reforms targeting current expenditures, capital expenditures, and simultaneous reforms to both. Drawing on NCES financial data and American Community Survey data from 2000 to 2024, the paper employs an event study design to estimate the long-term effects of each reform type on educational attainment. The findings suggest that current and capital investments may exhibit complementarity, with simultaneous reforms producing larger gains than either type alone, and that reform design has differential implications across racial and ethnic groups.

The second paper analyzes the implementation of Illinois's Evidence-Based Funding (EBF) formula, focusing on how its Tier-based allocation mechanism affects districts' teacher-resource landscape and student achievement. The EBF directs state funding according to the gap between a district's adequacy target and its existing resources, and this paper exploits variation in Tier assignment to examine whether the formula successfully channels marginal dollars toward the districts furthest from adequacy.

The third paper investigates a 2022 policy change in Michigan that extended per-pupil foundation allowance funding to students receiving special education services. Using financial and enrollment data from 2017 to 2025, the paper employs interrupted time series and comparative interrupted time series models to assess whether the additional funding altered district spending on special education services and the rate at which students are identified for special education. The analysis examines whether districts receiving proportionally larger revenue increases responded differently, shedding light on how funding design shapes both resource allocation and classification decisions at the local level.

The fourth paper examines the Title I hold harmless provision as a structural feature of the federal funding formula. Using counterfactual allocations constructed from federal allocation files and district-level expenditure data, the paper documents how the provision's backward-looking design channels resources toward districts with declining poverty rates, generating per-eligible-child premiums that are six times larger in declining-poverty districts than in rising-poverty districts. The analysis reveals that roughly one-third of district-years are bound by the hold harmless floor, raising questions about whether the provision functions as stabilizing insurance or as a source of distributional inertia. 

Together, these papers move beyond a focus on aggregate spending levels to examine how specific design features of funding formulas shape the distribution of resources, the behavioral responses of districts and student outcomes. The panel offers implications for policymakers seeking to align formula design with equity goals across federal, state, and programmatic contexts.

Policy Area

• Education

Chair

• Kenneth Shores, University of Delaware

Discussants

• Kenneth Shores, University of Delaware

• Miyeun Jung, University at Albany

Organizer

• Hojung Lee, Rice University

Individual Presentations

• The Impact of Marginal Dollars on Teacher Workforce and Student Achievement: Evidence from Illinois’ Evidence-Based Funding - Presenting Author: Haeryun Kim, University of Illinois

• Examining Michigan's Special Education Foundation Allowance - Presenting Author: Emily G Hatch, Vanderbilt University

• Insurance or Inertia? The Distributional Consequences of Title I Hold Harmless Provisions - Presenting Author: Hojung Lee, Rice University; Non-Presenting Co-Author: Miyeun Jung, University at Albany

• Windfalls and Wages: The Fiscal Effects of Missouri’s Charter School Funding Surge - Presenting Author: Andrew Mitchell Camp, Brown University; Non-Presenting Co-Author: Collin Hitt, Saint Louis University