7
Achieving Goal 2: Breaking the Nexus

Completely severing the link between the background characteristics of students and student achievement will require much more than changes to schools and the school finance system. By themselves, schools cannot be expected to overcome the serious social, economic, and political inequities that contribute to large disparities in the academic achievement of children from different racial, ethnic, and economic backgrounds. At the same time, in the committee's judgment, schools, and the system of which they are a part, can and must do more to reduce the link between family and student traits and student achievement.

To that end, this chapter explores options for aligning finance policies with this goal. Finance policies with particular relevance for goal 2 include cost-adjusting school funding formulas and addressing inequities in access to facilities and technology funding; investing in children's capacity to learn via early childhood interventions and links between education and other community services; investing in schools' capacity to educate via reforms to enhance teacher quality, reduce class size, or adopt whole-school redesigns; altering incentives by rethinking the use of categorical programs such as Title I and special education; and giving schools or parents—or both—more control over how education dollars are spent.

REDUCING FUNDING INEQUITIES AND INADEQUACIES

If money did not matter, the large disparities in school funding across districts and states that have been so persistent over time might not matter very much. However, not only is the committee convinced that money can matter, but



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Making Money Matter: Financing America's Schools 7 Achieving Goal 2: Breaking the Nexus Completely severing the link between the background characteristics of students and student achievement will require much more than changes to schools and the school finance system. By themselves, schools cannot be expected to overcome the serious social, economic, and political inequities that contribute to large disparities in the academic achievement of children from different racial, ethnic, and economic backgrounds. At the same time, in the committee's judgment, schools, and the system of which they are a part, can and must do more to reduce the link between family and student traits and student achievement. To that end, this chapter explores options for aligning finance policies with this goal. Finance policies with particular relevance for goal 2 include cost-adjusting school funding formulas and addressing inequities in access to facilities and technology funding; investing in children's capacity to learn via early childhood interventions and links between education and other community services; investing in schools' capacity to educate via reforms to enhance teacher quality, reduce class size, or adopt whole-school redesigns; altering incentives by rethinking the use of categorical programs such as Title I and special education; and giving schools or parents—or both—more control over how education dollars are spent. REDUCING FUNDING INEQUITIES AND INADEQUACIES If money did not matter, the large disparities in school funding across districts and states that have been so persistent over time might not matter very much. However, not only is the committee convinced that money can matter, but

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Making Money Matter: Financing America's Schools we also are convinced that it can and should be made to matter more. Indeed, that is the intent of many of the finance reform strategies discussed in Chapter 6. The problem is that the more successful those strategies are, the more likely it is that the effects of funding disparities will be magnified to the detriment of the children in the underfunded schools. Given that many of the children in those schools are likely to be from disadvantaged backgrounds, the goal of reducing the nexus between family background and student achievement will require even greater attention than in the past to reducing those funding disparities and inadequacies. We reiterate the point we made at the outset: basic fairness compels attention to continuing inequities in American education. Why has it been so hard to reduce these inequities? The answer lies more in the political tensions resulting from values in conflict than in lack of technical knowledge. Technical problems certainly exist; for example, measures don't yet exist that capture fully the differences among states in state tax wealth and effort, thus complicating efforts to design a fair way for the federal government to assist struggling states. The technical problems, however, are amenable to at least proximate solutions. The political challenges are more vexing. In most states, it has been politically difficult to redistribute resources from wealthy to poor districts, and only with pressure from the courts have states reduced some of the historical inequities. Federal aid constitutes so small a proportion of education funding that it is limited in its ability to overcome disparities within and among states. While we have no easy solutions to the political challenge, we have no doubt that districts or schools serving disproportionate numbers of disadvantaged students will need more funding than other schools if they are to have a chance of raising their students' performance to acceptable levels. To that end, education finance programs will need to be adjusted to reflect the additional demands that educationally at-risk students place on schools. Hence, policy makers will need to include need-based cost adjustments in school finance formulas. In addition, policy makers should be concerned about disparities in educational facilities and technology funding, which are subject to different finance policies than are current operating expenditures and have not received the same scrutiny on fairness grounds as have the latter. Adding Need-Based Cost Adjustments to School Funding Formulas Need-based cost adjustments are important because schools or districts with large concentrations of difficult-to-educate students face many more challenges than other schools. Because their students come to school less ready to learn than students in higher-income suburbs, successful schools will need to provide more individual attention to their students and may need to offer smaller classes. In addition, such schools will have to pay more to hire teachers to induce them to teach in relatively harsh environments and, if they are unable to do that, to

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Making Money Matter: Financing America's Schools provide more professional development to raise the skills of the teachers they are able to hire. Finally, they typically have to spend more to maintain a safe environment for their students. In discussing funding adequacy, we emphasized that the amount of per-pupil funding that would be adequate for a typical district (or school) within a state would need to be adjusted for the differences across districts in the input prices they face and in the educational needs of their students if funding adequacy is to be ensured for all districts. Failure to make such adjustments works to the disadvantage of students in large cities, where the costs of inputs are typically high and where there are large concentrations of at-risk students. We also pointed out that the art of calculating cost indices that accurately reflect the additional costs of educating at-risk students raises a lot of thorny issues that have not been fully resolved. A large part of the problem is that there is not a good understanding of the relationship between the inputs used in the education process and the outcomes produced. That is, the production function for education is not well defined in that researchers often cannot find systematic and stable relationships between inputs and outputs given current levels of outputs and current ways of delivering services. The challenge for analysts is complicated further in considering that production relationship (and its impact on costs) in a new environment in which outcome standards are more ambitious than in the past and schools are under pressure to become more efficient in generating those outcomes. Yet despite the technical difficulties in estimating indices of how costs differ across districts because of the mix of students they serve, the committee strongly urges states to make the effort to develop reasonable indices and to use them in calculating state aid. (This could be done either by adjusting general aid formulas using these indices or by ensuring that the total state aid going to districts, schools, or students via general and categorical aid reflects cost differences.) This will require in part the development of better information on the cost of educating at-risk children. Some of our suggestions for the improvement of data collection activities of the National Center for Education Statistics, particularly about modifying finance data collection to better reflect the costs of programs and services, are important components in the development of improved cost indices (see Appendix A). States and districts should also take advantage of the improved statistics on children and families in poverty that will become available on an annual basis when the Census Bureau's American Community Survey is implemented in 2003. Failure to take cost differences into account is detrimental to the districts and schools with large concentrations of disadvantaged students and can reinforce rather than reduce the nexus between family background and student achievement. At the same time, the committee is well aware that any additional funding for such districts and schools will not by itself ensure higher student achievement.

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Making Money Matter: Financing America's Schools While such funding adjustments may be a necessary step toward goal 2 of breaking the nexus, it is clearly not sufficient. Financing Facilities and Technology School facilities and technology are financed differently than general operating expenditures of public schools. States play a smaller role and while the federal government provides some support for technology, it provides little support for building and renovation. Since it is state and federal funding that tends to mitigate funding inequities resulting from differences in local wealth, the differences in financing patterns suggest that access to funds for facilities and technology tends to be more unequal across school districts than is funding for current operating costs. Facilities In 1995, the General Accounting Office (GAO) conducted the first comprehensive survey of school facilities in 30 years, examining the condition of 10,000 schools in more than 5,000 school districts. The study found that one-third of schools had at least one building in need of extensive repair or replacement; two-thirds had at least one inadequate building feature; and nearly three-fifths had at least one unsatisfactory environmental condition. GAO estimated that it would cost over $112 billion over three years to upgrade facilities nationwide to a good overall condition and to meet federal laws on accessibility and the removal of hazardous substances (U.S. General Accounting Office, 1995c). Moreover, a second GAO report found that school facilities are not up to the current demands being placed on them: three-fourths do not have a system or building infrastructure for modern technology; 40 percent cannot meet functional requirements for laboratory sciences; more than half do not have flexible instructional space; two-thirds do not have adequate space for such services as before-or after-school care or child care (U.S. General Accounting Office, 1995b). State investments in educational facilities are currently growing, thanks to the booming economy; in 1998 states devoted a record $15 billion to school construction (Keller, 1999). Nevertheless, this level of investment is far below what GAO suggested is needed. GAO also found that school conditions varied from state to state and that schools in central cities and schools enrolling more than 50.5 percent minorities or more than 70 percent students in poverty were disproportionately likely to suffer from deficiencies (U.S. General Accounting Office, 1996). An earlier study (Parrish et al., 1995) found that urban districts enrolling high percentages of poor students in 1989–90 spent more of their budgets on core instruction than on capital outlays, compared to less disadvantaged districts. Yet these are areas where construction costs may actually be higher, because of cost-of-living differ-

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Making Money Matter: Financing America's Schools ences. Honeyman (1990) also reported that districts with low taxing ability demonstrated the greatest level of deferred maintenance. Ladd (1998) found that districts in poor fiscal condition devote a smaller share of education spending to capital outlays than districts in better fiscal condition. About 10 percent of the $300 billion spent on public elementary and secondary schools annually is directed for capital expenses, primarily in connection with facilities construction, renovation, and extensive maintenance. Facility construction and repair are undertaken through mechanisms and systems quite distinct from those used to support recurrent education expenses. Local revenue bonds have historically been the major source of support. State involvement has grown since the 1940s, when only 13 states subsidized the funding of educational facilities: now 40 states provide some funds for capital outlay (construction or major renovation) and at least 13 states have comprehensive facilities programs (U.S. General Accounting Office, 1995d). (A comprehensive program provides funding and technical assistance, conducts compliance reviews, maintains current information on the condition of school buildings statewide, and has more than one full-time staff member.) School facilities appear to be an understudied aspect of school finance. Facilities finance systems have not been subject to the same equal protection scrutiny over the past 30 years as have systems for funding recurring education expenses. (This is beginning to change: e.g., the Arizona adequacy court case was a case specifically about facilities, and a few other court cases have also addressed facilities disparities.) Neither has school facilities finance received much attention from either efficiency or productivity perspectives. The connection between the quality of school facilities and student achievement has been difficult to demonstrate (Monk, 1990; Duke, 1998, suggests it has not been much studied), but it has been suggested that the quality of school facilities is important in that they serve to attract teachers and families differentially to particular school districts where conditions are better and worse (Murnane, 1981). Another point worthy of greater research attention is the efficient deployment of school facilities and the capital they represent. In private-sector accounting, these assets would be under heavy pressure to produce outcomes. In public-sector accounting, these facility assets are assumed to be necessary and worthy of maintenance. However, little consideration is given to how these substantial costs can contribute more favorably either to student achievement or to lowered schooling costs. Greater attention needs to be paid to facilities and to the relative ability of districts to fund necessary building and maintenance. States without programs to assist districts in equalizing the cost of facilities construction and renovation should consider establishing them.

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Making Money Matter: Financing America's Schools Financing Technology Technology, if it is used appropriately, has great potential to help students and teachers develop the competencies needed for the 21st century (National Research Council, 1999). Technology financing, however, is more piecemeal and idiosyncratic than other school financing (Pelavin Research Institute and American Institutes of Research, 1997). This is especially problematic given conclusions like that of the Panel on Educational Technology of the President's Committee of Advisors on Science and Technology (1997) that the nation needs to increase its technology-related expenditures from roughly 1.3 to at least 5 percent of all public K-12 educational spending. Both the panel and Pelavin Research Institute/American Institutes of Research, which examined technology-related issues in depth, point out that initial acquisition costs represent a minority of technology expenses. In addition to financing acquisition, schools must be concerned with making increased provision for technology in their regular operating budgets to cover, among other things, the costs of training teachers to make effective use of technology. The Pelavin/AIR report (1997:39) points out that ''[l]ow-income school districts are likely to face the greatest funding challenge, not only because their sources of funding may be limited but also because the cost of deploying technology in their schools may be high for various reasons, including having more older buildings and greater security problems." While states and local areas devote about equal resources to current (operating) expenditures, local governments contributed twice as much as state governments to expenditures on educational technology in fiscal year 1994:40 percent compared with 20 percent; the federal government contributed 25 percent. The Pelavin/AIR report (1997:43) noted that the "piecemeal approach to funding technology prevalent in most schools cannot sustain widespread, substantial use of technology throughout the nation's schools." The "exceptional methods" used to date to fund many technology investments are not likely to be replicable in many schools. The Pelavin/AIR report assesses a variety of ways to fund initial technology-related costs and annual operating costs and emphasizes that state and federal governments have an important equity role to play in funding technology, as they do in other areas. It also highlights the need for schools and districts to treat technology separately in their budgets; technology is unlike any other budgeted expenditure (being a hybrid of traditional categories like labor and capital and recurring material expense). Giving it its own line item or budget category will help in projecting and planning for future needs and makes it less likely that districts and schools will ignore the post-acquisition expenditures that will be necessary if technology is to fulfill its promise in enhancing student learning. Technology financing is one example of how attention to the capacity of the educational system to make good use of money interacts with issues of overall

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Making Money Matter: Financing America's Schools funding levels and disparities. We turn in the next section to a broader discussion of capacity investments that may need to accompany sufficient funding in an overall effort to break the nexus between student background and academic achievement. INVESTING IN CAPACITY Research on improving the education of disadvantaged students emphasizes the importance of increasing the duration and the intensity of student exposure and instruction (Bloom, 1964; Slavin et al., 1989), as well as addressing the out-of-school conditions that limit children's readiness to learn. The following sections assess several promising investment policies for addressing one or more of these elements. The first set of policies involves investments beyond traditional K-12 education: early childhood programs and programs that link education and other children's services. The second set focuses on finance policies for K-12 schools that might lead to more intense educational experiences for at-risk youth. Investing in the Capacity of Children to Learn A strong consensus has emerged among policy makers, practitioners, and researchers about the importance of increasing investments in the capacity of at-risk children to learn, by focusing on the school-readiness of very young children and by linking education to other social services so that the broad range of educational, social, and physical needs that affect learning are addressed. Numerous ongoing programs providing early childhood intervention and school-community linkage provide evidence of the promise and problems of such policies, suggesting that there is still much to learn about how to make these investments most effectively. Early Childhood Interventions A major question for school finance is whether the nation is underinvesting in preprimary school education and child care and whether greater investment would contribute to minimizing later gaps in academic performance between advantaged and disadvantaged students. Of particular relevance for achieving goal 2 is the possibility of increasing the nation's investment in early childhood programs explicitly concerned with compensating for social-environmental disadvantages or developmental disabilities that are correlated with such later problems as low motivation and academic underachievement. Available evidence supports the idea that early intervention programs targeted at disadvantaged children, especially high-quality programs with intense and comprehensive services, can have a number of positive benefits. The evidence is strong enough to warrant continued attention to expanding these pro-

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Making Money Matter: Financing America's Schools grams. Much remains to be learned, however, about how to preserve the gains that disadvantaged children make in early childhood programs, which now tend to fade over time. The absence of quality follow-through and the tendency for other children to catch up mitigate the early initial advantages that preschool programs can afford (Natriello et al., 1990; Zigler and Muenchow, 1992). The lasting effects from these programs seem likely to depend in part on increasing the effectiveness of K-12 schooling. As Ferguson (1998:365) points out, the ideal of universal access to preschool might ironically lead to greater achievement gaps (he referred to black-white test score gaps) if disadvantaged students later attend less effective elementary and secondary schools than their preschool counterparts from more advantaged backgrounds. Enrollment of children ages 3–5 in preprimary programs has grown rapidly over the past 30 years, from 27 to 65 percent of the population between 1965 and 1997 (U.S. Department of Education, 1999a: Table 46).1 In 1997, 39 percent of 3-year-olds, 66 percent of 4-year olds, and 88 percent of 5-year-olds were enrolled in such programs. Private school programs dominated public school programs for 3- and 4-year-olds, while a large majority of 5-year-olds enrolled in school were enrolled in public kindergartens. Despite the growth in preprimary schooling, it appears that by comparison to many other economically advanced nations, the United States invests less in its youngest children. Enrollment rates of 3- and 4-year-olds in early childhood and primary education are relatively low in the United States (Organisation for Economic Co-operation and Development, 1996). Enrollment of 3- and 4-year-olds in this country is also related to household income, with noticeably higher rates among families earning over $50,000 (U.S. Department of Education, 1999c:96). It has been estimated that average annual public spending in the United States on children from birth to age 5 is only about a quarter of average annual public spending on children from age 6 to 18, a difference due primarily to expenditures on elementary and secondary schools (Karoly et al., 1998:108). Three recent articles review the literature on early childhood interventions aimed at at-risk children and emphasizing early childhood development (Barnett, 1995; Karoly et ak., 1998; Reynolds et al., 1997);2 the three reviewsreach very similar conclusions. Model or demonstration programs were generally of higher quality (as measured by such factors as higher-quality staff, closer staff supervision by experts, lower child-staff ratios, and smaller group size) than large-scale 1    Data collection procedures changed in 1994; data for that year and later are not necessarily comparable to earlier years. 2    Early intervention programs with other foci, such as public health programs providing prenatal care, immunizations, and nutritional supplements and welfare and other safety-net programs, while an important part of a comprehensive early childhood policy, are not included in the literature reviews examined by the committee.

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Making Money Matter: Financing America's Schools public programs, including Head Start.3 Services varied considerably (and are not always well documented in the literature, especially for the large-scale programs). The focus was generally on children age 2–5, although age of entry and length of participation differed from program to program. Services ranged from classroom services to home visits to parental support and development activities and health and nutrition assistance. Model programs had "much higher levels of funding per child" (Barnett, 1995:28) than did the large-scale programs. Virtually all of the programs targeted minority or low-income children. The research reviews all emphasize shortcomings in the research and evaluation designs that raise cautions about relying too heavily on any particular study. Research on early childhood programs varies widely on elements as how comparison groups were formed, sample sizes, program attrition, and how effects were measured. Despite their shortcomings, however, when evaluated together they lead reviewers to a consistent set of conclusions about what is known and unknown about early childhood intervention programs. Early childhood programs can benefit participating children and their families along a number of dimensions: "The hundreds of studies of demonstration and large-scale programs that now exist provide very strong evidence that most programs of relatively good quality have meaningful short-term effects on cognitive ability, early school achievement, and social adjustment. There is also increasing evidence that interventions can produce middle-to-longer-run effects on school achievement, special education placement, grade retention, disruptive behavior and delinquency, and high school graduation. Debate about the nature of the very long term effects continues, however. The cognitive and social benefits for children are in addition to the physical health, nutrition, and family benefits associated with program participation" (Reynolds et al., 1997:6). The debate about long-term effects stems in part from the fact that evidence about them comes mostly from model rather than large-scale programs. Given the advantages that model programs have over large-scale programs in quality and cost, the implications that can be drawn from them about the likely effects of large-scale programs as they are currently structured are "inadequate to inform public policy" (Reynolds et al., 1997:10), although the model program whose graduates have been followed up for the longest time suggests that the payoffs from early and high-quality intervention programs might be very substantial (Barnett, 1995; Karoly et al., 1998). Fulfilling the promise of early intervention programs depends on making greater investments in efforts to answer key policy questions where evidence is 3    Model or demonstration programs were specifically developed by researchers to study the effects of particular program designs; many have been implemented at just one site. Large-scale programs include the federally funded Head Start program and other state or local programs (some funded with federal Title I funding).

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Making Money Matter: Financing America's Schools currently weak or nonexistent. In particular, analysts agree that there is still much to learn about optimal program designs and about whether programs have higher payoffs when targeted at children and families deemed to be at greatest risk. Within the overall at-risk population, little is known about how best to identify children who would benefit most and how program effectiveness varies across programs with different attributes. Better information to guide policy makers on these key issues could come from investing in more demonstration programs designed to address the impacts of different program designs, from making the most of evaluations already under way by funding further follow-ups and expanding the set of benefits measured, and from making sure that careful evaluation is a component of any large-scale public program implemented on the basis of existing knowledge. Given the current state of knowledge, it is impossible to give a definitive answer to the question of how much more the nation should invest in early childhood intervention programs in hopes of breaking the nexus between student background characteristics and academic achievement. Clearly such programs have the potential for making a big difference in children's lives, but just as clearly the cost of such programs may be very high. (Barnett, 1995:46, estimates that serving all poor children under age 5 in quality part-day or full-day programs could cost $25 to $30 billion; adding subsidies to nonpoor families could raise this amount much higher.) The committee suggests that as policy makers consider the expansion and improvement of early childhood intervention programs, the following points should be kept in mind. First, quality counts. The research evidence indicates that positive effects come from high-quality programs, which are comparatively costly. Existing large-scale public programs like Head Start typically cost less and have lower-paid and less-qualified staff than the most effective model programs. Policy makers may thus need to address the trade-off between serving larger numbers of children in programs of lower quality or focusing available resources on providing high-quality services to a smaller group. Another trade-off may face policy makers in states striving to reduce class size in the early grades of elementary schools at the same time they are expanding early childhood programs. Both strategies increase the demand for well-trained personnel, who may not be in sufficient supply (at least in the short run) to provide qualified individuals for both preschool and school programs simultaneously. A corollary to this point is that in situations of limited resources policy makers should consider focusing services on children from disadvantaged backgrounds if it is impossible to guarantee services to all children. While the research evidence on how to target early childhood programs among at-risk children of different ages and with different needs is inconclusive, analysts agree that early intervention services provided to the disadvantaged have greater payoffs than services provided to children whose home environments do not place them at educational risk.

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Making Money Matter: Financing America's Schools Second, given the evidence of short-term and possibly significant long-term benefits from high-quality early childhood interventions, states and local areas that do not now provide early intervention programs for at-risk children should consider expanding their efforts. A recent survey (Mitchell et al., 1998) found that 39 states fund at least one kind of prekindergarten program, but 11 invest no funds in either prekindergarten programs or Head Start. (The survey does not consider local funding, nor does it count federal investments in Head Start or other programs.) State investments vary widely, from $1 million to over $200 million annually; and the number of children served in state-funded prekindergarten programs ranges from a few hundred per state to over 40,000. Programs differ significantly in the ages served, educational offerings and staff qualifications, quality control mechanisms, and provisions for planning and evaluation. While we cannot neatly quantify the need, this variability suggests that some states should give greater attention to developing high-quality early intervention programs for at-risk students as one facet of their overall approach to developing the capacity of all children to learn. Linking Education and Other Community Services In recent years it has become increasingly evident to policy makers and practitioners that improving educational opportunities for at-risk children requires not just reforming schools but also addressing the health, social, financial, and political inequities of their families and communities. An impressive array of programs have been initiated (see, for example, Blank and Steinbach, 1998) attempting to link and coordinate the many services—including, among others, education, foster care, protection from abuse and neglect, health care, housing, employment, and nutrition—that federal, state, and local governments provide to disadvantaged children and adults. In many cases, supporters have found the challenges in linking services larger than they expected; positive program effects have thus come more slowly than they hoped. Nevertheless, it is notable that, despite the difficulties, sponsors continue to believe that a comprehensive approach to reform is crucial in serving at-risk children and families. Some important lessons have already been learned about the need for stable, permanent, and sufficient funding accompanied by fewer categorical strings. Two fundamental principles undergird the growing number of programs aimed at coordinating services: (1) children with multiple needs require comprehensive and coordinated service strategies and (2) local communities represent an indispensable asset for effecting linking programs and resources across agencies and public and private institutions (Hayes et al., 1995). These principles are applicable to all at-risk children wherever they live, but they have special power in high-poverty urban neighborhoods and in distressed rural areas (Stern, 1994), where the need is especially acute to rebuild community-wide opportunity structures as well as to improve schools.

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Making Money Matter: Financing America's Schools has been growing. There is still a separatist orientation about much of special education, however, despite concerns that special education placements have been educational dead ends for many students and that many special educators are ill informed about educational improvement efforts affecting general education (such as standards-based reform). The challenge is to address the special needs of students with disabilities while simultaneously improving educational outcomes for them. Some students, especially those with the most severe disabling conditions, will always require some amount of specialized programs and services, as provided by the existing approach to special education. Nevertheless, the facts that over 70 percent of all students with disabilities now spend at least 40 percent of their day in a regular classroom and 45 percent attend regular classes for at least 80 percent of the day (U.S. Department of Education, 1998) suggest that a second scenario, with less of an emphasis on classification and categorization, may be feasible for many. This scenario involves a more comprehensive and integrated approach to providing resources and services for a broad spectrum of children, including those with mild to moderate learning disabilities as well as other children who require additional assistance in acquiring academic skills (such as children with limited English proficiency or vocabulary skills, children who experience excessive absences from school, or children from areas of concentrated poverty) who have not been classified within the special education system. Distinguishing between severe and other disabilities is useful in thinking through funding options. At the same time, the goal of an integrated services approach for students whose disabilities are not severe, with a unifying system of policies and procedures and a common set of measures and outcomes, is to move away from the fragmented and differentiated policy frameworks that have traditionally guided general education, special education, and other categorical programs. Integrated Approach In a more integrated educational system, the presumption would be that each child has a right to be included in the general classroom unless justification can be made to place him or her in a separate instructional setting because of special learning needs. Aides and specialists would be more firmly integrated into the general classroom program that they are now. The process of developing individual education plans would be retained only for those students whose disability requires that they spend more than half their day outside the general classroom. Based on the current population of students being served in special education, we estimate that about 20 percent of such students would require high-intensity services and supports that could not be provided within the classroom or the general school system without serious disruption. Moving to a less categorical approach to educating children with disabilities could overcome a number of criticisms of past special education practices. State

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Making Money Matter: Financing America's Schools formulas that tie funding to the number or characteristics of students identified as requiring, and who receive, special education services or to the costs incurred by local districts in serving these students are thought to encourage the overclassification of children as disabled, to be inflexible in terms of where children with disabilities can be served, and to encourage more restrictive and costly placements (i.e., in settings apart from regular classrooms) (Parrish, 1995; Verstegen et al., 1997). Incentives for separate treatment of children with disabilities may also reduce tolerance within the general education system for diversity and flexibility in learning styles and mitigate against strengthening remedial services within general education. The availability of a separate special education system to which children with learning or behavioral problems can be referred gives regular classroom teachers an excuse for handing off responsibility for such youngsters to others. Concerns about the desirability of separate placements, especially for the very large majority of students whose disabilities are considered mild, are exacerbated by the fact that the criteria for classification are more ambiguous than the criteria for severe disabilities. The latter, especially those that involve physical or sensory impairments, are generally clear and universally shared. By contrast, there is mixed research on the extent to which students with mild forms of disability can be distinguished reliably from other students variously called "low-achieving" and "educationally disadvantaged" (Lyon, 1996; Kavale et al., 1994; National Research Council, 1997).10 Variability among educational agencies in interpreting and implementing federal guidelines within the context of their own traditions and resources means that some children who qualify for special education services in one school would not qualify elsewhere, creating discrepancies that raise concerns about fairness. Questions about the separate treatment of students with mild disabilities are further bolstered by findings that the content and forms of remedial supports and services that are now commonly provided to children with mild disabilities do not differ significantly in form or content from those that are offered to other children who have learning difficulties or who are slow to achieve academic progress (National Research Council, 1997). A common curriculum is often involved in meeting the needs of a broad array of students with learning problems, but the degree and intensity of service may need to differ according to the specific needs of the individual child. In the area of reading, for example, another National 10    Again, we point out that not all children with moderate or severe disabilities are in the categories associated with clear physical or sensory disabilities. Although most children with learning disabilities, speech or language impairments, mental retardation, and serious emotional disturbance have mild disabilities, the size of these categories means that the minority of students in these categories with more disabling conditions still outnumber the students who are autistic, blind, deaf or hearing impaired, or who suffer from multiple disabilities, orthopedic impairment, other health impairment, traumatic brain injury, and visual impairment.

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Making Money Matter: Financing America's Schools Research Council committee has recently concluded that "children who are having difficulty learning to read do not, as a rule, require qualitatively different instruction from children who are 'getting it.' Instead, they more often need application of the same principles by someone who can apply them expertly to individual children who are having difficulty for one reason or another" (National Research Council, 1998:327). Finally, like Title I, special education has been accused of emphasizing compliance over performance. Legal requirements relating to the rights of students with disabilities have resulted in a unique educational approach that begins with the child as the point of reference. The child must be evaluated before school personnel can begin special programming, the evaluation must involve all areas related to the suspected disability, and reevaluation must take place at least every three years. If the evaluation determines that the child has a disability under federal guidelines, the child is entitled to special services without regard to cost. No specific legal criteria exist to determine what educational programs or services constitute an appropriate education; instead, general standards have emerged from court cases and federal legislation and rest on three broad principles.11 The specific program and services to be made available to each child are determined by school and specialized personnel and codified in an individualized education program (IEP). Federal law provides procedural safeguards for parents, including requirements for notice about proposed actions that affect the placement of their child in the school system, the right to attend meetings concerning the child's placement or IEP, the right to appeal decisions to an impartial hearing officer, and the right to be reimbursed for legal fees that result from parental challenges to school system decisions. The absence of professional standards of practice, the reliance on IEPs, and the extensive procedural safeguards provided to parents have negative as well as positive effects. In particular, critics deplore the emphasis on inputs or services rather than outputs or achievements, the fostering of adversarial relationships between parents and school officials, and the encouragement of a defensive approach to special education within the schools. Our suggestion to move in the direction of integrating special education more fully into the regular education system is not an original idea and in fact is consistent with a number of reforms already taking place around the nation. It is also consistent with funding changes that rely more on census-based approaches for determining how much federal or state aid flows to the local level for educat- 11    The three principles are: (1) the educational program should be related to the child's learning capacity; (2) the program should be designed for the child's unique needs and not merely what is offered to others; and (3) the program should be reasonably calculated to confer educational benefit (Martin et al., 1996).

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Making Money Matter: Financing America's Schools ing students with mild and moderate disabilities. Census-based funding assumes that some percentage of the district or school population has disabilities and provides funding on that basis rather than on actual counts; interest in such funding has developed as part of a broader reconsideration of federal and state funding in light of three goals: (1) to maximize flexibility in service deliver; (2) to be "identification neutral"—that is, the number of students identified as eligible for special education is not the only, or primary, basis for generating state special education aid, and students do not have to be labeled "disabled" in order to receive services; and (3) to be needs-generated, so that funding for special education is based on service needs rather than on the type of educational placement or disabling condition (Parrish, 1997). The 1997 reauthorization of IDEA took a first step toward embracing census-based funding; once the appropriation for part B of IDEA exceeds $4.9 billion, distribution of the additional dollars will not depend on the number of students with disabilities identified and served but will shift to a census basis. Under census-based funding, a state's share of new IDEA money will depend on its total school-age population (weighted 85 percent) and its total school-age population in poverty (weighted 15 percent). The new IDEA also allows more flexibility in the use of special education funds (including allowing benefits to accrue "incidentally" to non-special education students as long as the IEPs are being fulfilled), strengthens provisions to ensure that state funding formulas do not encourage segregated placements, calls for IEPs to relate programming to achievement in the general education curriculum and calls on states to include children with disabilities in statewide assessments and alternative assessments, puts limits on the attorney's fees that parents of special education students can collect, and encourages the use of mediation rather than formal due process hearings to resolve disputes between parents and schools over IEPs. At least six states (California, Massachusetts, Montana, North Dakota, Pennsylvania, and Vermont) have also adopted some form of census-based funding for their own state special education funds, and several also use some form of poverty adjustment or add "mainstream weights" to pay for the support services that special education students need when served in a general education classroom. Some states (e.g., Florida) are also piloting efforts to relate state aid to student learning characteristics and service needs, rather than placement or disability. For students with mild and moderate disabilities, we are encouraged by the development of new approaches to special education finance like census-based funding that reinforce the move to accommodate students with disabilities as fully as possible within general education. Moving away from classification and categorization, however, requires that attention be paid to professional development (to prepare teachers to handle students with a diverse array of learning needs in the same classroom), to flexibility for schools in using special education funds, to accountability mechanisms, and to mechanisms for funding students

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Making Money Matter: Financing America's Schools with severe disabilities (those who would continue to have IEPs) and for helping schools and districts meet the unusually high costs of these students or of exceptional concentrations of students with mild disabilities. The advantages of a more integrated approach notwithstanding, we acknowledge that the categorical treatment of students with disabilities has served as an important safeguard that their needs would be met. Neglect of these children by public schools is a recent and vivid enough memory for advocates to engender understandable suspicion of anything that undermines the individual educational entitlements these children have won. The existing program, which serves a diverse but identifiable population, is therefore unlikely to be replaced with a set of general services designed for a more complex and diffuse group of students unless careful attention is paid to both capacity and accountability issues. Capacity and Accountability Issues First, an integrated services approach requires that both personnel and facilities have the capacity to meet the needs of a diverse group of learners. Including students with disabilities in regular education requires extensive professional preparation at several levels: preservice teacher education for both general and special education personnel, in-service education within school systems, and ongoing technical assistance and support to ensure effectiveness of programming. IDEA recognized that the nation's schools were not prepared to provide an appropriate education to all students with disabilities and included requirements for states and local school districts to provide programs for personnel development (Turnbull, 1993). Funding to ensure adequate preparation for all educational personnel in school systems, however, has never been realized. During the first decade of special education law, efforts focused on building a sufficient cadre of special education personnel to meet identified student needs. It is only in the last decade that the preparation of general educators to meet the needs of students with disabilities has begun to be emphasized. At the same time, many special education faculty have had only limited exposure to new curricular reforms and standards-based approaches; they will need development opportunities to prepare them to work in the general classroom and to help integrate their efforts into whole-school reform programs. States and school districts will also have to step up to new fiscal challenges in preparing their school buildings to accommodate the needs of diverse learners (U.S. General Accounting Office, 1995a). Integrated services will also be encouraged by continuing efforts to increase flexibility in the use of categorical federal and state aid and to grant states waivers from federal requirements when appropriate. Steps in the direction of flexibility are evident in most recent federal legislation, including the 1994 reauthorization of Title I, the Goals 2000 law, and the 1997 IDEA amendments. Permitting flexibility raises fears that spending on populations previously targeted by cat-

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Making Money Matter: Financing America's Schools egorical programs might be lost, however, so it will be important that greater flexibility is accompanied by efforts to ensure that the needs of students with disabilities continue to be addressed in more integrated settings. Accountability for the education of children with disabilities in integrated settings would be enhanced by both including these students in ongoing large-scale assessments as well as developing standards of practice. A 1997 report (National Research Council, 1997) extensively reviewed the issues involved in incorporating students with disabilities into standards-based curriculum and assessment reforms. At present, there are no generally recognized standards, linked to desired outcomes, providing benchmarks for determining what constitutes an appropriate education for students with various kinds of disabilities. The diversity of the characteristics of students with disabilities poses challenges to the development of professional standards, as does the fact that traditional categories of disability do not have a demonstrable relationship to specific outcomes or to prognoses (Epps and Tindal, 1987; Kavale, 1990; Kavale and Glass, 1982). Nevertheless, progress is being made. Efforts have begun to establish diagnostic constructs based on a child's placement along a number of continuous dimensions of disability, rather than an either-or dichotomy (National Research Council, 1997). At the same time, others (e.g., Reschly, 1996) are working on a service-based approach to identify outcomes that could be associated with certain levels of service investment for broad clusters of students with disabilities. New approaches at the state and federal level to special education finance like census-based funding and less reliance on individual entitlement and classification pose potential risks to localities. Some of these risks will be magnified if school finance becomes more school-or pupil-based (rather than district-based) in the future. One risk is that local districts or schools may have unusual concentrations of students with disabilities, a fact that census-based funding would fail to address. We suggest that states that move to census-based funding ought to allow appeals when there is evidence of unusual concentrations of students with disabilities. A second risk is the financial drain that students with severe disabilities can pose for schools or small districts. These students with disabilities are, as we have noted, the easiest to identify. We suggest that states consider establishing risk pools to pay the ''excess costs" of such students. A major question about special education finance is whether the federal government should in the future pick up a greater share of the unfunded mandate it has created for states and local districts. Not only is the federal share currently very low, but IDEA imposes a large regulatory overlay especially on districts and schools. At the same time, new approaches to special education at the state level pose both possibilities and challenges for federal officials. When states move to fund their special education responsibilities through census-based funding rather than individually identifying all students with disabilities, they lose out on federal aid under current arrangements. It is not clear that continued reliance on individual categorization is necessary at the federal level, though we recognize this is

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Making Money Matter: Financing America's Schools a complicated question with many arguments on both sides (as described in Parrish and Chambers, 1996). If states adopt the suggestion to establish risk pools for covering the excess costs of educating students with severe disabilities, a new funding option for the federal government might be to fund these pools, in effect making it a national responsibility to meet the special programs and services such students require. Reforming special education to emphasize a more integrated services approach for most students with disabilities will not necessarily be cheaper than the current categorical system. It does, however, hold out promise for improving the quality of education offered to students with disabilities and enabling them to reach their full potential by incorporating these children as fully as possible into the primary school mission of improving learning for all students. EMPOWERING SCHOOLS OR PARENTS OR BOTH TO MAKE DECISIONS ABOUT THE USE OF PUBLIC FUNDS Definitive evidence is not available about the effects of major changes in who has the power to determine how education dollars are spent. Such changes are highly controversial because they threaten existing authority relationships. In the face of uncertainty and controversy, the arguments for change are strongest in places where school performance under current governance arrangements has been hardest to improve. This suggests that urban areas with large concentrations of disadvantaged students are the most compelling targets for such reforms, especially reforms that give parents more choice over the schools their children attend. There are several reasons why choice options may be both more feasible and effective in promoting educational fairness and productivity in urban areas than elsewhere. First, the population is more concentrated. Therefore transportation cost issues loom less large than in less densely populated areas. Second, urban dwellers currently have less school choice than other Americans. Many urban residents are black, and the residential segregation of blacks is still strong. This is true within school districts as well as across district lines. The effects on school segregation are illustrated by data from Chicago, where 37 of 63 high schools have more than 99 percent black enrollment, although only 63 percent of district students are black (Chicago Magazine, 1995). Also, in a neighborhood school system, the price of housing can ration access to neighborhoods with better schools (Black, 1998; Epple and Romano, 1996). This creates a link between income and education quality because higher-income households can more readily pay a premium for housing in neighborhoods with better schools. The structure of metropolitan areas in the United States (large central cities surrounded by suburbs) tends to result in a disproportionate number of low-income households concentrated in a large multischool district.

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Making Money Matter: Financing America's Schools Third, urban districts, more so than suburban or rural districts, resemble monopoly providers and so may suffer most from the inefficiencies that accompany monopoly supply. Again, Chicago provides an example: the city of Chicago has 63 high schools in one school district. Roughly 77 districts surrounding Chicago have a total of 95 high schools (Chicago Magazine, 1995). In addition, the features of small neighborhood school systems that may be desirable from the perspective of school performance—households that are predominantly owner-occupants, where both parents and homeowners without children have incentives to care about school quality (Hoxby, 1996)—are less pronounced in large-central-city districts. In central cities, the majority of households are renters rather than owner-occupants; residents without children in school do not have the financial stake in the quality of neighborhood schools that owner-occupants do. The owners of rental housing have less political influence relative to owner-occupants, because the former are fewer in number and often reside elsewhere. This is likely to be exacerbated in large districts by the relatively greater difficulty that residents encounter in affecting district-level policy. Hence one would expect neighborhood school organization to be less effective in large city systems with predominantly renter-occupants than in small suburban districts with predominantly owner-occupants. Finally, urban residents arguably have benefited least from prior school reforms: urban schools still produce the lowest academic achievement and suffer from high dropout rates. Research suggests that recent studies comparing Catholic school performance to public school performance show more positive effects for urban minority students than for others, though as also noted the problem of selection bias (while not as bad as in earlier research) still makes it difficult to draw firm conclusions about public-private school differences. Both theory and experience suggest that different forms of choice would affect urban education in different ways. Breaking up large city systems into small districts comparable in size to suburban districts (that is, mimicking neighborhood schools) would likely be a step in the right direction from an incentive standpoint, and this is one way to increase school choice. However, the incentives with renter-occupants would probably not be as strong as with owner-occupants. In addition, the tax base per student in such newly created small districts would necessarily vary a great deal, and some form of equalization would be essential for such restructuring to have desired outcomes. Interdistrict and intradistrict choice options have limitations in urban settings. Parents in districts with good schools pay a housing price premium to reside in these districts and are unlikely to be receptive to enrolling students from poorer-performing districts. In fact, where interdistrict choice is now permitted, not much actually occurs. Intradistrict choice may be more viable, but still parents who have located in neighborhoods with good schools may resist student enrollments from outside the neighborhood. Districts can enforce open enroll-

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Making Money Matter: Financing America's Schools ment, but if there are significant differences in school quality, this is likely to lead wealthier households to leave for the suburbs or to enroll their children in private school. Moreover, intradistrict choice is not an effective mechanism for improving performance when problems exist at the district level. Charter schools have incentives to attract and admit students; their survival depends on it. They also have incentives to serve students well in order to retain them. They are likely to introduce more competitive forces than traditional forms of public school choice because they can potentially supplant poor-performing schools. They may also be effective in disciplining inefficient management if the district does not have too much control over their operation. However, to the extent that charter schools remain an intradistrict mechanism, subject to the authority of existing district management, there may be limits to the extent to which they can bring about change where change is needed most. Vouchers that enable students to use public funds to attend private schools may offer city residents the most effective enrollment vehicle for improving educational quality by rewarding schools that perform well and punishing schools that do not. Such rewards and punishments are key features of well-functioning private markets. Because private schools face this disciplining mechanism, voucher-supported private schools are likely to have the strongest impact in improving school performance. This is particularly the case if the program is funded at the state level, so that the voucher schools are not tied to a particular school district either in oversight or resources. Hence, on a priori grounds, such schools might be expected to be the most likely to succeed in increasing productivity and effectiveness of the educational system. Despite these theoretical arguments in favor of vouchers, they are and have been one of the most controversial ideas in American education. They raise (if parochial schools are included) church-state issues that, while perhaps not as powerful politically as they once were, still arouse strong emotions, to say nothing of possible federal and state constitutional barriers. The legality of religious-school vouchers is unclear, and advocacy groups on both sides of the issue are hoping to bring a case before the U.S. Supreme Court that would result in a definitive ruling. Meanwhile, courts in several states have rendered conflicting opinions. For example, the state supreme courts in Wisconsin and Ohio ruled that programs in Milwaukee and Cleveland that permit vouchers to be used at religious schools are legal under both federal and state constitutions (Jackson v. Benson, 710 N.E.2d 276, Wis. 1998. Simmons-Harris v. Goff, 710 N.E.2d 276, Ohio, 1999).12 In Maine, the state supreme judicial court 12    The Ohio Supreme Court at the same time struck down the Cleveland voucher program on technical grounds unrelated to the constitutional church-state issue. The Ohio legislature subsequently (June 1999) reinstated the Cleveland program in a manner that avoids the technical problem with the old law. However, at the beginning of the 1999 school year, a federal district judge issued an injunction halting the Cleveland voucher program on the grounds that it probably violates consti-

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Making Money Matter: Financing America's Schools and the federal appeals court ruled that "tuitioning" programs (wherein towns without public high schools reimburse parents for sending their children to public or secular private schools in other communities) may not include religious schools. The courts based their rulings on both federal and state constitutional arguments (Bagley v. Raymond School Department, 728 A.2d 127, Me 1999, Strout v. Albanese, 1999 U.S. App. LEXIS 10932, 1st Cir. May 27, 1999). The Vermont Supreme Court relied solely on the state constitution in making a similar ruling on that state's tuitioning program (Chittenden Town School District v. Vermont Department of Education, No. 97–275, 1999 Vt. LEXIS 98, Sup. Ct. filed June 11, 1999). Related cases raise church-state issues in other (nonvoucher) contexts—e.g., state-authorized education tax credits that include religious schools in Arizona and Minnesota and cases related to technology and other kinds of aid in a number of states. When federal constitutional issues are invoked, grounds exist for appeals to the U.S. Supreme Court. Any of a number of current cases could ultimately provide the occasion for the court to settle the question of what public aid may or may not be used at religious schools. Perhaps Florida's new statewide school voucher law, the first statewide law in the country, will be the test case lawyers have been seeking. One day after the law was signed on June 21, 1999, the first lawsuit challenging it was filed.13 Legal issues apart, many opponents see private school vouchers as a threat to traditional American support for public schools. Some urban educators argue that they would remove much-needed funds from public education just as urban districts are engaging strenuously in efforts to improve their academic performance. Opponents fear that they would exacerbate the stratification of population by income, race, or other student characteristics, potentially making matters worse rather than better with respect to achieving goal 2. Experience with parental choice programs overseas lends some credence to concerns about increased stratification, although of course urban American schools are already stratified to a significant degree. There is some theoretical research that addresses these concerns. For example, Epple and Romano (1998, 1999) find that flat-rate voucher systems tend to promote more stratification by ability than public neighborhood schools systems but less stratification by income. As Chapter 6 noted, there is very little     tutional mandates for the separation of church and state. As this volume goes to press, the federal judge partially reversed the injunction and decided to allow Cleveland children who were enrolled in the voucher program last year to continue attending private school for the first semester of this school year, while the full case is argued. In the meantime, no new students are being given vouchers. 13    In Florida, each public school has just been graded for the first time by the state on an A-to-F basis. The state will offer vouchers to students attending schools that receive Fs two times in four years, In fall 1999, only pupils in two elementary schools in Pensacola will be eligible for the vouchers, on the basis of previous poor ratings received by these schools.

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Making Money Matter: Financing America's Schools empirical evidence with which to evaluate the theoretical claims made both for and against vouchers, and the evidence that does exist is often hotly contested. While limited data are available that can be used to test predictions about voucher programs directly, theoretical predictions can be tested by analysis of data for existing public and private schools. Epple et al. (1998) test the aforementioned predictions about stratification made by Epple and Romano and find that all predictions regarding stratification within and across the public and private school sectors are supported by the data.14 The foregoing suggests that charter schools and vouchers, rather than interdistrict and intradistrict choice programs, are the choice options most worthy of further exploration as vehicles for improving poor-performing city schools. Charter schools are in effect a naturally occurring experiment, although one that is not being as fully and systematically evaluated as it might be. Also, the fact that charter schools have unequal access to capital funding means that they do not face a level playing field with traditional public schools. Existing voucher programs are so small that they are not ever likely to yield the kind of answers about the effects of vouchers and the most effective voucher designs that would be necessary to allay the concerns of those who question vouchers, not on legal grounds, but on the grounds of their unproven impacts on school performance and stratification. This raises the question of whether it is time for a large-scale experimental demonstration project with school vouchers. The committee wrestled long with this issue and discusses it further in Chapter 9. 14    This analysis uses a unique dataset (prepared by David Figlio and Joe Stone) that was generated from the National Education Longitudinal Survey, the Schools and Staffing Surveys, and data collected by Dun and Bradstreet.