Credit: Alison Yin/EdSource

During the past decade, California has leapfrogged a dozen states in per-student funding, and its system for distributing the money to high-needs students is now among the most equitable in the nation.

California is also an economic behemoth, the fifthlargest economy in the world, with projections that it will surpass Germany to become the fourth. Compared with other states, though, California falls near the bottom in terms of how much it spends on K-12 schools in relation to the total wealth it generates. Despite its reputation as an overtaxed state, California’s education funding has not paralleled the growth of its economy — its state gross domestic product or GDP.

The nonprofit Education Law Center provides this multilens picture of California’s school financing in Making the Grade, an annual ranking of the states that was published in December. The center, based in New Jersey, is a public interest law firm that advocates for increased school funding. It’s best known for initiating a protracted lawsuit, Abbott v. Burke, that led to higher school funding in New Jersey.

Its latest report covers spending in 2019-20, when Covid emerged in the spring to shut down schools. The information is 2 to 3 years old because it takes that long to collect final revenue data from all states. As a result, it will take several years to incorporate the surge in K-12 funding in California that started in the second half of 2020-21, when state revenues rebounded from a short pandemic retrenchment, and continued rising through fiscal 2021-22.

California’s ranking will likely continue to rise as well, although that will depend on what other states did. In at least 10 states, per-student funding was lower in 2019-20 than at the start of the Great Recession in 2008, dropping between $1,000 (Arizona) and $2,500 (Florida), adjusted for inflation.

Here’s how California stood on the three school finance measures in the latest report that encompass what authors of the index define as fair funding. The report grades every state on each metric.

Funding level: Grade D

California ranked 33rd in 2019-20, spending $13,686 per student in state and local funding. That was $1,760 below the national average of $15,446 and about half the $26,605 in per-pupil funding in New York. It’s also $1,037 per student higher than 40th place Texas, a source of frequent comparisons and bragging rights.

These comparisons didn’t include federal funding or capital expenditures. And they were adjusted to reflect regional costs, using the federal comparative wage index. The index compares regional variations in the wages and salaries of college graduates who are not teachers. California’s funding amounts were adjusted lower to reflect that a dollar doesn’t go as far in a high-cost state.

California had been 43rd out of 50 states and Washington, D.C., in 2008 and 49th in 2009-10, when state revenues hit bottom following the Great Recession, and school districts’ funding was cut 14% over several years. The 67% increase in per-student funding since then is one of the biggest among the states, but it’s $668 per student below what’s needed for a C on the law center’s scale.

Without a regional cost adjustment, however, California’s 2019-20 funding of $15,204 per student ranked 19th, an increase of 76% from 2009-10. State funding was slightly above the national average for the first time since 2000. A thriving post-recession economy was partly responsible, but so was a $7.5 billion tax increase on the highest income earners in 2012 that voters made permanent with Proposition 30 in 2016.

Funding equity: Grade B

In 2013, the California Legislature, at then-Gov. Jerry Brown’s urging, adopted the Local Control Funding Formula, or LCCF, which redistributed a significant portion of funding to school districts and charter schools based on the proportion of low-income children, English learners, foster students and homeless students they enroll. Making the case for the redistribution in his State of the State address in 2013, Brown said, “Equal treatment for children in unequal situations is not justice.”

That system has earned California a ranking as the 9th most equitably funded state, 1 percentage point shy of an A, as measured by how much money high-poverty districts receive relative to low-poverty districts. And the law center’s methodology may underestimate California’s efforts. That’s because the law center uses the Census Bureau’s definition of poverty, which is not adjusted for regional costs, while California defines low-income students as those qualifying for free and reduced-price school lunches and other programs for poor families.

By the law center’s calculation, California provided the poorest districts with $2,500 per student more than it funded wealthy districts, a difference of 20% in 2019-20. Since then, Gov. Gavin Newsom has expanded funding under the formula for districts with the highest concentrations of low-income families and also steered them to billions of dollars in funding for community schools and extending the school day by three hours. That too will show up in future rankings.

According to the law center, California is one of 19 states that provide the highest poverty districts at least 5% more funding than the lowest poverty districts. The leader is Utah, a state of extremes. It ranked 50th in funding with $10,377 per student but first in equity, giving its poorest districts nearly twice that much.

The reverse of Utah is New Hampshire, which is 8th in per-student funding, about $4,000 per student above the national average, but 50th in equity. Funding in the highest poverty districts there averages about $4,000 per student less than in the lowest poverty districts. It’s one of 18 regressive states, where districts are primarily funded by their own property taxes.

Funding effort: Grade F

To measure the capacity to support education, the effort index ranks states by the percentage of a state’s GDP that funds public schools. An alternative measure that Education Week uses is school funding as a percentage of a state’s total personal income.

At the start of the Great Recession, states’ pre-K-12 funding equaled 3.85% of their economic output. It has not risen to that level since, reaching only 3.6% of GDP in 2019-20. School funding didn’t rise in tandem as their economies recovered in most states, including California.

California has lagged behind the national average in effort for decades; in pre-Great Recession 2007-08, funding equaled 3.39% of GDP; in 2019-2020, it had fallen to 2.98%. That’s a small number, but it represents a cut of a potential $2,175 per student in funding, according to the law center.

Even though its per-student funding increased substantially over the past decade, California’s ranking in effort fell from 35th in 2008-09 to 43rd in 2019-20.

Vermont, first in effort, funded 6.2% of GDP on schools. At the bottom in effort was North Carolina, with funding of 2.32% of GDP; it’s also 48th in per-student funding.  It took New York state 4.29% of GDP, the 9th highest percentage in the nation, to fund $26,000 per student in 2019-20.

The funding index has critics. Eric Hanushek, an economist and senior fellow at the Hoover Institution at Stanford University, said that given what the law center is trying to do, ranking states on effort “doesn’t make any sense.”

“If a state does well on overall spending and if it gets the distribution right according to their metric, what could it mean that it does not have enough effort?” he asked. “If a state economy does well, as it has in California, then its effort is likely to go down — independent of what and how it is spending on schools.”

Loren Kaye, president of the California Foundation for Commerce and Education, criticized school spending rankings that correlate funding and achievement while ignoring how effectively states spend the funding they have. Besides that, California “does finance schools based on effort but not the way that the law center prefers,” he said. Funding through Proposition 98, the formula that determines how much of the state’s general fund goes to TK-12 and community colleges, is tied to growth in personal income and enrollment, he said. It “is a proxy for economic growth, and GDP and personal income generally grow together.”

Proposition 98 is a complex formula, and some years it funds schools as a straight percentage of the general fund, and some years on growth of the state revenues and enrollment. The effort index is a reminder that if Californians did want to significantly raise more funding for schools, it has the capacity.

Doing so might require looking beyond reliance on a progressive personal income tax, which produces 70% of general fund revenue, mostly from the nation’s highest tax rate on the wealthiest 1%. Various proposals to expand the state sales tax to include services, such as on haircuts, lawyers’ fees, or movie tickets, have gotten nowhere in the Legislature. An initiative to amend Proposition 13 to increase property taxes owed by businesses came close to passing in 2020.

Jonathan Kaplan, senior policy analyst for the California Budget and Policy Center, which advocates for low-income families, says the priority should be to raise the income tax or reduce or eliminate tax breaks for California corporations, whose taxes were sliced during the Trump administration; many are experiencing record profits. Corporations pay about half of the portion of their income they paid a generation ago, he said, producing about 10% of general fund revenue.

“Low effort (in taxation) is the story of inequality in the state,” he said. “Some in California have done extremely well; others are not keeping up. Every dollar corporations pay in state taxes increases K-12 school spending by 40 cents and provides services to support families struggling to make ends meet.”

Danielle Farrie, research director at the law center and co-author of the report, said the measure of funding effort gives an indication of whether a state could increase its overall levels of funding “by trying a little bit harder.”

“It seems that in California, you could,” she said.

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  1. Eric Premack 3 weeks ago3 weeks ago

    The report’s definition of “fairness” is pretty narrow, focusing exclusively on poverty income and ignoring costs of serving various higher-need populations such as English learners and/or historically low-achieving subgroups.

    The report also seems to disregard rather large sums of California’s state spending to subsidize school employee pensions along with school facilities. Depending on the year in question, and how one accounts for them, they likely average several billion dollars/year–funds other states rarely provide.

    Replies

    • John Fensterwald 3 weeks ago3 weeks ago

      Good point about the narrow definition of fairness, Eric. District contributions to pensions, which are far larger than the state's, are included but not state contributions, as you point out. The law center didn't include contributions to facilities in the funding level and fairness indexes, because they are irregular in many states, like California, which does it through bonds (the last one in 2016) so would distort yearly rankings. But state facilities funding is included … Read More

      Good point about the narrow definition of fairness, Eric.

      District contributions to pensions, which are far larger than the state’s, are included but not state contributions, as you point out. The law center didn’t include contributions to facilities in the funding level and fairness indexes, because they are irregular in many states, like California, which does it through bonds (the last one in 2016) so would distort yearly rankings. But state facilities funding is included in the effort index, according to the methodology explanation on page 7.