Posted by Yolanda Smith, September 21, 2010

As students and teachers headed back to school this month it was widely reported that given lower state aid, growing enrollment, and rising costs, school budgets had been cut. But the effect differed from school to school, with some schools even seeing their allocation per student rise. To provide parents, teachers, policymakers, and other interested New Yorkers with a clearer view of the funding available for schools across the city, IBO compared the initial allocation each school received to fund its basic operations this September with the allocation last September. Click here to look up the figures for particular schools.

Much of the year-to-year change was due to annual adjustments that take into account changes in the make-up of a school’s student body (how many students need special ed, are performing below standards, etc), plus changes in a school’s enrollment. But some of the change this year arose from funding shortfalls that threatened to leave some schools with budgets too small to cover basic operations, which led the education department to shift some of the basic allocation funding.

More schools than not will begin this year with less money per pupil for their basic operations than they had at the beginning of last school year. According to IBO’s calculations, 864 out of 1,464 schools have received an initial operating allocation per pupil that is less than last year’s. In contrast, 585 schools have received a greater per pupil allocation than last year, and 15 received exactly what they had a year ago, on a per-pupil basis. (Schools which have either been closed by the Department of Education or newly opened this year are not included in these counts.) These changes have real consequences—among schools with lower per capita allocations this year, the median decline was $151. In a school of 500 students such a change is roughly equivalent to the cost of one teacher. (Click here for table showing how changes in percentage terms were distributed.)

Each year the education department creates school allocation memoranda, often referred to as SAMs. These SAMs detail for principals the various sums of money available for each school’s budget. The most important of these, SAM #1, sets up the opening basic operating condition and the allocation of dollars largely through the fair student funding (FSF) formula, although some non-FSF funds are included in this allocation. In this post, we are comparing the initial SAM#1 FSF allocations made to schools this year and last year.

Fair student funding—the largest part of the SAM#1 allocation—is the method used since school year 2007-2008 to distribute most of the city and unrestricted state funds needed to run the schools. The FSF formula takes into account the student demographics at each school, with more money allocated for higher needs students. The FSF allocation is the core of a school’s budget, covering instructional staff and school operating overhead. The total amount of FSF allocated through SAM #1 this year is $4.4 billion, $91 million more than last year (including hold harmless and incremental funding, which are explained below).

The fair student funding methodology was originally going to be implemented gradually. In order to preserve stability and protect core programs in the first two years of implementation, the FSF allocations included hold-harmless money to avoid funding reductions for schools deemed “overfunded” under the formula. Schools deemed “underfunded” under the formula were only allocated enough to eliminate 55 percent of their shortfall with the expectation that their allocations would increase over time. The goal was to have all underfunded schools receive their full FSF funding level by 2009-2010. Yet as early as school year 2008-2009, the education department indicated that full implementation was likely to be slowed without adequate state and city funding. (See IBO’s report on FSF “New Funding Formula Seeks to Alter School Budget Disparities” for more details.)

Changes in the characteristics of a school’s student body generate changes in per pupil funding because FSF takes into account individual student needs. The formula, in other words, is weighted based on needs. Each student starts with a weight based on grade level, which can grow depending on the student’s characteristics. For example, a high school student performing below standards has 0.25 added on to her weight and high school students in English learner classes receive an extra 0.50 weight. All students’ weights are translated into dollars which determine the FSF formula allocation for the school.

The effect of changes in individual school demographics on each school’s SAM #1 allocation can be observed by looking at the percentage change in dollar allocations per needs-weighted student. We found that these changes in school demographics explain much, but not all, of the changes in per pupil funding for individual schools

Using the weighted student enrollment, the year to year per capita changes tended to be smaller compared to the simple per capita change, with most schools clustered between -2.9 percent and plus 2.9 percent, but there were still a significant number of schools that saw larger changes. One hundred and two schools saw their allocation per weighted student decrease by 3 percent or more and 151 schools increased by 3 percent or more. In total, 68 percent of all schools experienced a decrease in funding in weighted per pupil terms.

The combined effect of rising costs and reduced state aid also played a role in this year’s funding changes for schools. The Department of Education initially attempted to deal with these pressures, along with rising enrollment, by imposing a 4 percent cut on school budgets for the 2010-2011 school year; the second consecutive year with such a cut. After calculation of the baseline formula incorporating the 4 percent cut, the education department determined it had a problem: 400 schools would fall below the minimum funding level needed to maintain basic operations.

The education department then decided it needed to adjust its allocation methodology. In order to insure that all schools received at least a base allocation amount (actually 86 percent of the amount the department labeled “operating threshold”), other unrestricted funding was added to the pool to be allocated and the amount of funds that could be reallocated from any school was capped at 3 percent. This cap allows overfunded schools (in fair student funding terms) to remain overfunded. With the additional funding and the cap on reallocation in place, this year’s opening allocations were set by reducing the result under the FSF formula by 4 percent across the board and then using federal stimulus funds as needed to reach a final cut of not more than 4.2 percent in the total SAM#1 allocation—including dollars in addition to the FSF funds—for every school.