Enrollment Down, Funding Up

Few people understand this and that is frustrating

At the beginning of the movie The Big Short, there is a title card with the epigram, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” It attributes the quote to Mark Twain.

Ironically, there isn’t any proof that Twain actually said or wrote that.

But the sentiment of the aphorism is so, so true. Fully believing something that isn’t true can get you into serious trouble.

With a brilliant new paper in the prestigious journal Education Finance and Policy, Matt Lee and Ben Scafidi (friends of Informed Choice) take head-on one such myth—something that many people in education believe for sure that just ain’t so. It is the myth that declining student enrollment is linked to declines in per pupil expenditures.

They look at enrollment changes and expenditures from 1998 to 2019. (They wisely choose this period to look at trends, before COVID disrupted enrollment patterns and the federal government helicopter-dropped billions of dollars into K12 schools.) And what do they find? In the authors’ own words:

“In our preferred estimates that control for changes in student characteristics, we find that districts with declining enrollment experienced significantly larger increases in total and current expenditures per pupil relative to districts with growing enrollment. These trends were present for the 1-year, 4-year, and 20-year enrollment changes under study. While magnitudes became attenuated in the longer time periods, there were still substantially larger increases in per-pupil expenditures over both 4-year and 20-year changes in districts with enrollment declines.” [Emphasis added]

Yes, you read that right. While most people think that when school districts lose students, they also lose funding… that just ain’t so.

How could this be? The authors, again:

“These advantages with respect to expenditures and resources were possible because declining districts saw state and especially local and federal revenue declines that were smaller, in absolute value, than their declines in enrollment—or they experienced increases in revenues as enrollment declined.”

If you’re interested in all of the gory details as to how states cushion the balance sheets of districts with declining enrollments, Marty Lueken and James Shuls wrote a paper for EdChoice back in 2023 working through all of the ways in which school districts are “held harmless.” The primary mechanisms are declining enrollment provisions and funding guarantees. These policies allow districts to calculate enrollment for the purpose of state aid based on prior years when they had more students and guarantee minimum amounts of funding regardless of enrollment. Couple that with general funding increases that states enact legislatively, and you have a system where schools can get more money for serving fewer students.

To be fair, there are some good reasons to cushion district funding as enrollment declines. Schools have certain fixed costs, and it can be challenging to adjust those on the fly.

Now, I know what some of you are already thinking, but private and charter schools have to make those adjustments every year, as does pretty much any other revenue-dependent enterprise, so why shouldn’t public schools? That is a fair question. My response to that would be… that I don’t really have a good response. I actually agree with you, I was just trying to be reasonable and conciliatory. The truth is that some people see public schools as a fundamentally different type of entity than private or charter schools, which merits different treatment. I am not one of those people.

Anyway, maybe at least the school districts are putting the extra money to good use? The authors again:

“This pattern translated into much larger increases in total staffing and teachers per 100 students in declining districts relative to growing districts. Regarding compensation for teachers and other employees, declining districts had no detectable advantage per the 1-year and the 20-year time periods, while growing districts had a very modest advantage in compensation per employee over 4-year periods. However, this compensation advantage for growing districts over 4-year periods was not robust across alternative specifications.”

So, it does appear that districts are using this funding increase to hire more staff. They are not, however, using it to pay those people more.

This is a story of tradeoffs. When more money comes in, you can spend it on your existing staff and give them raises, or you can use that money to hire new staff. We can see what districts chose to do. Unfortunately, hiring more staff can exacerbate the funding strain of declining districts as more and more people need to be funded by a pool of fewer and fewer students.

As John Kristof pointed out earlier this week, enrollment declines are going to continue. Developing a way to manage the fiscal implications of those trends is only going to become more important in the future. The first step is coming to grips with reality.

This was originally published to our Substack.