Improving the school finance system in Washington state: Why, when, and how?

Written by David S. Knight, an associate professor of education finance and policy at the University of Washington. This article appeared in the Winter 2023 issue of WSSDA Direct. Visit wssda.org/direct to see all the latest issues of WSSDA’s newsmagazine.

Our state’s K-12 school system provides excellent educational opportunities for thousands of students, but not all students have equal access. Whether schools can offer equal educational opportunities to reach common outcome goals depends largely on providing adequate resources. Over the past 10 years, Washington has made substantial, much-needed investments in its public education system, which has likely paid off in many ways.¹ A typical college graduate considering a teaching career in Washington can expect to earn a substantially higher salary² than in years past, and salary increases improved teacher retention³ across the state.

Despite these important efforts, the finance system is still designed such that school districts serving the highest-poverty student populations receive less state and local funding⁴ per student than those serving the wealthiest student populations. Why does Washington operate a regressive school finance system that provides less support to school districts with more significant needs? What would a better model look like?

Around the country, in red and blue states, legislatures have designed public school finance systems where school districts serving a higher-poverty student population receive more per-student funding than districts serving more advantaged students. For example, the highest-poverty districts in California receive about 12% more funding⁵ than lower-poverty districts in the state. In contrast, a flat or regressive system, like Washington’s, provides more per-student funds to school districts in a community with less poverty and more economic resources. In our state, students of color and those from lower-income backgrounds attend school districts receiving less state and local revenue⁶ compared to middle and upper-income students and White students.

Why 

Reforming the state’s finance system to prioritize under-resourced districts would provide three primary benefits for the citizens of Washington. First and foremost, a fair public school finance system is a civil rights imperative with moral and ethical implications. The historian and scholar Gloria Ladson Billings coined the term Educational Debt, which refers to the economic, sociopolitical, historical, and moral debt owed to many communities whose labor and land were extracted to support the nation’s economic prosperity.⁷ Providing equal educational opportunity to students of color would contribute to efforts to repair past injustices.

Second, a school finance system that prioritizes higher-need school districts benefits the state’s economy. Decades of research on the economic impacts of educational investments demonstrates a positive societal return resulting from improved health and employment outcomes. But the overall impact of those investments depends on how states and school districts invest new money. The largest effects occur when states have targeted investments in higher-poverty districts. Unfortunately, Washington’s substantial funding increases⁸ over the past five years disproportionately benefited wealthier school districts.⁹ And while teacher salary increases are generally wise investments, districts provided the largest salary increases to their more veteran teachers.¹⁰

For Washington’s recent investments to have their greatest impacts, legislators should redesign the state’s finance system so that under-resourced and higher-need school districts are prioritized, and research shows these changes would represent more cost-effective investments¹¹ of educational dollars. In other words, when states invest more in their highest-need school districts, everyone benefits.

Lastly, inadequately funded schools cannot perform their duties of democratic engagement and citizenship. A system where all schools have adequate resources is better able to create an informed citizenry. In short, a reformed school finance system will help address past injustices, support economic growth, and promote civic engagement.

When 

Fixing Washington’s regressive school finance system is an urgent problem. Many districts around the country are experiencing a budget crunch, with overall enrollment down from before the pandemic, federal COVID-19 stimulus funds expiring, and students and staff needing extra services to address mental health and learning challenges stemming from the pandemic.

In response, Washington state legislators have made additional changes¹² to the finance system in recent legislative sessions, but those reforms were not tied to student poverty or need.¹³ As a result, districts in wealthier communities benefited just as much as the highest-need districts despite vastly different experiences with the COVID-19 pandemic.  

Several national research organizations¹⁴ produce state rankings of “school finance equity,” referring to the extent to which the state provides material support to districts in proportion to their need so that the entire state system is strengthened. Across these various rankings, Washington regularly ranks toward the bottom.¹⁵ Addressing the state’s regressive public school finance system will not be a quick fix, but rather an urgent problem that requires immediate attention.

How 

How do Washington state legislators improve the system? Currently, three aspects of the funding system contribute to inequities. First, the Prototypical School Funding Model, the state’s primary school funding formula, is based predominantly on enrollment, and lacks significant student weights for multi-language learners or low-income students, a feature present in the vast majority of state school finance systems.¹⁶ In all states, including Washington, the majority of funds are allocated to school districts on a per-student basis. However, most states¹⁷ (other than Washington) use enrollment weights so that students who are multi-language learners or come from low-income households are weighted more heavily in enrollment counts, generating more funds. In Texas, for example, low-income students are weighted at 1.225, generating an additional 22.5% of funding for each student classified as low-income. California uses a similar poverty weight, and in both states, the weights gradually increase with higher district-level poverty rates, recognizing the unique challenge of concentrated poverty. Both states consider multi-language learners as part of their weighted student funding system. Adopting a similar model for Washington and running the entire Prototypical School Funding model through weighted enrollment counts could fundamentally shift how the state allocates tax revenues to K-12 school districts.

A second driver of school finance inequity in Washington is the state’s new levy lid system, which limits the funding school districts can raise through local property taxation and the property tax payments of corporations like Amazon, Microsoft, and Boeing. As in many states around the country, the state uses tax and expenditure limits to prevent property owners from having to pay exorbitant property taxes. Tax and expenditure limits, or “levy lids,” also prevent wealthier school districts from generating large sums of local revenues and driving up funding disparities. Levy lids also benefit corporations and commercial enterprises, which pay lower property tax rates as a result.

Under the new levy system, districts can only raise the lesser of $2.50 per $1,000 of assessed value (the “rate cap”) or about $2,500 per pupil (the “revenue cap”). By design, wealthier districts and those with commercial property will hit the revenue cap first, limiting the property tax rate that households and businesses will pay. In contrast, less wealthy districts will hit the rate cap first, forcing those districts to pay higher rates, but limiting the amount of revenues raised. Yakima School District, for example, levies the rate cap¹⁸ of $2.50 and only generates $920 per pupil.

The ultimate outcome brings negative consequences for districts across the state. For those with significant commercial property within their residential boundaries, like Seattle and Bellevue, households and corporations both benefit from a lower average property tax rate, but the districts are capped by how much revenue they can bring in. Conversely, for districts like Auburn and Federal Way, or Yakima, Othello, and Grandview, which lack significant commercial property from which to generate local property tax revenue, households pay a much higher tax rate and generate less funding for students compared to wealthier school districts.

To help fix the levy lid system, the state could expand Local Effort Assistance, or LEA, which equalizes the tax base between school districts. Under current policy, any district that passes an enrichment levy of $1.50 per $1,000 of assessed value (i.e., a 0.15% property tax) will receive at least $1,500 per student regardless of the total property value within the district’s residential zone. For example, a low-wealth district that passes an enrichment levy of $1.50 per $1,000 might generate only $600 per student but would receive $900 in LEA, bringing them up to $1,500 per student. If property values decline in that district, LEA will kick in, ensuring the district can still raise at least $1,500 per student through an enrichment levy of $1.50 per $1,000. However, additional rate increases beyond $1.50 per $1,000 of assessed value are not matched with any LEA. Thus, if this district increased its rate to the maximum of $2.50 per $1,000 of assessed value, it would face a much higher “tax price,” meaning that additional property taxation of residents would generate far less additional revenue for students. The state should fully equalize tax bases up to the levy lid by expanding LEA, and legislators should consider providing LEA for capital and technology levies.

Last, the state needs to further examine the impacts of the “experience mix,” which drives more funding to school districts with a more experienced teacher workforce. Research on teacher labor markets¹⁹ reveals a familiar pattern in which more veteran teachers tend to work in schools and districts that enroll higher percentages of White students and students from middle and upper-income families; this creates a “teacher experience gap” for students of color and lower-income students.

The state should consider using a cost of labor index²⁰ to compensate districts located in areas with generally higher salaries among college-educated professionals. Currently, the state uses “regionalization factors,” which provide additional funds for districts in high-cost-of-living areas based on residential property values. Regionalization factors are meant to adjust for the cost of labor, but they overstate the cost of labor in high-cost-of-living areas with many neighborhood amenities like high-quality schools and parks. Those amenities drive up property values, making it more costly to live there, but they also help attract and retain teachers. In contrast, regionalization factors understate the true cost of labor in rural, lower-cost-of-living areas, where residential property values are lower, but salaries may be higher to compensate for the limited labor supply.

In sum, three steps that may help address inequities in the short term include (1) add or expand student funding weights for lower-income students and multi-language learners; (2) reform the levy lid system to ensure commercial entities pay their fair share without overburdening residential property owners, especially within higher-poverty school districts; and (3) further examine the impacts of the experience mix.

Adopting each of these policies would not solve all the system’s inequities but would represent an important first start. School board members, parents, and state legislators should celebrate the significant and much-needed investments in Washington’s school finance system made over the past 10 years. However, we should never be satisfied with the structures in place if they lead to large identifiable differences in opportunities and eventual life outcomes for students. Instead, we should always work to build a system that strengthens the economy, promotes healthy civic engagement, and is fairer and more effective for all Washingtonians.

---

Footnotes

1. Sun, M., Candelaria, C. A., Knight, D., LeClair, Z., Kabourek, S. E., & Chang, K. (2024). The Effects and Local Implementation of School Finance Reforms on Teacher Salary, Hiring, and Turnover. Educational Evaluation and Policy Analysis. https://doi.org/10.3102/01623737231213880 ↩︎
2. National Education Association (2023, April 1). Rankings of the States 2022 and Estimates of School Statistics 2023. https://www.nea.org/sites/default/files/2023-04/2023-rankings-and-estimates-report.pdf ↩︎
3. Sun, M., Candelaria, C. A., Knight, D., LeClair, Z., Kabourek, S. E., & Chang, K. (2024). The Effects and Local Implementation of School Finance Reforms on Teacher Salary, Hiring, and Turnover. Educational Evaluation and Policy Analysis. https://doi.org/10.3102/01623737231213880 ↩︎
4. Knight, D. S., Hassairi, N., Candelaria, C. A., Sun, M., & Plecki, M. L. (2022, January 1). Prioritizing School Finance Equity during an Economic Downturn: Recommendations for State Policy Makers. MIT Press Direct. https://direct.mit.edu/edfp/article/17/1/188/106761/Prioritizing-School-Finance-Equity-during-an ↩︎
5. (n.d.). The State of Funding Equity Data Tool. The Education Trust. https://stateofeducationfunding.org ↩︎
6. Knight, D. S., Almasi, P., & Berge, J. (2022, June 1). Washington School Finance: Exploring the History and Present-Day Challenges for Fiscal Equity. EdWorkingPaper No. 23-702. https://edworkingpapers.com/sites/default/files/ai23-702.pdf ↩︎
7. (2015, February 12). America’s first big business? Not the railroads, but slavery. PBS News Hour. https://www.pbs.org/newshour/nation/americas-first-big-business-railroads-slavery ↩︎
8. Knight, D. S., & Plecki, M. L. (2022, April 1). Establishing Priorities for Education Finance Under Fiscal Uncertainty: Recommendations for Washington State Policymakers. University of Washington College of Education. https://www.education.uw.edu/ejr/files/2022/04/Knight-Plecki_WEA_School-Finance-Equity-in-Washington_Feb2022-1_R.pdf  ↩︎
9. Knight, D. S., Hassairi, N., Candelaria, C. A., Sun, M., & Plecki, M. L. (2022, January 1). Prioritizing School Finance Equity during an Economic Downturn: Recommendations for State Policy Makers. MIT Press Direct. https://direct.mit.edu/edfp/article/17/1/188/106761/Prioritizing-School-Finance-Equity-during-an ↩︎
10. Sun, M., Candelaria, C. A., Knight, D., LeClair, Z., Kabourek, S. E., & Chang, K. (2024). The Effects and Local Implementation of School Finance Reforms on Teacher Salary, Hiring, and Turnover. Educational Evaluation and Policy Analysis. https://doi.org/10.3102/01623737231213880 ↩︎
11. Rauscher, E., & Shen, Y. (2022). Variation in the Relationship between School Spending and Achievement: Progressive Spending Is Efficient1. American Journal of Sociology. https://doi.org/10.1086/719956 ↩︎
12. Bazzaz, D. (2022, March 16). More counselors, nurses for WA schools after Legislature increases funding. Seattle Times. https://www.seattletimes.com/education-lab/more-counselors-nurses-for-washington-schools-after-legislature-increases-funding/ ↩︎
13. RCW 28A.150.260. Washington State Legislature. https://apps.leg.wa.gov/rcw/default.aspx?cite=28a.150.260 ↩︎
14. (2022, December 1). An Analysis of School Funding Equity Across the U.S. And Within Each State. The Education Trust. https://edtrust.org/wp-content/uploads/2014/09/Equal-Is-Not-Good-Enough-December-2022.pdf ↩︎
15. Baker, B. D., Di Carlo, M., & Weber, M. (2022, December 1). The Adequacy and Fairness of State School Finance Systems. School Finance Indicators Database. https://www.schoolfinancedata.org/wp-content/uploads/2022/12/SFID2023_annualreport.pdf ↩︎
16. National Policy Maps. EdBuild. http://funded.edbuild.org/national ↩︎
17. K-12 and Special Education Funding—Funding for Students from Low-income Backgrounds. Education Commission of the States. https://reports.ecs.org/comparisons/k-12-and-special-education-funding-06 ↩︎
18. Property Tax Levies. Office of Superintendent of Public Instruction. https://ospi.k12.wa.us/policy-funding/school-apportionment/school-publications/property-tax-levies ↩︎
19. Goldhaber, D., Lavery, L., & Theobald, R. (2015). Uneven Playing Field? Assessing the Teacher Quality Gap Between Advantaged and Disadvantaged Students. Educational Researcher. https://doi.org/10.3102/0013189X15592622 ↩︎
20. The Compensation Technical Working Group (n.d.). APPENDIX 4 – Comparative Labor Market Analysis. Office of Superintendent of Public Instruction. https://ospi.k12.wa.us/sites/default/files/2022-12/comptechworkgroup-appen4.pdf ↩︎