‘Less equitable’: Report calls for Indiana school funding changes to close gaps

A woman talks with children sitting at a table in a classroom at a school.
A new report highlights broad inequities in Indiana’s school funding system and calls for changes that would increase public funding for charter schools. (Alan Petersime for Chalkbeat)

A new report on Indiana’s school funding system shows that schools serving a larger proportion of students of color receive about $1,600 less in state and local funding for each student than do overwhelmingly white schools.

That gap is driven by charter schools, according to the report from the Center on Reinventing Public Education, since they serve a greater percentage of students of color than does the average Indiana district and do not receive local property tax revenues.

The report calls for changes to equalize public funding for charter schools, including having districts share referendum proceeds, continuing a yearslong push by charter advocates to give charter schools access to the same funding levels as traditional districts have.

The Center on Reinventing Public Education, a national research group, supports school and parent choice.

The report also highlights broad inequities in school funding, criticizing the state for cutting extra funding for students from low-income families by about 35% in recent years. Funding gaps are also widening between wealthier districts that can raise more money through local property taxes and lower-income districts.

“The big takeaway is that the school funding changes over the past decade have made public education spending less equitable in Indiana,” said Claire Fiddian-Green, president and CEO of the Richard M. Fairbanks Foundation, which commissioned the report. (The Fairbanks Foundation also supports Chalkbeat.)

Charter opponents have fought the use of public dollars for charter schools, since private management companies can profit from the state funding. They argue that charter schools operate less transparently than do traditional districts and strain the system by spreading limited dollars across more schools.

The report, released last week, comes with some recommendations that could benefit both traditional districts and charter schools — such as adjusting state funding based on how much school systems receive locally and increasing state support for students with higher needs, including those from low-income backgrounds, those with disabilities, and English language learners.

The state will tackle critical budget discussions in the 2021 legislative session as lawmakers grapple with financial constraints caused by the pandemic and set school funding levels for the next two years.

For charter schools, the budget stakes are particularly high. They rely more heavily than do traditional districts on state funding, which comes from sales and income taxes that have been hard hit by the pandemic’s economic downturn.

Some observers say state lawmakers don’t seem interested in a big overhaul of school funding, but those extra state dollars for educating low-income students — known as “complexity” funding — will continue to be one of the most important budget debates.

The state needs “a fair and equitable way of distributing those dollars and making sure those students who really need the dollars get the funding,” said Denny Costerison, executive director of the Indiana Association of School Business Officials.

Those extra dollars become even more important, he added, because of the economic instability, mental health needs, and educational losses caused by the COVID-19 crisis.

Complexity remains one of the most complicated factors in the school funding formula, in part because the state awards more money to districts serving low-income families than to districts serving more affluent ones. In recent years, lawmakers have changed eligibility requirements so that fewer students qualify for those funds.

As a result, from 2015 to 2019, the state has reduced the additional support for each low-income student by 35%. That may have had an academic effect, the report points out: Declining dollars correlated with declines in ISTEP scores among that demographic across those years.

Indiana offers districts about 27% more state funding for each student living in poverty than for more affluent students. That’s just above average for states across the country, but the report contends it falls far short of what’s needed. Students learning English and students with special education needs also require more extra support, the report argues.

The report also proposes a drastic change in school funding that experts say isn’t being widely discussed in Indiana. It calls for an “equalizer,” to weigh how much local support districts receive before doling out state dollars, in an attempt to even out funding disparities from property tax wealth.

That would be a substantive shift from the current system of giving every brick-and-mortar school system the same amount of basic state aid for each student.

“I don’t see a big appetite for opening up how we want to fund education again, in any way, shape, or form,” said Andy Downs, a political scientist from Purdue University Fort Wayne. “It is such a can of worms.”

Another hard sell, experts said, would be the report’s recommendation to let charter schools share in local funding raised through referendums. More and more districts facing budget crunches are asking voters to raise property taxes to generate additional money for operating, building, and safety costs.

Charter advocates notched a small win last year when a last-minute move opened the door to charter schools sharing in referendum funds, but it stopped short of requiring districts to divvy up the money. While cooperation could lead to more support for ballot measures, it would also mean funding pots wouldn’t go as far — or schools could have to ask for higher increases.

Despite heavy Republican and some Democratic support for charter schools in Indiana, the question of whether they should share in local property tax revenues fuels a strident debate.

“It’s a morass of trade-offs, and nobody’s going to be satisfied,” said Larry DeBoer, a Purdue University professor who studies Indiana tax and finance issues.

On average, charter schools collect about $1,000 more per student in state funding than do traditional districts, the report said, likely because they enroll a greater portion of students from low-income families and can receive a supplemental state charter school grant. But they don’t receive about $3,300 per student that districts get from local property taxes, ultimately putting charter schools behind districts in public funding.

The report doesn’t account for private funding, which it said closes the gap for charter schools by $373 per student.

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