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The Impact of Funding Adequacy Litigation

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By Richard Phelps, Ph.D.
Education Consumers Consultants Network


As one may recall from history class, the U.S. constitution includes no mention of education. Therefore, as one may also recall from history class, that issue remains in the domain of our country’s original founding entities, the states.

Most state constitutions do provide some general, vague guarantee for the public provision of education. But, most of these constitutions were written between the late 1700s and late 1800s, when the average duration of an education was just a few to several years. The oldest of the state constitutions were written at a time when simple mastery of the alphabet was considered a successful outcome for a school career, which might have lasted less than a year.

How the words written in those contexts can be construed to mandate an average per-pupil expenditure of over $12,000 per year as a legally-enforced minimum, or adequate expenditure threshold provides the story behind the currently popular “funding adequacy” movement.

The movement for funding adequacy receives a good deal of encouragement from the expected sources: teacher unions, administrator associations, and education professors. Riding point in the charge, however, are legal pressure groups, such as the ACLU, NAACP, and the Campaign for Fiscal Equity. These groups recruit parents who are willing to serve as plaintiffs in protracted lawsuits against state governments, sometimes in partnership with local school districts. The object is to get more money from state taxpayers to fund public schools in poorer districts (see Siobhan Gorman’s article in the December, 2001 Washington Monthly re: Campaign for Fiscal Equity, http://www.washingtonmonthly.com/features/2001/0112.gorman.html).

Most of these suits are supported by research “proving” that state funding is not “adequate.” The primary intellectual home for the scholars producing such research is the American Education Finance Association (AEFA). The AEFA is a reputable organization, much more open-minded and balanced in its approach to research than, for example, the much larger American Education Research Association (AERA).

Nonetheless, the AEFA has its policy preferences and one of them is to provide more money to the public schools. Indeed, the AEFA leadership is often open in declaring such to be a goal of the organization. Perhaps that should not be surprising given the organization’s membership. It is dominated by education school professors and other members of the “chalk triangle” (i.e., administrator associations and teacher unions)– all of whom are permanently represented on its board.

Only a small number of consulting firms in the United States perform virtually all funding adequacy studies. The two most prominent are Augenblick & Myers (A&M), based in Denver, and Management Analysis and Planning (MAP), headed by James Guthrie of Vanderbilt’s Education School and Richard Rothstein, of organized labor’s Economic Policy Institute.

A study done by A&M and MAP typically will compare the results of their calculations to those of studies done in other states, as a sort of validation that the results are in line with the state of the art. The studies done in the other states, however, are likely to also have been performed by A&M or MAP.1


Adequacy versus Equity

One explanation for the current popularity of the notion of funding adequacy can be found in its historical genesis. Some advocates of increased public spending for poor children had labored for years arguing an equity case in state courts, without success. Specifically, cases were brought in state courts in which plaintiffs argued that children residing in school districts in poor communities, funded largely from a local tax base (usually a local property tax), were being treated in an inequitable manner. They argued on constitutional grounds (that unequal school financing violated the equal-protection clause in some state constitutions) for more state funding of education and for more equitable state funding.2

State judges, for the most part, decided that the constitutional grounds for expecting equal fiscal treatment was shaky, as there is no specific language in the constitutions that specifically addresses the notion of educational equity. Some state constitutions, however, require the provision of an adequate education. So, some equity advocates, seeing greater prospects for success with cases based on the notion of adequacy have shifted their arguments and strategies.3

The standards movement in education also plays a role in the story of funding adequacy studies and arguments. The logic goes like this: if states are requiring that students and schools meet specific performance targets, they must be given adequate resources. Adequate resources can be defined as that which is necessary to achieve the performance targets.


From Equity to Adequacy by way of Efficiency?

As Lew Solmon points out in his excellent and accessible critique of funding adequacy studies, “Fatally Flawed,” the word “adequate” in reference to education funding is found much less commonly in state constitutions than is the phrase “thorough and efficient.” Should we expect to see suits being brought to court to force public education, under constitutional authority, to become more efficient? (see “Fatally Flawed,” Education Week , June 17,1998,https://www.edweek.org/leadership/opinion-fatally-flawed/1998/06).

According to economists, “efficiency” is maximized when consumers have abundant choice and information with which to make informed selections from among those choices. By contrast, the U.S. public education system, if anything, minimizes choice and information, and thus could be considered inherently inefficient.

Thus funding adequacy cases offer a remarkable exercise in semantics. Pressure groups whose aim is funding equity sue for funding adequacy in states constitutionally required to provide funding efficiency. For example, in Maryland, a “thorough and efficient” state, a district judge got around the problem of inconvenient constitutional language by simply declaring, ex cathedra, that “thorough and efficient” means “adequate.” He then ordered what was, essentially, a funding equity solution.4

In truth, successful funding adequacy suits tend to bring about less efficiency, not more.


Funding Adequacy Studies: Methodology

There are a number of methods for conducting a funding adequacy study. The two most commonly employed are the Successful Schools and Professional Judgment approaches. Both are fairly straightforward. The Successful Schools approach identifies schools that have met the relevant performance standard, say, a high average score on a state test, and compares the poor schools to them. Successful schools, naturally, tend to be more plentiful in some districts than others.

Typically, A&M or MAP assemble a list of successful schools for each level of education (i.e., primary, middle, and high school) and then look in detail at those schools’ expenses. How much did each of these schools spend on each of the variety of ingredients that, collectively, comprise the total per-student expenditure?

The Professional Judgment approach is a bit different. With it, a panel of education experts is assembled, and they estimate what resources are needed, and in what quantity, for a school to achieve the relevant performance level. These professional judges should be people with expert knowledge, either through direct experience with schools or with similar functions at similar organizations. Typically, the professional judges are all public school affiliated, either administrators, teachers, board members, or members of associations of one these three groups.


Evaluating The Successful Schools Approach Assumptions

It will not surprise most readers to learn that schools deemed “successful” by A&M and MAP stand out more because of the unusually high socioeconomic status and other favorable demographic characteristics than because of anything the schools do programmatically. Indeed, A&M and MAP are not concerned with what these schools do programmatically. They know only that students at these schools exhibit high levels of achievement; they do not know why. However, by failing to control for student advantages such as entering skill and knowledge levels-factors that may influence exit test scores more than school programs-A&M and MAP tend to identify schools that have relatively lavish resources and ignore ones that may not only be doing a superior job of increasing student achievement, but doing so with more efficient practices.

After A&M “found” their “successful” schools in Maryland, out of curiosity, I attempted to identify equally well-funded schools in the same districts that were producing very low average test scores. They were plentiful. What was different about them? Generally, the “unsuccessful” schools were found in geographic areas of the districts with lower levels of achievement-related demographic factors, i.e., relatively lower income, lower parental education levels, and so on. Based solely on per-pupil funding from state and district sources, the “unsuccessful” schools actually were better funded, because they had more students receiving Title 1, ESL, and special education supplements.

In order to make more detailed comparisons, I compared two groups of middle schools on available background factors. The difference in the proportions of students receiving free or reduced-price meals — a proxy for parent’s income level — was statistically different (at p <.001). Unsuccessful schools were far more likely to be located in lower income areas.5 In contrast, more than one third of A&M’s successful Maryland schools lay within the boundaries of the wealthiest of Maryland’s 24 school districts, almost all of them from three of the wealthiest suburbs in the United States-suburbs that also contain some of the country’s most highly-educated parents.

As one would expect, kids enter the successful schools as high achievers, before any public school money is spent on them. For all we know, the schools identified as “successful” might be poorly organized, add little value to their students, and generally waste taxpayers’ money. Without controlling for background factors, one cannot know what impact particular schools have had on the students.


The Counter-Argument

Some defenders of the successful schools approach argue that wealthier communities tend to have more highly-paid teachers and access to parents who may make financial donations to their children’s schools. That’s simply unfair, they say.

In fact, however, most schools do not pay their teachers directly. Instead, teachers receive their paychecks from the district. Average salaries can differ from school to school, however, because schools prefer experienced teachers and teachers prefer to work in wealthier schools, i.e., the schools in wealthier communities. Capitalizing on their attractiveness to teachers, the wealthier schools hire more experienced teachers and thus have higher salary profiles.

The phenomenon of experienced teachers gravitating to wealthier schools presents something of a conundrum. Schools can hardly be blamed for hiring the best-qualified teachers and teachers can hardly be expected not to notice that schools in wealthier communities have students that are better prepared for school and better supported by their parents-financially and otherwise. Given that teachers are paid the same no matter where they teach within a district, these preferences will influence staffing and salaries.

Relevant to the present discussion, however, is the point that the added funding brought to poor school districts by funding adequacy suits does not address the problem. Schools will still seek experienced teachers and the wealthier schools within districts will still be more attractive to teachers. And in any case, the numerous studies on the subject of teacher salaries indicate that salary increases, by themselves, have only a weak effect on student achievement.6


Evaluating the Professional Judgment Approach Assumptions

A&M and MAP’s alternative to the Successful Schools approach is the Professional Judgment study. They gather a group of experts–professionals familiar with how much it costs a public school district to effect results-and ask them how much it will cost to bring a school to a certain threshold level–for example, the school performance index level that Maryland deems a successful school. This group then considers all the cost components required labor, materials, supplies, services, and so on and sums them.

As the reader might surmise, results will depend substantially on the matter of which experts are chosen. In their Maryland studies, both A&M and MAP employed only public school professionals as experts. While this makes some sense — public school officials are most intimately familiar with what it takes to run a public school — it also creates at least three threats to the validity of the studies:

First, there’s a danger of professional myopia. School personnel may assume certain conditions to be the way things are and must be. Outside experts might question these assumptions.

Second, public school educators generally have little training in operations research, logistics, or finance, and little experience operating in a marketplace and competitive pressures on costs.

Third, public school educators have some degree of incentive to estimate costs liberally. They may be the direct or indirect beneficiaries of any increase in funding.


What Adequacy Studies Leave Out

There is an alternative to the above-described approaches that would avoid most of their shortcomings. However, it would cost more and be somewhat more technical; and it would entail identifying schools that do the best job of improving student achievement.

Some students begin their schooling career with disadvantaged backgrounds and low levels of knowledge and skills. Others are more affluent and advanced. Schools that produce the greatest gains for students over their individual baseline performances can be called high value-added schools and they are found in wealthy and poor communities alike.

They would present a substantial advancement over current funding adequacy studies because they would identify and provide a basis for rewarding the schools and districts that are doing a good job of bringing about student achievement, and not the ones that are simply benefiting from fortunate circumstances.


Funding Adequacy Studies Promote Cost Inflation

When proponents argue that increased spending is needed for the sake of the children, they imply that the additional funds, or most of them, will result in the children receiving more and/or better services. Funding adequacy studies, however, produce static analyses, i.e., they assume that today’s cost structure will be tomorrow’s. For example, they assume that teacher and administrator unions will sit on their hands when the funding windfall arrives and not seek gains in salaries, benefits, and job protection. In fact, the availability of more funds typically results in same services costing more.

Some education finance scholars have developed education cost indexes that vary by geographic region (based primarily on prevailing local teacher and administrator salaries) and these indices are sometimes used in funding adequacy studies. These cost levels are accepted as a given and the consultants merely calculate how much more state funding would be needed for poorer districts to spend as much as richer districts. Costs can only go up.

Analysts using these approaches to cost estimation have no reason to do otherwise. Teacher organizations, administrator associations, teacher educators, and other public education advocates find them entirely satisfactory; and policy makers can always make an impressive argument to taxpayers, to wit: objective scientific evidence proves that we must raise per pupil spending in order to reach an adequate level of education for our children. How can anyone sleep at night knowing that poor, innocent children have not been provided an “adequate” level of funding?

Critics of the funding adequacy logic might argue that some demonstrably successful schools systems, such as the diocesan parochial Catholic schools or the public schools in many Plains and Mountain states, spend half as much per student as the public school systems in Midwest and Northeast states, and seem to achieve much better results. Higher spending advocates, however, will argue that the Catholic schools are too different to provide a fair benchmark (actually, they are not), and the Western states have a much lower education cost index.

The critic might retort that that just proves the point that money is not the most important factor in determining student achievement. After all, why is the education cost index twice as high in the Midwest and Northeast states? It is not because the cost-of-living is twice as high; public education costs are twice as high. And, education costs are determined, overwhelmingly, by the level of teacher and administrator salaries and benefits.


How to Make More Funding Work

Advocates of more spending often bristle at the argument that how money is spent is more important than how much is spent. Indeed, they are affronted by the implication that schools are not already making their best effort to spend productively. But, simply given more money, schools are likely to spend it in the same old cost-ineffective ways: raising teacher salaries (regardless of productivity), increasing the number of certified teachers, subsidizing the certification of teachers, lowering class size, increasing employee benefits, building more sports facilities, and so on. Given a windfall and typical political pressures, the easy road is to give teachers and administrators what they want, buy showpieces, and otherwise spend the money in ways that have little impact on student achievement.

Districts could take steps that would directly impact student achievement with little increased cost, but they don’t. Typically, the reason is that one or more of public education’s internal interest groups find them objectionable. For example, better measurement of learning and better linkage of learning to teacher and administrator salaries would be far less expensive than across-the-board salary and benefit increases, more personnel, and new facilities. Court mandated funding windfalls coupled to such measures would have a far better chance of actually improving student achievement. Understandably, however, teachers and administrators are more comfortable with a work environment that does not tie consequences to productivity.

A&M and MAP both advocate providing increased state funding to receiving school districts with no strings attached. They justify this recommendation by arguing that managers should have the flexibility to manage within the local environment that they know best. Mission, money, and measurement should come from the top; method should come from the bottom is one phrase used by MAP. Set outcome targets and then hold their feet to the fire to achieve them, was used by another advocate. School district officials tend to agree with the notion.

What works in theory, however, is unlikely to succeed in practice because most public school districts have little discretion in how they spend the overwhelming majority of their funds. They have signed binding legal (labor) contracts encumbering most of their funds. Moreover, they are subject to extremely restrictive laws and regulations as to whom they can hire. Under these conditions, very little of any added funding is likely to serve as an incentive for improved quality or efficiency.

More funding adequacy settlements are likely only to increase costs. Indeed, acceding to the recommendations of funding adequacy proponents could lead to an endless succession of adequacy studies and court-mandated funding increases. Poor districts are unlikely to ever meet the state-required performance thresholds if they continue to spend in the accustomed ways. Years of spending and failure are then likely to be addressed by another blue-ribbon commission, another study by A&M or MAP, and another spending increase. The unthinking belief that spending alone will improve things only puts off the day when productivity issues must be seriously examined. Meanwhile, another generation of children is lost.


For further reading:

Erik Hanushek, “The Productivity Collapse in Schools,” in William J. Fowler, Jr. (ed.), Developments in School Finance, 1996 (Washington, D.C.: National Center for Education Statistics, U.S. Department of Education, 1997), pp. 183-195.
Erik Hanushek,”A Jaundiced View of ‘Adequacy’ in School Finance Reform,” Educational Policy, 8(4), December 1994, pp. 460-469.
Erik Hanushek,”Can Equity Be Separated from Efficiency in School Finance Debates?”, in Emily P. Hoffman (ed.), Essays on the Economics of Education (Kalamazoo, MI: Upjohn Institute, 1993), pp. 35-73.
Michael Podgursky, “Regulation Versus Markets: The Case for Greater Flexibility in the Market for Public School Teachers.” Presented at the New Teachers for a New Century Conference, Johnson Wingspread Conference Center, Nov. 17-19, 1999.
Dale Ballou and Michael Podgursky, “Teacher Recruitment and Retention in Public and Private Schools.” Journal of Policy Analysis and Management, Vol. 17, No. 3, June 1998, pp. 393-417.
Dale Ballou and Michael Podgursky, “Teacher Training and Licensure: A Layman’s Guide.” in Marci Kanstoroom and Chester E. Finn, Jr. (eds) Better Teachers, Better Schools. Washington DC: Thomas B. Fordham Foundation, 1999.
Dale Ballou and Michael Podgursky, “Teacher Unions and Education Reform: Gaining Control of Professional Licensing and Advancement.” in Tom Loveless (ed.) Conflicting Missions: Teacher Unions and Education Reform. Washington DC: The Brookings Institution, 2000.



1. See, for example, James W. Guthrie and Richard Rothstein, “Enabling Adequacy to Achieve Reality: Translating Adequacy into State School Finance Distribution Arrangements,” Chapter 7 in National Research Council, Committee on Education Finance, Equity and Adequacy in Education Finance: Issues and Perspectives, 1999.

2. See Paul A. Minorini and Stephen D. Sugarman, “Educational Adequacy and the Courts: The Promise and Problems of Moving to a New Paradigm,” Chapter 6 in National Research Council, Committee on Education Finance, Equity and Adequacy in Education Finance: Issues and Perspectives, 1999.

3. See Melissa C. Carr and Susan H. Fuhrman, “The Politics of School Finance in the 1990s,” Chapter 5 in National Research Council, Committee on Education Finance, Equity and Adequacy in Education Finance: Issues and Perspectives, 1999.

4. See Bradford, et.al. v. Maryland State Board of Education, et.al., Order, October 18, 1996 [Case #94390058/CE189672]

5. Using a t-test comparing means.

6. See, for example, NAEP Mathematics–Average Mathematics Scores by Teachers Reports of Total Years Taught at https://nces.ed.gov/nationsreportcard/pdf/main2000/2001517.pdf; Dale Ballou and Michael Podgursky, “Teacher Pay and Teacher Quality.” W. E. Upjohn Institute for Employment Research, 1997.