Panel Paper: Money and Freedom: The Impact of California’s School Finance Reform on Academic Achievement and the Composition of District Spending

Friday, November 9, 2018
8224 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Sean Tanner, Learning Policy Institute and Rucker Johnson, University of California, Berkeley

California’s recent major school finance reform, the Local Control Funding Formula (LCFF), attempts to address resource inequity by reallocating school finances on the basis of student disadvantage (rather than district property wealth) and relinquishing many of the restrictions on how revenue can be spent. The LCFF reallocates district revenues based almost entirely on the proportion of disadvantaged students (e.g., low-income, limited English proficiency) in each district. We show LCFF significantly increased per-pupil spending and the state now has among the most progressive funding formulas in the country. This study is among the first to provide evidence of LCFF’s impacts on student outcomes. For cohorts born between 1990 and 2000, we constructed a school-by-cohort-level panel data set of school-age years of per-pupil spending, high school graduation rates, and student achievement in high school in math and reading, for all public schools in California.

We examine how simultaneous changes in spending levels and extent of categorical restrictions of state funding impact school inputs and the distribution and composition of district per-pupil spending. Using detailed annual district finance data (1995-2016), we find that LCFF-induced increases in district revenue led to a significant reduction in the average school-level student-to-teacher ratio and led to significant increases in average teacher salaries and instructional expenditures.

Our research design employs an instrumental variables approach in an event study framework, using the LCFF funding formula as instruments, to isolate the effects of increases in district per-pupil spending on student outcomes. The empirical strategy compares changes in average student outcomes across cohorts from the same school before and after LCFF-induced changes in district per-pupil revenue (over and beyond statewide, cohort-specific time trends).

We find that LCFF-induced increases in school spending led to significant increases in high school graduation rates and academic achievement, particularly among poor and minority students. A $1,000 increase in district per-pupil spending experienced in grades 10-12 leads to a 5.9 percentage-point increase in high school graduation rates on average among all children, with similar effects by race and poverty. On average among poor children, a $1,000 increase in district per-pupil spending experienced in 8th through 11th grades leads to a 0.19 standard-deviation increase in math test scores, and a 0.08 standard-deviation increase in reading test scores in 11th grade. These improvements in high school academic achievement closely track the timing of LCFF implementation, school-age years of exposure and the amount of district-specific LCFF-induced spending increase. In sum, the evidence suggests that money targeted to students’ needs can make a significant difference in student outcomes and can narrow achievement gaps.