Pennsylvania education funding: a major dilemma

Introduction: Judge Renée Cohn Jubelirer sided with the plaintiffs in a landmark trial that challenged the current school funding model, ruling that the General Assembly has not fulfilled its legal mandate and has deprived students in school districts with low property values and incomes of the same resources and opportunities as children in wealthier ones.

-From Pennsylvania Capital-Star, Feb. 8, 2023.

This Policy Brief addresses the decision and proposes possible remedial actions.


Background and overview

The Commonwealth Court ruling is potentially far reaching in its impact on how public schools in Pennsylvania are funded by the state’s taxpayers. The court declared there is inequity in funding that gives children in poorer districts less access to quality education and is therefore unconstitutional. If upheld by the Supreme Court, it will force the Legislature to act.

The problem of large differences in total funding per student is the direct result of the two-source revenue policy—namely, local funding, essentially based on property taxes, and state funding. The state allocation ostensibly uses a methodology predicated on an “aid ratio index” for each district. The aid ratio is calculated by combining the market value per average daily membership (ADM) aid ratio and the personal income per ADM aid ratio. There is a further funding complication created by the so-called “hold harmless” provision that prevents reductions in funding for districts that have lost enrollment.

In principle, the higher the value of the aid index for a school district the more state aid per student it should receive. The method of calculating the aid ratio essentially inverts the district’s ability to generate revenue based on its market value of property per ADM and total personal income per ADM. The values are normalized over the 500 school districts and the combined property value and income aid ratio is forced to fall in a range of 0.1500 to 1.00.   The three highest district readings were posted for Reading in Berks County (0.8967), Duquesne in Allegheny County (0.8924) and York City in York County (0.8649).  All data in this Brief are taken from Pennsylvania Department of Education’s “Annual Financial Reports 2020-2021,” the latest available.

Statewide, the 2020-2021 total revenue from local, state and federal per ADM sources (excluding the other revenue category that includes revenue from the sale of bonds; proceeds from extended term financing; interfund transfers; receipts from other local education agencies; sale of or compensation for loss of fixed assets and refunds of prior years’ expenditures) totaled $31.796 billion statewide.  With a state total of 1,690,400 ADM, the statewide average revenue per ADM was $18,810. Rounded to the nearest dollar, average local revenue per ADM was $10,627 (56.5 percent of total), state revenue was $7,200 per ADM (38.3 percent of total) and federal revenue was $983 per ADM (5.2 percent of total).  For the state as a whole, excluding the federal funding, the state share is 40 percent and the local share is 60 percent of funding.

School district funding examples

Combined state, local and federal spending per ADM ranged from $13,058 in the Shamokin District (Northumberland County) to $34,710 in the New Hope-Solebury District (Bucks County) with Forest Area District (Forest County) at $33,516 per ADM close behind.  Note that Shamokin’s local revenue was only $3,368 per ADM while New Hope-Solebury local funds were $29,092 per ADM.  Rounded to two decimal points, Shamokin’s aid ratio was 0.79 and New Hope-Solebury’s was 0.15.  Shamokin received $8,736 per ADM from the state while New Hope–Solebury received $5,180.

While the Shamokin and New Hope-Solesbury districts seem to support the notion that the aid ratio is allocating according to the purported intent of the corrective mechanism, it actually does not.  For example, Line Mountain District in Northumberland County, with a significantly lower aid ratio than Shamokin at 0.65, received $10,349 per ADM from the state.  Even worse, West Middlesex District in Mercer County, with an aid ratio of 0.64, receive $12,381 in state funds per ADM. And perhaps most egregiously, the Pittsburgh Public School District, with a quite low aid ratio of 0.27, received $11,513 in state funds per ADM and another $2,498 per ADM in federal funds and had total revenue of $27,716 per ADM.

Some technical analysis

Countless other examples of the failure of the aid ratio to match actual state funding could be presented but statistical analyses provide an overall picture. For all districts, the covariance between the aid ratio and per ADM state funding is 0.64. And the R-squared from a regression analysis is 0.41.  R-squared is simply the fraction of the variation in the state funding accounted for by the aid ratio.

In other words, the Education Department’s use of the aid ratio falls far short of achieving more equitable funding. Equitable meaning closing the gap significantly between very high spending districts (far above the state average per ADM) and the very low spending districts.  Much of the failure is likely due to falling enrollment in some districts.

Root causes of the funding disparities

As noted in the beginning paragraph, the problems with school funding in Pennsylvania derive largely from the long-standing policy of using both local and state funds for education—and some federal funding.  Wealthier districts can raise far more money locally per student than poor districts can.  Of course, this can be offset to some degree by the number of students in a district.  A relatively poor district with only 300 or so students can most likely afford to spend more per student than a poor district with 3,000 students. That is somewhat adjusted for in the aid ratio but, as noted above, the aid ratio as put into practice leaves a lot to be desired in promoting equitable funding. Consider, for example, the Forest Area District (mentioned above as having the state’s second-highest total revenue per ADM) has only 420 ADM. As a result, it is able to raise $18,220 locally and even with a relatively low aid ratio of 0.31 received $13,729 in state funding per ADM along with another $1,617 in federal funds per student.

Nonetheless, the situation becomes startlingly out of proportion when a rich district raises $29,000 per student locally and still receives state funding when the average total state, local and federal spending per student is $18,810. In the current system of local funding and state funding it might not be feasible to eliminate income and wealth inequality impacts on school funding across school districts.  On the other hand, the state should not be further exacerbating per student funding differences by allocating state revenue to districts that locally raise $11,000 per year more than the state average of total revenue per ADM.

Is there a solution?

Can the two funding tax sources ever produce a fairer system of funds per student in which the revenue per ADM falls in narrow range for all districts?  There are several possible ways, none easy or readily implementable for political reasons. First of all, the minimum per student spending level that should create adequate educational and learning opportunities will need to be determined. That will not be easy.  Note that in Pennsylvania, out of 500 districts and 99 charter schools, seven of the top 12 ranked school districts as measured by achievement test scores are in Allegheny County and have average revenue per ADM of $20,733. South Fayette, the state’s fourth-ranked district had revenue of $18,051—under the state average total.

Meanwhile, the Pittsburgh Public School District ranked 454th with revenue of $27,716 per ADM.  The Cheltenham District in Montgomery County had revenue of $28,790 per ADM and ranked 304th. Even worse, the Farrell District in Mercer County, despite having revenue per ADM of $28,908, ranked 519th.   On the other hand, the Loyalsock District in Lycoming County, with revenue of $15,795 per student, ranked 78th or in the top 15 percent of districts.

In short, while there may be a relationship that shows broadly that revenue levels correlate with academic achievement, it is weak and there are plenty of counter examples showing poor academic performance in high revenue per student districts and good or above average performance in lower revenue districts.

Obviously, there are factors that influence learning and academic achievement besides the dollars spent per student.  And spending more in an effort to improve performance in schools that are already abject failures despite huge expenditure per student is doomed to be ineffective.  Thus, simply focusing on dollars per student will not produce desired outcomes. Determining the causes of poor performance and addressing those are far more likely to pay education dividends.

Outlines of possible equitable funding plans

If the Legislature wants to focus on reducing the wide disparities in per student funding across school districts it must address a principal cause, i.e., the vast differences in population, property values and incomes among the school districts. Without question, wealthier districts can raise relatively very large amounts of funds at fairly low tax rates compared to poor districts. In short, the wide disparities in funding can only be reduced by addressing this inescapable fact. The current system of using an aid ratio was shown above to be hopelessly inadequate.

Consider three possible options to get closer to equal funding:

One, by law, eliminate property taxes and other local funding sources and have all funding come from the state.

Two, place an enforceable dollar per student limit on local funds that can be raised for each district—perhaps the most recent statewide average of local funding—with future adjustments determined by inflation.

In either scenario the state would then provide each district funds adequate to equalize total per student funding across all districts at close to the most recent all district average total funding per student with some possible inflation adjustment each following year.

Without doubt these proposals will meet with tremendous opposition from wealthy districts.  The teachers and employees whose salary and benefits—as specified in union contracts—are far greater than those in middle class or poor districts would face tremendous cuts in compensation.  And, of course, the contracts currently in effect are unlikely to be renegotiated. This problem might be overcome over time by a phase-in of the new funding policy.  But it would take many years and be derailed before completed.

A third option is to allow districts with the enormous ability to fund education the option of creating an essentially private district-wide school system that would receive no state funding. The districts would operate in a relationship to the state, similar to charter schools.

Indeed, the state should encourage the formation of charter schools and go further and provide vouchers that parents can use to find alternative education away from poorly performing public schools.

Clearly, all these proposed options will face a storm of resistance. That is the inevitable result of years of ignoring the problems or trying to solve them by half-measures that proved inadequate and difficult to implement.

The Department of Education’s Misleading Academic Score System

In an apparent effort to put the best face possible on failing schools in the state, the Pennsylvania Department of Education (DoEd) has concocted a complex scoring scheme that is intended to blunt the impact of the reality of the poor performance at many of the state’s public schools. This is done by giving dubious credit for some measures and irrationally weighting some factors, all of which are aimed at making the academic performance at failing schools look better than it actually is.


A comparison of two schools in Allegheny County will illustrate the absurdity of the DoEd’s rating scheme. For the latest school year, 2013-2014, Lincoln Elementary in Mt. Lebanon received a DoEd academic score of 85.2. In the same year Kelly Elementary in Wilkinsburg achieved a score of 62.9.  One would assume from these scores that even though Lincoln has a better score, Kelly is only 22 points (25 percent) below Lincoln.  Not good but not terrible.


Here is the problem. The results on the PSSA (state assessment) tests reveal a vastly different picture from that portrayed by the DoEd’s Academic Scores. At Lincoln, 93.3 percent of students tested proficient or advanced in math: at Kelly 38.9 percent were proficient or higher. 72.5 percent of Lincoln students scored at the advanced level on the math exam, only 9.4 percent scored at the advanced level at Kelly. The reading results were similar; 92.8 percent either proficient or advanced with 61.2 percent at the advanced level at Lincoln. At Kelly, only 29.4 percent were either proficient or advanced with only 3.9 percent advanced. Finally, on what is called a crucial indicator for elementary education and a predictor of future accomplishment of students, 95.8 percent of Lincoln third graders were proficient or advanced in reading; only 34.7 percent of third graders at Kelly attained proficiency or better.


So how does this enormous difference in test results for the two schools get converted into the mere 22 point Academic Score difference reported by DoEd?


There are three very large elements in this distorted picture. First, actual test results on four PSSA tests, including science and writing plus the score for third grade reading, account for a maximum of only 40 points in the final total—7.5 points for the four PSSA tests for all grades together and 10 points for third grade reading. Kelly earned 17.3 points of these but only 8.6 of those from math and reading (out of a possible 25 points in those two testing categories), the foundational framework for other learning. Meanwhile, Lincoln earned 37.7 points, 23.6 of those from the 25 possible in math and reading. Note that earned points are calculated by multiplying the possible points per test by the percentage of students scoring proficient and advanced on the PSSA exams.


Second, 40 possible points toward the final score are based on the percentage of students “meeting annual academic growth expectations.” This seems to be a meaningless measure in terms of actual progress.  Nonetheless, meeting expectations on each of the four PSSA tests is assigned a weight of 10 points so if 100 percent of students meet expectations on each test, the school gets 40 points.


Lincoln students received 29.3 points in the “meeting growth expectations” category, while Kelly students received 31.3 points.  Interestingly, the lowest point count any school can get in this category is 20 because the percentage of students meeting academic growth expectations on each test is set by arbitrary rule so that it cannot fall below 50 percent.


A big part of the distortion in final score totals arises from the fact that actual test results, i.e., the percentage of students scoring proficient or above, are weighted at 7.5 points for each PSSA test while  “meeting academic growth expectations” are weighted at 10 percent for each of the four tests. Thus, a school where 100 percent of students score at the proficient level on math will get 7.5 points toward the final Academic Score. If 30 percent are at the proficient level in math, the school will earn 2.25 points toward the Academic Score. This is repeated for the other three PSSA tests. A school could theoretically receive 30 points total from the results on the four tests. The third grade reading weight is set at 10 percent, so a school could get anywhere between zero and 40 points for actual achievement on PSSA exams.


At the same time, the “meeting growth expectations” component assigns weights of 10 percent for the four PSSA tests. However, there is an arbitrary minimum guarantee of 50 percent “meeting growth expectations” whether that level is actually reached or not. Therefore, all schools are guaranteed 20 points toward their Academic Score through this component even if not a single student showed any academic improvement.  A school will earn 20 to 40 points in this category depending on how many students above 50 percent meet expectations.


In short, the category of “meeting growth expectations” is given higher weights per test than actual performance on the tests.  Further complicating the issue is just how meaningful is the concept of “meeting growth expectations”?  Say a student in third grade falls well short of proficiency in math and in fourth grade the same student is still not proficient. So how do we know whether there has been any academic growth?  If year after year the percentage of students scoring proficient in math is around 35 percent in each grade, would it not be reasonable to assume that, for the most part, it must be the same group of students scoring proficient as they move through higher grades?  Giving points for “meeting expectations” for students who never reach grade level competence is useless and completely misleading.


So how do we get 70 or 80 percent “meeting growth expectations” at Kelly Elementary? Or said another way, if children cannot do third grade math, why would one expect they would be equipped to do fourth grade math?


And even more astounding, how can the number of students at Lincoln “meeting growth expectations” in math be only 53 percent when 93.3 percent of the students score at the proficient or advanced level?  Indeed, it is even more puzzling considering that 72.3 percent of the students score at the advanced level. This suggests that the procedure for measuring “meeting growth expectations” is irrational, to be kind.


The third distortion in the state’s academic rating scheme:  A possible 10 points are awarded based on promotion rate (5) and attendance rate (5). With Kelly’s promotion rate at 97.37 percent, the school earned 4.9 points and with attendance at 92 percent, worth 4.6 points, for a total of 9.5 toward the final score. Lincoln received 9.8 points for the two measures.


With promotion rates in most schools at or near 100 percent, and attendance in elementary schools almost always 90 percent or better, all schools are essentially being given 9.5 to 10 points even if students learn almost nothing.


And how can promotion rates be close to 100 percent at Kelly when 65 to 70 percent of students are scoring below proficient in math and reading?


Adding to this 9.5 to 10 points the guaranteed 20 points from the “meeting expectations” measure gives schools a total of almost 30 points for merely existing.  On the other hand, the scheme does give a modest possible four points for excellence—one point for each PSSA test times the percentage scoring advanced on each test.  Lincoln earned 2.5 additional points on this measure. Kelly earned zero. One would have thought that having 70 percent of students scoring advanced in math would be worth more than 0.7 points toward the Academic Score. Sadly, that is not happening.


Without question there is a lot wrong with this rating scheme. It is misleading in the extreme because of its arbitrariness and its underweighting of actual, measured strong academic achievement.  But probably most deleterious is the false sense of academic achievement it gives to schools that score a 70 when 30 points are basically freebies and makes them appear to be not too far behind schools with truly excellent academic performance and receive a score of 85 on the rating scheme.


And it also takes away from schools that are sterling performers when the “meeting expectations” measure is determined in a way that punishes high achieving schools.


In sum, the Department of Education Academic Scoring system for Pennsylvania schools is a travesty.  One has to wonder how much it has cost in man hours, employee wages and consultant fees to set it up and to run it.

Pension Obligations Are Taxing Property Owners

Pension problems facing school districts have come home to roost.  As we wrote in a recent blog: “Unless there is agreement on pension reform legislation…most school districts in Pennsylvania face ruinous increases in pension funding.”  To handle this increase, districts will have to raise taxes, lay off personnel, or both.  And while the Commonwealth, through Act 1 of 2006, restricts a district’s ability to raise property tax rates, in Allegheny County eleven school districts, 25 percent of the total, have petitioned for an exception to this law meaning they now have permission to increase property tax rates above the Department of Education’s prescribed limit.



Briefly, Act 1 of 2006 charges the Department of Education (PDE) with setting an inflation index each year that serves as a cap on each school district’s allowable millage increase.  Anything above this cap has to be granted an exception or go before the voters in a referendum.  There are only three allowable reasons for an exception-school construction (grandfathered debt), special education expenditures and pension obligations.  In 2012 the index was calculated to be 1.7 percent for the upcoming school year (2013-14).  Any increases over 1.7 percent, as stated above, require either a voter referendum or an exception from the PDE. 


As we had written about in a previous Policy Brief (Volume 12, Number 8), the fact that this is a reassessment year (or the year the reassessments are implemented) in Allegheny County, muddies the water a little bit.  As we stated then, “The act contained a section on property tax limits on reassessment and noted ‘notwithstanding any other provision of law’ that a school board ‘shall…reduce its tax rate, if necessary, for the purpose of having the percentage increase in taxes levied for that year…be less than or equal to the index for the preceding year.’ That does not mean revenue neutral, but within the index determining how much school taxes can increase under the statute.”  Thus school districts in Allegheny County have to roll back their millages to comply with Act 1 by using the index for the 2012-2013 school year (calculated in 2011 which was also 1.7 percent).  If they need to increase beyond the index, they must go before voters or apply for an exception. 


For the upcoming school year, 186 school districts across Pennsylvania (of 500) adopted preliminary budgets indicating that they were going to seek millage increases.  171 are seeking exceptions as their desired increase, based on their preliminary budget, exceeds the index while the remaining 15 are holding increases to within the index.  The PDE released a “Report on Referendum Exceptions for School Year 2013-2014” which provides details of the requests.  Eleven Allegheny County school districts made such a request:  Avonworth, Bethel Park, Brentwood, Clairton, Keystone Oaks, Mt. Lebanon, North Allegheny, Pine-Richland, Riverview, South Fayette, and West Allegheny. 


All eleven districts cited pension obligations as reasons for petitioning for the exception with three-North Allegheny, Riverview, and West Allegheny-also citing special education expenditures.  In fact statewide, 169 of 171 school districts (98.8 percent) seeking exceptions did so based on the grounds of pension obligations.  Seventy five also asked for an exception for special education expenses (44 percent) and eleven (6.4 percent) for school construction (grandfathered debt).  Clearly pension obligations, the contribution rate for the retirement system was raised from 12.36 percent to 16.93 percent, are straining school district budgets and many are looking to the taxpayers to pick up the tab. 


For the eleven Allegheny County school districts, a total of approximately $5.36 million additional tax revenue was being sought to pay for pension obligations.  The requests ranged from $115,200 (Clairton) to $1.38 million (North Allegheny) with an average of just over $487,000.  The PDE approved nearly all of the requests (Brentwood and Clairton were approved but for less than they requested) for an eleven district total approved exception of $5.23 million.  The PDE also has given approval for millage hikes to cover the amounts approved for each school district.  The range covers a low of 0.1987 mills (Keystone Oaks) to a high of 0.3811 (Riverview).  Clairton, which has a separate rate for buildings and land, was approved for an increase of 1.3384 mills on the buildings and 3.9359 on land. 


That is not to say that these districts will use their exceptions, but they have permission to do so-after all these calculations were based on preliminary budgets.  In many cases final budgets are still being worked out and may not be approved until the State budget is set at the end of June.  And of course the other districts not filing for an exception can still raise millages, they just have to do so within the parameters of Act 1. 


Pension obligations are straining district budgets and there are basically only two options to deal with shortfalls-eliminate programs/staff positions or pass the higher spending onto the backs of taxpayers.  Taxpayers have certainly borne the rising spending burden for a long time but now are pushing back.  How many teachers would have to be laid off to close the budget gaps caused by the increase to pension contributions?  North Allegheny’s shortfall of $1.38 million suggests that dozens of teachers would be on the block. 


It’s time for the state to address the issue by allowing some common sense solutions such as allowing districts to lay off teachers for economic reasons and eliminating the teachers’ right to strike.  Likewise teachers need to realize what is at stake and come to the table willing to accept needed reforms of the pension plans to save teaching jobs.