How Arkansas public school funding works

Editor’s note: This is part one in a two-part series examining public school financing and school choice impact.

What would be the financial effects on public school districts if Arkansas lawmakers approved Gov. Sarah Sanders’ school choice law, and then students started transferring to other options?

It would depend on how many students transferred, and also on the district, said Dr. Greg Murry, former Conway School District superintendent.

Sanders’ Arkansas LEARNS education package will include what she calls “education freedom accounts.” These would provide parents access to the state per-pupil foundation funding that goes to public schools that they could use for other options, such as private schools. In the current year, that funding is a little over $7,000 per student.

The program would be phased in over three years starting with the upcoming school year, with universal availability the final result. Arkansas Education Secretary Jacob Oliva said on KARK’s “Capitol View” Feb. 12 that the “most fragile learners” would be prioritized the first year. Those would include students in bad schools, students with disabilities, English language learners, foster kids, homeless kids, and children of military service members.

Arkansas public schools receive funding from a variety of sources, including property taxes, state aid, bond sales and federal funding. The latter is restricted to certain expenditures. Between all funding sources, the state spent $11,620 per pupil in 2021-22.

School districts are guaranteed a certain amount of funding per pupil that comes from state aid and property taxes. The amount increases each year and is determined based on an adequacy study completed by the House and Senate Education Committees. For the 2022-23 school year, this “foundation funding” was $7,413.

That amount is multiplied by each district’s average daily membership (ADM), or the number of students it averaged in the previous year’s first three quarters. The Department of Education calculates the number of students in a district each day and then averages that amount over a quarter and then over three quarters, Murry said.

Murry said a school district with high local property tax income would receive little or perhaps even no state aid, while one with low property tax income would receive more state aid. The Eureka Springs School District, which has many hotels but comparatively fewer students, would be an example of the former, while some schools in the Delta would be examples of the latter.

The loss of a single student results in a loss of that ADM-based foundation funding – the $7,413 – but because it’s based on the previous year’s three quarters, it takes a year for that loss to occur. If students transfer out of the public school system after this school year, their home districts would start losing revenue in the 2024-25 school year.

“You spread that over the thousands of students in Little Rock, losing a couple of hundred is not a big deal,” Murry said. “You lose a couple of hundred in Dewitt, you’re in trouble. … The smaller the district, the more devastating student loss can be.”

The state does offer declining enrollment funding for districts whose ADM shrinks, but it’s not enough to make up the difference, and its purpose is to ease the transition for the district, Murry said.

In addition to per-pupil foundation funding, the state provides categorical funding in four areas: for students in alternative learning environments, English language learners, Enhanced Student Achievement money, and professional development funds.

More specifically, schools received $4,890 this school year for each full-time equivalent student being educated in an alternative learning environment, where they receive special attention. Schools receive another $366 for each English language learner student.

If a district loses a qualifying student, it loses that money.

School districts this school year also received additional Enhanced Student Achievement funding, which amounts to $1,613 per student if 90% or more of the previous school year’s enrolled students qualified for free and reduced lunch prices. They received $1,076 if at least 70% but less than 90% of the previous year’s students were eligible. For districts where less than 70% were eligible, the amount was $538.

A district that loses enough qualifying students to fall into a lower tier would see potentially a significant loss in funding. Lawmakers for years have talked about a “smoothing” mechanism so that the drop-off in funding would not be so dramatic.

The funding formula was created as a result of the Lake View School District No. 25 v. Huckabee court case, where the tiny Lake View School District in Phillips County sued the state over funding inequities. The Supreme Court said schools were required under the Arkansas Constitution to provide an “adequate” and “equitable” education.

The legal proceedings, which lasted 15 years, led to state laws and Amendment 74 to the Arkansas Constitution that raised taxes and established a minimum uniform rate of property taxes where 25 mills were guaranteed to go to school maintenance and operations, and then the state would help poorer districts.

The idea was to ensure all schools have a base level of funding while maintaining school districts’ ability to raise taxes more if their patrons wanted to. It did not save the Lake View district, which consolidated with the Barton-Lexa School District.

What do districts do if they lose funding? They’re probably going to have to cut staff, Murry said. Eighty percent of the average school district’s budget is spent on people, so a district would have to do a reduction in force. Most districts have a policy for how to do that, and it generally would rely on attrition and on laying off the most recently hired personnel.

Educational standards complicate the matter, Murry said. First grade classes must have no more than 25 students, so a district must have four of those teachers whether it is receiving funding for 99 students or 80.