Wednesday, June 17, 2015

Strings Attached: Categorical Funding in Schools

Imagine being stranded in the middle of the ocean on a life raft and being thirsty. An hour ago, you drank your last bottle of water. Now what? Although you are surrounded by water you can't drink it. Salt water, as we know is not intended for human consumption and will do absolutely nothing to quench our thirst.

This seems like an appropriate analogy to describe what are known as categorical funding streams in Iowa schools. Categorical funding streams are designed to be used for specified purposes only, and cannot be used for anything else. Seems like a pretty straightforward reason as to why they exist, right? The trouble is that categorical funding streams can often make it look like funds are available when they are really not. 

We have many categorical funding streams in schools. Some should sound familiar because we have discussed them before. The most common of these would include our Physical Plant and Equipment Levy (PPEL) and the One Cent Sales Tax (SAVE). These two funds create our capital projects fund and can only be used for projects specific to our buildings and the purchase of equipment. These funds are used to purchase computers, furniture, pay for projects like parking lots, gymnasium renovations, or the football stadium lighting project that will be taking place this summer. This funding stream cannot, for example be used to purchase instructional supplies like books or fund salaries. The Nutrition Fund is another categorical funding stream. As the name implies, these funds can only be used for the purpose of operating our food service program at Hudson Schools. In both of these cases, the categorical funding stream serves an important purpose, ensuring that the money is spent specifically for its intended purpose. So at face value, categorical funding streams would seem to make sense. But that is not always the case and in many instances categorical funds can place unreasonable limitations and restrictions on school districts.

Contained within our general fund are a whole host of these types of funds that make it difficult to allocate resources where it makes the most sense in schools. One example is federal funds, which include all the title programs and special education. Now to be fair, this can make some sense too because after all, it is important to ensure that title one funding is in fact being used to fund the Title One program. And of course no one would argue that we need to make sure that special education funds are being allocated only to special education programs. 

But what happens if you fund these programs to the extent that they are required and needed in the district and have funds remaining? While at the same time, another vital program needs additional funding in order to make it function as designed? Well, unfortunately in Iowa schools, those categorical funds have to stay with that category and can't be shifted to another area of the budget. If you have an extra $5,000 in your Title One budget at the end of the year and are short $5,000 in your math program, it would be inappropriate to shift the money from the Title One budget to meet the very real needs of the math program.

What ends up happening in this case is the money becomes a reserve fund balance that gets carried over to the next fiscal year, to be used for that same purpose. In a lot of examples this has a cumulative effect year over year and school districts can quickly end up with large reserve fund balances that can only be used for purposes that are already funded. 

It would be helpful if school districts had some additional flexibility in the allocation of funding sources, but I fear we might be going in the opposite direction. The recent end of this legislative session seems to prove my point. A stalemate (that began in January of 2014) on school funding for the fiscal year that begins on July 1 was resolved just over a week ago, and that resolution includes funding with strings attached. You probably remember lines in the sand well: The Iowa House wasn't willing to budge off a proposed increase in State Supplemental Aid (SSA) from 1.25%, while the Iowa Senate was working hard to allocate more resources to Iowa schools.

Well, the logjam finally broke with an agreement that SSA would in fact be 1.25%. In addition, an agreement was brokered that will provide an additional $55 Million in 'one time' money for Iowa Schools. What this simply means is that this additional infusion of capital will not be included in the state cost per pupil allocation for the Fiscal Year 2017 foundation formula. While not at all an ideal situation, this is not something that is new, the same gimmick was used a couple of years back with a funding algorithm that we referred to as the 2% plus 2%.

If that's not bad enough, this particular allocation of funding has come with a caveat: it can only be used for instructional expenditures that include textbooks, library books, other instructional materials and equipment used by students, transportation costs, or educational initiatives that increase student achievement in grades PK-12. While that may seem like an exhaustive list, its not--and its not really the point. The more restrictions that are placed on school funding, the harder it is to deploy resources in an efficient and effective manner!

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