HB 110 School Funding Formula Changes

The legislature’s approval and Governor DeWine’s signing of House Bill (HB) 110 in June completed Ohio’s five-month long FY22-23 state budget process.

The FY22-23 budget process began on February 1 when Governor DeWine’s executive budget proposal for school funding in the FY22-23 biennium simply involved restoring foundation formula funding to its FY19 pre-Covid level and authorizing an additional $100 million in Student Wellness and Success (SWS) funding in FY22 and then another increase of $100 million in FY23. Under the Governor’s budget proposal, SWS funding would have been $500 million in FY22 and $600 million in FY23.

The next step in the budget process was the Ohio House of Representatives largely incorporating the provisions of the Cupp-Patterson “Fair School Funding Plan” funding formula in their version of the budget, which was voted out and passed along to the Senate in April. The Fair School Funding Plan was initially approved by the House as HB 305 in December 2020 and later reintroduced as HB 1 in February 2021.  The House funding formula was widely regarded to contain the essential components necessary to satisfy the equity and adequacy criteria set forth in the DeRolph rulings.

However, the Ohio Senate opted to develop their own school funding formula rather than implement the Fair School Funding Plan included in the House budget. The Senate’s funding formula for FY22 and FY23 was based on the FY19 funding formula with a per pupil base cost of $6,065 in FY22 and $6,110 in FY23. Importantly, the Senate school funding proposal not only used the FY19 formula structure for school funding, but also continued to use the same property value and income data that was used two bienniums ago. In addition to the relatively modest increase in the per pupil base cost amount (the FY19 per pupil amount was $6,020), the most notable change proposed by the Senate was the elimination of the “deduction” method for funding community schools and vouchers, replacing it with direct funding by the state. This change had been promoted by school funding advocates for nearly two decades.

This newsletter article provides a brief recap of school funding equity and adequacy criteria developed by OEPI consultant Dr. Howard Fleeter and contained in his testimony before the Senate Primary and Secondary Education Committee in May 2021 and a comparison of how these criteria were addressed (or not) by the House and Senate school funding proposals.  Dr. Fleeter’s complete Senate testimony is available on the OEPI website at: http://www.oepiohio.org/wp-content/uploads/2015/10/Fleeter-HB-110-Testimony.pdf

A. Essential Components of Ohio’s Funding Formula to Address Adequacy
Below is a brief summary of Dr. Fleeter’s necessary components for Ohio’s funding formula to be considered adequate, along with a brief summary of the House’s and Senate’s proposals for each:

1.) Include a generally accepted base cost methodology. Ohio’s most recent school funding formula, in place from FY14-FY19, did not employ any methodology for determining the base cost amount. Instead, the legislature simply set the per pupil amounts based on how much money they chose to allocate to K-12 education, an approach that the Supreme Court rejected over and over in the DeRolph case. In FY19, this amount was set at $6,020 per pupil.

House funding plan – The House funding plan utilized an inputs-based approach to adequacy which resulted in an average base cost amount of roughly $7,200 per pupil when fully funded, nearly 20% higher than the FY19 figure of $6,020 per pupil.

Senate funding plan – The Senate funding plan included a base cost of $6,065 in FY22 and $6,110 in FY23. The $6,110 per pupil figure was based upon a methodology developed by the Senate that was centered around teacher compensation and then supplemented by additional funding relating to building administration and operations, student support services and district administrationHowever, not only was the Senate’s proposed base per pupil amount nearly $1,100 below the House’s, the 1.5% increase in the Senate’s base cost from FY19 to FY21 was only 1/4th the 6% rate of inflation since FY19.

2.) Updated cost methodologies for the categorical funding components. The adequacy of the FY14-FY19 funding formula was also undermined by the use of outdated per pupil amounts (as opposed to weights, which are a far superior method) for the funding of the education of students with disabilities, economically disadvantaged students, career-technical education students, English learners and gifted students. Over time, these per pupil amounts became increasingly disconnected from any cost methodology that may have at one point informed them. The special education weights are now long out of date and require updating, and Ohio has never conducted an objective study of the additional costs of educating English learners or economically disadvantaged students. Special education and English learner cost studies were approved in Senate Bill (SB) 310 in December 2020 and are to be undertaken over the next 15 months.

House funding plan – The HB 305 funding plan passed by the House in December 2020 called for a roughly $250 million increase in funding for economically disadvantaged students (now referred to by its 1990s name of “DPIA”), which was intended to be a “down payment” on the actual funding required once this issue is thoroughly studied. However, the House version of the budget called for $0 increase in disadvantaged aid in FY22 and only 1/7th of the scheduled increase in FY23. An economically disadvantaged student cost study included in the House version of the budget was removed in the final version of the budget; however, efforts are currently underway to establish a private source for funding such a study. The House funding proposal also included significant increases in transportation funding.

Senate funding plan – The Senate funding plan called for no increases whatsoever in categorical funding from FY19 levels.

3.) Provide funding to Ohio’s school districts based on their enrollment and have the state directly fund community schools and vouchers, as is the case in almost every other state. For over 20 years, school funding in Ohio had been based on “Formula ADM” which included students attending district schools as well as community schools and most voucher students who live in the district. This approach was based upon a deduction from foundation formula funding for each one of these students which resulted in a “local share” of funding being applied to school choice program funding. The deduction funding method also created considerable acrimony between public school districts and many community schools and private schools that receive vouchers.

House funding plan – The House funding plan is based on school district enrollment rather than Formula ADM which means that all community school and EdChoice, Cleveland, Jon Peterson, and Autism voucher students will be funded directly by the state and the current funding deductions from state aid for these students will no longer be employed.

Senate funding plan – The Senate funding plan also called for the elimination of the community school and voucher deductions and employment of direct state funding for school choice programs.

4.) Eliminate the “Gain cap” in the school funding formula.   Ohio’s FY14-FY19 funding formula included a “gain cap” provision which limited annual increases in state funding to a pre-determined maximum percentage. This provision meant that 163 of Ohio’s 609 districts (27%) saw their FY19 state funding reduced by a cumulative total of $479 million. This was a misguided idea from the start and one that only serves to undermine adequacy.

House funding plan – The House funding plan eliminated the gain cap.

Senate funding plan – The Senate funding plan retained the gain cap in a somewhat modified form.

5.) Reduce as much as is feasible the transitional aid guarantee. Ohio’s school funding formula has had districts on some form of a “guarantee” every year since at least FY90. The reality of school funding in Ohio (as well as in other states) is that the circumstances of districts are always changing, and a transitional aid guarantee is a necessary provision required to provide stability of both funding and educational services.

House and Senate funding plans – Both the House and Senate funding formulas continue to utilize a guarantee. The House plan uses multiple guarantees while the Senate plan included a guarantee and also restored the Gap Aid funding component last used in FY09.

B. Essential Components of Ohio’s Funding Formula to Address Equity
Below is a brief summary of the Dr. Fleeter’s list of necessary components for Ohio’s funding formula to be considered equitable, along with a brief summary of the House and Senate’s proposals for each:

1.) Inclusion of an improved state/local share mechanism which is based on both property wealth and district income levels. The state and local share mechanism is by far the single most important driver of equity in Ohio’s school funding formula. Property wealth has traditionally been the basis for the state/local share calculation because it is a reflection of school districts’ varying local tax revenue capacity. However, it is essential that the income level of school district residents also be included because this is a reflection of the “ability-to-pay” of district residents. Ability-to-pay is important in Ohio because the heavy reliance on school levies as a result of HB 920 means that districts with lower income residents are less able to tap into whatever tax capacity they have by approving local levies.  Neither the “chargeoff” approach to the local share utilized from the mid -1980s through FY11 or the State Share Index (SSI) approach in place from FY14-FY19 accomplished this goal.

House funding plan – The House funding plan significantly improved on the SSI by employing an income factor which adjusts the local share downward (and the state share upward) in school districts with income levels below the statewide median income and does the reverse in districts with income levels above the statewide median income. The most current data available is used to make this calculation.

Senate funding plan – The Senate funding plan retained the FY19 State Share Index calculation as its method of determining the state and local shares of funding. This meant not just the same formula, but the Senate plan also did not update the property value and income data, continuing to use 2014, 2015 and 2016 property value data and 2013, 2014 and 2015 income data. Had the Senate’s funding formula been implemented in FY22 and FY23, the underlying data would have been 10 years old when it was updated in FY24 and FY25, which would have likely caused serious funding disruptions for many school districts.

2.) Retain “Tier 2” funding. Targeted Assistance Aid and Capacity Aid are two additional components to Ohio’s school funding formula that serve to enhance equity by providing extra funding to lower wealth and smaller school districts. These districts have less ability to provide additional funds to go “beyond the formula” than do wealthier and larger districts. In FY19 Targeted Assistance provided $919 million in supplemental funding and Capacity Aid provided an additional $198 million. The expansion of Targeted Assistance over time has been one of the most significant positive changes to Ohio’s school funding formula since the initial DeRolph decision in March 1997.

House funding plan – The House school funding formula retained Targeted Assistance and Capacity Aid, although it did eliminate the agricultural property stream of Targeted Assistance funding. In addition, the House school funding formula included a “Targeted Assistance Supplement” which provides additional funding for 40-50 school districts who otherwise would have experienced a significant decrease in funding as result of the switch from Formula ADM to enrollment as the measurement of the number of students (see point #3 above). Because the Targeted Assistance formula is based on wealth per pupil, the switch to a smaller pupil measure makes these districts appear wealthier overnight, which in turn causes a reduction in Targeted Assistance funding, all without the districts having undergone any actual change in their circumstances. The Targeted Assistance Supplement addresses this issue.

Senate funding plan – The Senate school funding plan retained the Targeted Assistance and Capacity Aid formulas from FY19; however, enrollment rather than formula ADM was used with no adjustments for the disruption this change caused in districts which lose a significant proportion of students to school choice programs.

A Brief Discussion of Student Wellness and Success Funding
Two years ago, Governor DeWine introduced the concept of funding for Student Wellness and Success (SWS). The SWS funding component was intended to provide resources to address nonacademic barriers to student success, including mental health services, “wraparound services” such as dental, vision and medical care, family engagement and support services, and after school programs and mentoring. The Governor’s vision was that the SWS funds were for services that have not typically been part of K-12 education spending and as such were intended to be provided in addition to the funding provided through the foundation formula. Student Wellness funding was $275 million in FY20 and $400 million in FY21. The funding was distributed to school districts, JVSDs and community and STEM schools on a per pupil sliding scale in accordance with the percentage of students at or below 185% of the Federal Poverty Level.

Governor DeWine’s proposed FY22-23 budget called for increasing SWS funding to $500 million in FY22 and to $600 million in FY23. The Senate’s proposed budget retained the SWS funding but at reduced levels ($350 million in FY22 and $300 million in FY23). However, the House plan eliminated the Student Wellness and Success (SWS) funding as a separate line item and funding category.

Because the House funding proposal was the plan implemented in the FY22-23 biennium, Student Wellness and Success funding is now effectively included as a part of the student support component of base cost and as a portion of DPIA. The allowable uses for the SWS funds in FY22 and FY23 were folded into the list of allowable uses for DPIA (as they existed for economically disadvantaged pupil aid). Since we are now operating on a formula, the SWS funding is not separate and has been rolled into the formula (i.e. the Wellness funding is now being used to pay for DPIA and a portion of the base cost amount which is explained on page 54 of the LSC Education Comparison Document). Districts will now have to account for student wellness spending from base cost (guidance and related details as to how this will be done will be forthcoming from ODE). Additionally, districts will need to develop a plan for spending the DPIA funds, partnering with at least one other local organization for plan development, and will have to report on the spending of these funds. Here again, the guidance and details related to these requirements are forthcoming from ODE.

C. So In Brief, What Just Happened to School Funding in Ohio?
The above two sections of this article provide a fairly detailed discussion of the House and Senate school funding proposals as they relate to the objectives of adequacy and equity. Below is a list of the most significant positive changes in school funding implemented in the FY22-23 state budget as well a list of items that will require follow up.

Significant Steps Forward

  • Elimination of the community school and voucher deductions and replacement with full funding by the state. This change has been 20 years overdue and brings Ohio in line with how most other states funding charters schools and voucher programs.
  • Development of an inputs-based methodology for determining the per pupil base cost. Ohio last had a base cost methodology in FY11.
  • Replacement of the problematic State Share Index with a far more equitable state/local share mechanism which uses both property wealth and income in a clear and rational manner.
  • Groundwork laid for future improvements in categorical funding. Transportation funding and funding for pre-school special education and special education transportation are increased under the House funding plan. SB 310 called for studies of the costs of educating English learners and students with disabilities, and for the design of incentives for rural school districts to provide more services to gifted students.
  • The much-despised gain cap has finally been eliminated.

 Issues that Will Require Follow-Up

  • The most significant concern with regard to Ohio’s new school funding formula is that HB 110 specifies that the funding changes described above are only funded for the FY22 and FY23 school years. The funding formula developed by the Cupp-Patterson workgroup and outlined in HB 305 and HB 1 called for a six-year phase-in period. With the exception of DPIA (see below), increases in all funding components are correspondingly phased in at a rate of 16.7% in FY22 and 33.3% in FY23. However, under HB 110 there is no language which outlines further funding phase-ins in FY24 and beyond.
  • Under HB 305 and HB 1 the proposed $260 million increase in funding for economically disadvantaged students was intended to be phased in at 100% in the first year (FY22). However, the House funding proposal instead provided a 0% increase in DPIA funding in FY22 (as opposed to 16.7% for the other funding components) and an increase of only 14% in FY23 (as opposed to 33.3% for the other funding components). Adding insult to injury, the final version of the FY22-23 budget also removed the economically disadvantaged student cost study included in the House’s version of the budget.
  • As mentioned above, the House funding formula essentially rolled the Student Wellness and Support funding into the foundation funding formula. This raises questions as to whether this funding stream will ultimately be spent on new initiatives to help reduce non-academic barriers to student success (as envisioned by Governor DeWine) or will simply be absorbed into the spending that districts are already incurring. The additional reporting requirements related to these funds should provide some insight into answering these questions.