Afton's Education Finance Trends to Watch

An analysis on where we are now, how we got here, and where we are heading.

For nearly five years, Afton Partners has supported America’s public education organizations by advising on and implementing financial strategies that sustain effective educational systems and programs. We provide financial consulting and operational advisory services to public school districts, charter management organizations, foundations and private investors who support K-12 public education.

Through our work in states and school districts across the country, we identified trends that are impacting the fiscal landscape of K-12 public education today. In addition, we analyzed historical data and recent events to better understand how our school system reached this point, and we provide guidance on what states, districts, and schools must do in order to create and sustain an effective educational system for the benefit of all children.

Funding is Stagnant

After decades of near guaranteed increase, funding is stagnant while costs continue to increase.

Per Pupil Revenue (in constant FY13 Dollars)

Student Needs are Increasing

Unique needs of students continue to increase.

4.5x

# of States with more than 50% of Free and Reduced Lunch Students

1.9x

# of States with more than 15% of students with an Indivdualized Education Plan

Competition Continues to Increase

Competition for public funding has increased.

FY14 Enrollement in Millions

**These programs allow parents to receive tax deductions for school expenditures, including private school. These credits typically do not cover the foll cost of attending school.

Our Insights

What is happening today?

We’re seeing current “solutions” including annual budget battles and lawsuits, do not address or fix root causes of problems, nor incentivize innovative uses of school resources. School districts are finding themselves stuck with antiquated organizational models and structures in a rapidly changing world.

  1. Districts are simply getting by until the next budget cycle. Districts do little long-term planning and avoid addressing long standing budget challenges. Many districts do not have the funds or capacity to plan and execute strategic change.
  2. Additionally, states and cities tend to favor temporary budget fixes over deeper structural remedies. Examples can be seen in Illinois, Pennsylvania, Kansas and Michigan, among others.
  3. Adjusted for inflation, per pupil funding has been flat or declining nationwide for the last decade. This contrasts with rising salaries and benefits, including pensions.
  4. Competition for public K-12 public funding creates financial pressure on traditional school districts, particularly in areas where enrollment is flat or declining.
  5. Though some new, innovative school models can be implemented with existing public funding, many we work with require incremental, one time funding to effectively launch.
  6. Measuring return on investment (“ROI”) is increasingly difficult, as education evolves from high stakes testing to a more nuanced evaluation of success.
  7. More diverse learners require individualized approaches to education, often at a greater cost.
  8. The new federal education law, Every Student Succeeds Act (ESSA), gives states and school districts more flexibility with Title dollars to serve our highest-needs students.

How did we get here?

Our public education system has reached an inflection point in terms of its fiscal health and its ability to adopt innovative approaches to improve student outcomes. States and school districts are challenged to do “more with less” while providing a quality 21st century education for a vastly different demographic of students.

  1. International comparisons show U.S. schools lagging behind other industrialized nations – even as graduation rates rise.
  2. Alternative school models, like charter schools, have seen tremendous growth as more families choose tailored educational programs to best fit the needs of children. Virtual schools have also gained momentum in several states.
  3. Education technology is a developing, and still fragmented marketplace. Schools are investing heavily in adaptive software, devices, and learning management systems, which offer both opportunities and challenges to leadership in education.
  4. Sophisticated philanthropic investments have allowed school districts and charter schools to increase their ability to leverage funds. Impact investing can take many forms, including direct investments, program related investments (or “PRIs”) and social impact bonds, among other alternatives.
  5. Limited incremental public funds in K-12 education and outdated state and district school funding models strain resources, particularly since the economic crisis of 2007-2008.
  6. Financial commitments by public entities, including debt, collective bargaining agreements and pensions, continue to strain the educational system as a whole.
  7. There are more diverse learners than ever in our classrooms. These students require services beyond the typical classroom, and public funding sources do not fully offset the costs of these additional needed services.
  8. School districts face unique challenges depending on their regional geography. For example, many districts in Texas are seeing a growing student population with increased English language learners. Pennsylvania’s student population has remained flat, while Michigan’s student population is declining.
  9. Employers are increasingly looking for a very different skillset in their employees.

What does this mean going forward?

School districts, charter schools, education administrators and their various constituencies will be pushed to do more with little or no incremental resources. Pressure will continue to mount to meet the needs of a more diverse set of learners, and an economy that is demanding of a very different type of employee. Without additional funding, K-12 public education will need to adjust to these new realities by increasing flexibility, expanding its planning horizon, and addressing policy constraints that do not serve its students. Additionally, finance must be a support function that provides autonomy, flexibility and real time data, while both acknowledging compliance and enabling innovation.

  1. Districts should build capacity for multi-year planning, and assume little or no growth in revenue.
  2. Local and state governments should plan holistically for increased choice. This means addressing “fixed” cost structures such as facilities and central services, district and school funding models, and increasing flexibility for operators.
  3. States and districts should shift control of funding to schools and support policies that increase fiscal autonomy for principals and school leaders to make decisions at the school-level. States should also ensure their resource allocation policies are aligned to student needs. Alongside this, principals must understand the financial flexibilities at their disposal, and how to utilize these to reach strategic objectives.
  4. Districts and states should capitalize on funding flexibility options, including student-based budgeting. ESSA also supports this through weighted funding pilots, with the intent of providing more flexibility to states, districts and schools on how they allocate resources. Additionally, results-based funding – aligned with competency-based education – may be considered, and is already being raised in the disruptive virtual school space.
  5. District and school leadership must prioritize investments based on student outcomes and focus on the value-add of each academic program they offer. Latest research continues to support the inclusion of Early Childhood Education (“ECE”) in this, though no dedicated funding stream exists for ECE. Reporting structures should then align to academic inputs to measure the cost of intended outcomes. Public and non-public funding of K-12 education will require more sophisticated reporting and accounting on uses of funds, and the long term sustainability of their investments.
  6. Districts must implement new, more individualized approaches that meet learners’ diverse needs without new funding. This will require new resource priorities and comprehensive, long-term planning. We are rapidly moving towards a system which may require or support an “IEP for every child.” How ready are our traditional districts to support true personalized learning?
  7. States and districts must focus on sustainable approaches to accommodate growth and improvements to existing facilities. With changing enrollments from year-to-year (including some with large increases, and some with decreases in enrollment), those invested in public education should push for more creative sourcing, use, and financing of facilities by improving access to capital, diversifying portfolios, and leveraging underutilized buildings throughout the education and community landscape (including higher education).
  8. K-12 education entities need more collaboration with institutions of higher education, particularly those that are asset rich and cash poor. The lines between K-12 and higher education are blurring, especially with the increased support and adoption of dual-enrollment programs and competency-based education, common utilization of public (and even non-public) assets may prove mutually beneficial from both a strategic and financial perspective.

In Conclusion

School districts, charter schools, education administrators and other stakeholders are pushed to do more with little or no incremental resources. Pressure will continue to mount to meet the needs of a more diverse set of learners and an economy that is demanding of a very different type of employee. Without additional funding (which we don’t foresee), K-12 public education will need to adjust to these new realities by increasing flexibility, expanding its planning horizon, and addressing policy constraints that do not benefit its students.

Afton will continue to monitor these trends and update this analysis at least on an annual basis. Please feel free to contact us directly at connect@aftonpartners.com.

Afton supports states, school district leaders, and funders, among other stakeholders, in addressing the challenges facing K-12 public schools today.

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