The New $4.5 Billion Federal School Funding Program Nobody Knows

There has been intense debate over the amount of federal education funding under the No Child Left Behind Act. The latest cry went up with Bush administration's recently released FY 2007 budget proposal, which contains no new funding for NCLB's flagship Title I program for low-income students. But lost in this debate is one of the biggest and largely untold stories of NCLB: Since the law's passage, Congress has changed the way it distributes the Title I funds that support NCLB, targeting an additional $4.5 billion to the states with strong school funding policies and the school districts with the highest concentrations of low-income children. Congress and the President deserve credit for the shift.

The change has attracted scant attention because it involves the law's complex funding formulas. Title I uses not one but fourdifferent formulas to distribute money to schools—Basic, Concentration, Targeted, and Incentive. Before passage of NCLB, Congress used only the Basic and Concentration formulas. Those formulas spread Title I monies too widely, resulting in districts with relatively few poor children receiving significant funding and high-poverty schools receiving too little. But as the chart below shows, since Congress passed NCLB in 2001 it has increased Title I funding significantly and distributed all of the additional monies through the Targeted and Incentive formulas—helping the nation's highest-poverty school districts and rewarding states that make the greatest effort to fund education and distribute funding fairly to local districts.

Of the four formulas, Basic is by far the least well-targeted to the low-income students Title I is ostensibly designed to serve. But it has historically been the most heavily funded. Eligibility for Basic funding is very broad—a district needs only 10 low-income students and a 2 percent poverty rate to qualify. This is not by accident: The formula guarantees Title I funding for the vast majority of school systems in most Congressional districts, key to garnering the 218 votes needed to pass bills in the U.S. House of Representatives—including education funding bills. As a result even the school districts in Beverly Hills, Calif, and Scarsdale, NY, qualify for Basic funding, significantly reducing the resources available for the high-poverty districts who need Title I funding the most.

The Concentration formula is an improvement over Basic, because it limits funding to districts with at least 6,500 poor students or a 15 percent poverty rate. But both formulas keep the per-student grant amount the same for all districts, whether the local poverty rate is 15 percent or 99 percent. In this way the Basic and Concentration formulas fundamentally fail to recognize the intense needs of very high-poverty schools.

The previously unused Targeted and Incentive formulas, by contrast, do a far better job of getting money where it's most needed and giving states an incentive to do the same in their education funding.

The Targeted formula addresses one of the fundamental shortcomings of the Basic and Concentration formulas. Rather than a flat per-student allocation, it gives districts with higher poverty rates more money per low-income student, escalating per-student grants by up to a factor of four as local poverty rates rise.

The Incentive formula is designed to reward states that raise more of their own money for education and distribute it wisely. Those states that spend the highest percentage of their available resources on education get additional Incentive funds, while those with the lowest education spending effort are penalized. States are also rewarded or penalized for their success in distributing state and local education funds equitably and providing additional resources to high-poverty districts.

As Targeted and Incentive grants have grown from $0 to $4.5 billion, Title I funding under the Basic formula has declined by nearly $600 million since FY 2001. Some observers have criticized these shifts in the funding formulas on the grounds that they have cut funding to some districts—even though most of those districts had fewer poor students to educate than in the past. Too few media reports of these cuts have noted that they'reby design, the natural result of sending more money to where the poor students actually are.

To be sure, the newly utilized formulas could still stand improvement. Some Targeted funds still go to low-poverty districts, because eligibility for that formula is too broad. The Incentive grant's powers of persuasion are reduced by statutory limits on how much Title I funding states can gain or lose on the basis of their state commitment to education funding and the fairness of their school funding formulas. And many state policymakers don't understand the Incentive formula or even that it exists. Nor have disadvantaged students been helped by Congress's decision to cut overall Title I funding in the last budget, or the President's proposal for no increase in the next budget.

But lawmakers' decision to begin distributing Title I monies under the Targeted and Incentive formulas remains an undeniable improvement. Long advocated by reformers, originally championed by the likes of Senators Mary Landrieu (D-LA), Evan Bayh (D-IN), and Joseph Lieberman (D-CT), and Representative Adam Smith (D-WA) and former Representative Cal Dooley (D-CA), and sustained by Congressional and executive budget writers, these under-recognized and hard-fought reforms have given high-poverty districts with the biggest challenges to meet under NCLB millions more dollars than they would have otherwise received.

In an era where the federal budget seems increasingly dominated by the selfish logic of pork-barrel politics, Congress and the President deserve credit for working to transform Title I into a program whose funding mechanics are finally starting to match its underlying goals.

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Kevin Carey directs the Education Policy program at New America.