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JLARC Publishes Report Critical of State K-12 Education Funding

On July 10th, the Joint Legislative Audit and Review Commission (JLARC) met to present several reports, one of which was a long-anticipated review of Virginia’s K-12 Funding Formula directed by the General Assembly. The report’s findings confirm what many in local government already know to be true: the State Standards of Quality (SOQ) formula yields substantially less funding than actual local school division spending and benchmarks, total statewide staffing needs calculated by SOQ formula are less than actual employment levels, the SOQ formula systematically underestimates division compensation costs, the Formula still uses Great Recession-era cost reduction measures, the Formula does not adequately account for higher needs students, and the Formula does not adequately account for local labor costs, among other findings. The report offers 20 recommendations and five policy options, some for short-term adoption and others for long-term, to reform the way in which the Commonwealth funds public K-12 education.

The importance of education funding cannot be overstated. K–12 public education is the largest single financial commitment for the state and local governments. Decades of research concludes funding has a critical role in quality of K–12 education. For instance, on average, increasing spending by $1,000 per student has been shown to improve the graduation rate by 2.3%. Also, sufficient funding increases the likelihood of having high quality teachers, which has been repeatedly shown to increase student performance more than any other factor.

According to the report, K–12 public education funding is by far the largest category of state general fund spending, representing 30 percent of the general fund budget and 13 percent of the total state budget. Education funding is an even larger financial commitment for localities, representing 52 percent, on average, of local government budgets in Virginia. In aggregate across all divisions, local funding represents slightly more than half of total funding. State funding represents about 40 percent, including funds from both SOQ and non-SOQ programs. The remaining percentage of funds are from federal sources. Several large Northern Virginia school divisions account for a substantial portion of total aggregate local funding provided. However, most individual school divisions rely heavily on state funds, as about two-thirds of school divisions rely on the state for most of their education funding.

For FY 21, the SOQ formula calculated divisions needed $10.7 billion in funding, but local school divisions actually spent $17.3 billion. The formula’s calculations represent $6.6 billion less than what was spent (a 38 percent difference). Funding differences in recent years have been about the same. The vast majority of the additional funding for school divisions comes from local governments.

Virginia is currently lagging other states and benchmarks for education funding. Virginia school divisions receive less K–12 funding per student than the 50-state average, the regional average, and three of Virginia’s five bordering states. School divisions in other states receive 14 percent more per student than school divisions in Virginia, on average, after normalizing for differences in cost of labor among states. This equates to about $1,900 more per student than Virginia. Depending on the benchmark, Virginia school divisions were estimated to need six percent to over 30 percent more funding.

Much of this failure can be attributed to the way in which Virginia funds public education as well as policy decisions made during the Great Recession which have not yet been fully addressed by the state. These include: the imposition of the “Support cap,” which reduced funding for divisions below prevailing costs and affected instructional funding, the removal of certain “non-personal” costs from the prevailing SOQ cost calculations, though they are still incurred by divisions (such as travel, leases, etc.), and a change to the calculation used to account for federal funds to use less accurate assumptions. Although some progress has been made in recent years on the support cap issue, completely fixing these Great Recession era policy decisions is estimated to cost $515 million.

Furthermore, according to the report, Virginia is one of only nine states that use a staffing-based formula, and some academic experts now view it as an outdated approach. The majority of states (34) use a student-based funding formula that allocates divisions a specified amount of funding per student. Seven states use hybrids of the staffing- and student-based approaches or another approach. A well-designed student-based funding model would be more accurate, more transparent, and easier to maintain over time than Virginia’s current staffing-based formula. Implementing a student-based funding formula is estimated to cost an additional $520 million to $1.2 billion above FY23 funding, depending on how the new formula is implemented.

The report also recommends replacing the use of linear weighted average (LWA) to calculate costs with the actual division averages. The use of LWA grossly undervalues the costs of some of the largest school divisions in the state and gives them a similar scoring weight to some of the smallest. This obscures the actual local prevailing costs. Fixing this system is estimated to cost $190 million.

The report also found that the Cost of competing adjustment (COCA) provided in the SOQ formula to address higher regional labor costs uses old data and excludes several divisions. Cost of competing adjustment percentages were developed in 1995 and based on data from 1991. The report recommends replacing the cost of competing adjustment with a more accurate adjustment based on a Virginia cost of labor index applied to all divisions with above average costs. This is estimated to cost $595 million.

According to JLARC, the way in which Virginia chooses to fund K-12 education is in need of major reform. Without additional support from the state, local governments will continue to struggle to carry the burden of funding the “true cost” of K-12 education. In short, this passage from the report is perhaps the best summary of the current funding model:

“…Many school division administrators characterized the state’s staffing standards as unrealistic, often citing the difference between SOQ staffing calculations and the number of staff they actually needed to employ. Administrators said: “It’s a misnomer to call it the [Standards of Quality} SOQ; it’s not quality at all;” and “If we just funded at SOQ level, it would be a catastrophe.””

VACo supports action that must be taken by the General Assembly to provide additional state funding that supports local governments in the constitutional responsibility to maintain public schools of high quality and the legal responsibility to enable each student to develop the skills that are necessary for success in school, preparation for life, and reaching their full potential.

VACo is grateful to the staff at JLARC who compiled the research that led to this report and its findings, including taking the time to interview VACo staff on the role of local governments in the funding formula. VACo is also appreciative that JLARC staff will be available to brief the Education Steering Committee on the report when the Committee convenes at the August County Officials Summit.

In conclusion, Senator Janet Howell, chair of JLARC, reiterated the importance of the report by saying,

“I would advise all candidates, not just for the General Assembly but also for school boards and county boards, to read this study and be informed about it and grapple with the implications.”

The full JLARC report and the slides from the JLARC staff presentation can be found here and here respectively.

VACo Contact: Jeremy R. Bennett

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