The potential fiscal impacts of educational choice programs on public schools is a main concern of choice policy critics. When a student leaves a public school via a choice program, it is true a portion of the dollars the public school would have otherwise received also walks out the door. (But so does more of the cost of educating that student.)
Aside from the fact that Minnesota public schools experience enrollment shifts for a variety of reasons even without the presence of a private school choice program, did you know the state has declining enrollment protection that comes with a partial funding guarantee? Also referred to as “hold harmless” funding, these dollars help soften the impact of enrollment declines on school district budgets, for whatever reason they occur.
Here’s how it works: A district that experiences declining enrollment receives a share of revenue (28 percent of the formula allowance for that year) based on the difference in enrollment between the current year and the prior year.
This state-established funding mechanism is certainly useful for districts, as it cushions them from difficult budget decisions and likely helps with fixed costs. And because local funding is not reduced when student enrollment declines, and some state funding isn’t tied to enrollment, there are often examples of more resources remaining on a per-pupil basis for the students still enrolled.
But there are downsides to funding protections, too, as Martin Lueken with EdChoice’s Fiscal Research and Education Center explains. First, because districts can retain a portion of state funds for students they no longer serve — referred to by some scholars as “ghost” students — this increases education costs for taxpayers.
For example, if a student leaves one district (where he or she contributed to the net loss of students and qualified the district for declining enrollment revenue) for another district, the state is providing some amount of funding for that student to two different districts — both the district the student left and the student’s new district.
Second, incentive for districts to improve could be less urgent when students leave because of the dollars that aren’t lost in the process. The concern then becomes the district is less efficient and less responsive to the needs of the students who remain.
Public school finance is complex, and declining enrollment revenue is one funding stream of many that districts can qualify for to support their budgets. Plus, not all of a student’s per-pupil funding follows the student when a switch from one school to another is made. (Not to mention the overwhelming number of empirical studies that have found positive fiscal effects of private school choice programs on state budgets, taxpayers, and public school districts.)
As Lueken concludes: “Funding systems for public schools in the U.S. are very favorable to districts.” For policymakers weighing future choice-related policy decisions, understanding how these provisions operate brings helpful context to the argument that fiscal harm will result from choice programs: It’s a weak one.