States and public school funding systems must adapt to declining student enrollment

Aaron Garth Smith:

Public education is changing rapidly, and K-12 finance systems must adapt to a new era with fewer students and more competition. Since the start of the COVID-19 pandemic in 2020, public schools have lost 1.4 millionstudents and are projected to lose another 2.7 million by the 2031-32 school year. And with the rise of school choice policies such as education savings accounts, charter schooling, and open enrollment, a family’s education options are no longer determined solely by where they can afford to live. 

States’ school finance systems, many of which date back decades, must be modernized. Central to this is how they count students for funding calculations, a key policy detail that in many states, including those with school choice programs such as Arkansas, Tennessee, and West Virginia, strains state budgets and provides the wrong incentives.  

Three best practices can guide policymakers in designing a sound approach to counting students. The following analysis details these three best practices, offers models for policymakers to consider, and compares how 15 states count students.  

Best Practice #1: Use Current-Year Enrollment Counts 

The most important policy feature in funding calculations is the timeframe used to count students. The three approaches used by states, along with their tradeoffs, are described below.  

• Current-Year Enrollment: States such as Arizona, Indiana, and Texas use current-year enrollment counts to calculate funding. This approach, which counts students attending public schools in the current year, is most responsive to enrollment changes but provides the least budget predictability for school district administrators because districts’ actual funding isn’t known before the school year. 
• Prior-Year Enrollment: States such as Alabama, Iowa, and New Hampshire use prior-year enrollment counts to calculate funding. This approach, which gives school districts funding for the number of students they served the year prior, provides greater budget stability but is less responsive to enrollment changes than using current-year counts. Districts that lose students from one year to the next receive funding for “ghost” students (i.e., students who are no longer enrolled, but for whom districts still collect funding), while districts that gain students don’t get funding for these additional students they’re serving until the following year.
• Declining Enrollment: States such as Kansas, Missouri, and Montana use the highest enrollment counts of two or more school years, usually including the current school year. This hold-harmless approach gives school districts the longest off-ramp for adjusting budgets to enrollment changes, but it usually results in the most ghost students, making it more expensive than using current-year or prior-year enrollment counts. 

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