Education A closer look: The school funding formula

A closer look: The school funding formula

Click for an interactive look at how poverty impacts school corporations across the state.

For Fiscal Year (FY) 2015, the state appropriated an estimated $6.67 billion in total K-12 tuition support, or money directed to schools to pay for classroom expenses, teacher and administrator salaries and other non-building or transportation-related outlays. Tuition support is scheduled to fund more than 955,000 students attending traditional public schools, nearly 28,000 in charter schools, 7,900 in virtual charter schools and nearly 30,000 students attending private schools using tax dollar-funded vouchers.

The amount each Indiana school corporation or charter school receives is determined by a formula constructed by Indiana lawmakers. While not directly funded by the school funding formula, vouchers used to attend private schools draw funding “off the top” of the same appropriation as traditional public schools and charter schools – meaning vouchers are funded first, lowering the overall pot of funding left for traditional and charter schools.

The funding formula

Charter schools and traditional public schools are primarily funded by the state school funding formula. The formula takes into account a number of factors affecting Indiana schools – including previous funding levels, poverty among the student population, special education students, academic honors diplomas and other items – to determine the total state funding each school corporation receives. The Indiana General Assembly passes biennium budgets, meaning enrollment and funding are based on projections. The budget passed in 2013 set funding levels for schools through Fiscal Year (FY) 2015. Indiana’s fiscal year runs from July 1 through June 30.

Elements of the funding formula

Tuition support can be grouped into two sources: base or foundation funding and funding generated through state categorical grants. Together, they make up a school corporation’s basic grant.

Student population

School corporations count total student enrollment or Average Daily Membership (ADM) twice annually, once in September and once in February.

Foundation amount

The foundation amount or base funding schools corporations are allocated takes into account the support schools received in earlier budgets to determine a funding schedule. State budget writers set the total amount or target the state will spend in base funding and then determine per school corporation foundation funding levels. In FY2015, the foundation funding for Indiana schools is estimated at $4.64 billion.

Using student population and funding projections, lawmakers set target foundation amount per ADM or an amount school corporation would receive per student. For example, in FY2015, the target foundation amount per ADM is $4,583.

Adjusting for prior funding

At the school corporation level, budget writers make adjustments to account for previous funding levels and enrollment trends. If a school corporation’s prior year foundation amount per ADM was below the target amount for the current year, the formula automatically raises that corporation’s foundation amount per ADM to the new target.

If the prior year funding level is higher than the new target, the formula gradually decreases the school corporation’s foundation amount per ADM over several years until it aligns with the new target amount.

The foundation amount per ADM is then multiplied by the school corporation’s most recent ADM count to calculate the corporation’s total foundation amount.

To calculate a school corporation’s prior year foundation amount per ADM, the corporation’s prior year total foundation amount is divided by the average of the corporation’s two ADM counts. The result is the foundation amount per average ADM for the prior year. If the prior year foundation amount per ADM is above the target, the difference is divided by four and the corporation’s foundation amount per ADM decreases by the incremental amount every year.

For example, let’s say hypothetical school corporation’s prior year foundation amount per ADM is $5,000 and the September 2014 total student population or ADM was 5,000 students.  To calculate our school corporation’s new FY15 foundation amount:

$5,000 – $4,583 = $409
$409/4 = $102.25

$5,000 – $102.25 = $4,895.75

Our hypothetical school corporation’s FY15 foundation amount per ADM would be $4,895.75. Multiplied by the 5,000 total students:

$4,986 X 5,000 = $24,478,750

The total foundation amount for our hypothetical school corporation in FY2015 would be $24,478,750.

Categorical grants

In addition to foundational support, schools receive funding in areas including: academic honors diplomas; special education and vocational education.  In FY2015, categorical grants are estimated to total nearly $644 million.

Academic Honors Diploma Grant

School corporations receive $1,000 for each student they graduate in the prior year with an academic honors diploma. To receive an academic honors diploma, a student must complete all requirements of the Indiana Core40 requirements with exemplary grades and complete additional course work in math, foreign language, fine arts and other areas. An estimated $23.2 million will be awarded to school corporations in academic honors diploma grants in FY2015.

For more information on academic honors diplomas>>

Special Education Grant

To equip schools with the resources they need to help students with disabilities, lawmakers allocate additional funding via the Special Education Grant. Grants are awarded as follows:

  • $8,350 per pupil with severe disabilities
  • $2,265 per pupil with moderate disabilities
  • $533 per pupil with communications disorder or homebound
  • $2,750 per pupil in preschool

In FY2015, more than $523 million is estimated to be directed to school corporations in the form of Special Education grants.

Career and Technical Education Grant

Grants are also allocated to schools offering career and technical training opportunities to their students. Grants are awarded per credit hour of class in training programs.

Career and technical education grants are estimated to total $97 million in FY2015.

Complexity grant funding

Complexity grants are used to help school corporations serving high poverty children. Indiana uses the percentage of students receiving free textbooks school corporations report as an indicator of poverty.

For more information on free textbooks and free and reduced lunch eligibility>>

Calculating complexity index

A school corporation’s complexity grant is based on each corporation’s complexity index. The complexity index is determined by dividing the percentage of students receiving free textbooks by two.

Calculating ‘Second Tier’ Complexity Index

School corporations with more than 70 percent of their students receiving free textbooks are given additional funding. The additional funding is determining by subtracting school’s complexity index from a complexity index corresponding with 70 percent of students receiving free textbooks, then adding the difference to school’s complexity index. For example:

For example, in 2014, 75 percent of students attending Marion Community Schools received free or reduced price lunches.

.75/2= .375

Complexity index before additional funding = .375

Additional funding

.375 + (.375-.35) = .4

Final complexity index = .4

Calculating a corporation’s complexity grant

The school corporation’s complexity index is then multiplied by the total number of students in the corporation and the foundation amount per student to determine the corporation’s final complexity grant amount.

The hypothetical school corporation has 5,000 students with 75 percent receiving free or reduced price lunches (complexity index = .4)

$4,583 x .4 x 5000 = $9,166,000

The hypothetical school corporation would receive a complexity grant of $9.17 million. In total, $1.15 billion is estimated to be allocated to school corporations in the form of complexity grants. Poverty isn’t unique to urban schools as schools in both rural and urban communities face challenges associated with uncertain economic times, stagnant wages and increased unemployment.

Full day kindergarten

School corporations also receive funding for the number students they have enrolled in full day kindergarten programs. Grants totaling $2,472 – or half the foundation ADM – are awarded to corporations per student enrolled in full-day kindergarten.

The process by which school corporations are funded for kindergarten students has been an ongoing controversy.  Advocates for full-day kindergarten have moved to see the process absorbed into foundation funding and for kindergarten students to be simply counted as one ADM or a full time student. In FY2014, more than $196 million was distributed to schools in the form of kindergarten grants.

Putting it all together

School corporations’ total regular funding is the sum of the foundation amount, transition to foundation, complexity and full-day kindergarten funding. Add all categorical grants and the total regular funding and you have a school corporation’s basic grant amount.

.Private school vouchers

Created in 2011, the state’s controversial Choice Scholarship program – which allows qualifying students to receive tax dollar-funded vouchers to attend private schools – distributed 3,900 vouchers at a cost of $16 million in its first year. By the 2015 school year, the program grew to nearly 30,000 vouchers at a cost of more than $115 million annually. The program is projected to distribute 36,000 vouchers in Fiscal Year 2016 and 40,000 in FY2017 although past predictions have underestimated the total number of vouchers.

Voucher award amounts

In the 2015 school year, voucher award amounts were the lesser of three amounts:

  • Tuition and fees charged to the student at the eligible voucher school; or
  • $4,700 for grades 1-8; or
  • An amount based off the per-student state funding for the student’s school corporation of residence determined as follows:
    1. 90% of the funding formula amount if the household income is up to 100% of reduced lunch eligibility.
    2. 50% of formula amount if the household income is up to 150% of reduced lunch.
    3. 50% of formula amount if household income is up to 200% of reduced lunch eligibility if the student received a voucher for the previous school year or if the student has disability that requires special education.

See voucher award calculations based on the per-student funding amount by school corporation>>

Student eligibility

Students are eligible to receive a voucher to attend private school if they meet the following income and eligibility requirements:

  • The student was enrolled in K-12 grade in a public school for at least 2 semesters immediately preceding the first semester for which the student receives a voucher; or
  • The student previously received a voucher; or
  • The student received a Scholarship Granting Organization Award (SGO) in a preceding school year; or
  • The student has a disability that requires special education or an Individualized Education Program has been developed for the student; or
  • The student would be required to attend a specific public school based on their residence that has been assigned an “F” grade (Prior attendance at the failing school is not required); or
  • The sibling of a newly applying student received either a voucher or SGO scholarship in a preceding school year.

The voucher program was originally sold as a way to save the state money as students were required to first attend a public school to be eligible to receive a voucher. Since voucher amounts were a percentage of the per ADM funding, the difference in funding from a student transitioning from public to private school was then deposited back into the school formula and redistributed to public schools.

Resultant of Republican lawmakers’ efforts to expand the voucher program, now over 50 percent of voucher recipients have never set foot in a public school classroom and likely never intended to. As a result, a program that once saved the state money, cost taxpayers more than $15 million in additional spending over the 2013-14 school year.

Income requirements

To qualify for the 90% voucher award, a student must be a member of a household with an annual income equal to or below 100 percent of the amount to qualify for federal free or reduced lunch program.

To qualify for the smaller, 50% voucher award, a student must be a member of a household with an annual income equal to or below 150 percent of the amount to qualify for the federal free and reduced lunch program.

In 2013, income eligibility for the 50% award was expanded to 200 percent of the amount to qualify for the free and reduced lunch program for students meeting special education eligibility requirements or had previously received a voucher.


The funding formula going forward

The Indiana House Republicans passed a biennial budget containing a school funding formula that shifts nearly $600 million in funding from rural and urban schools serving low-income students to largely low-poverty suburban and growing schools by reducing how much funding is available for complexity grants.

Click for an interactive look at how poverty impacts school corporations across the state.  Statewide, more than 49 percent of students receive free or reduced price lunches.
Click for an interactive look at how poverty impacts school corporations across the state.
Changes to the Complexity Index

In their as-passed budget, House Republicans made four significant changes to how complexity grants are calculated. First, Republicans shifted to using only students receiving free lunch to calculate grants. The formula previously used the number of students receiving free textbooks – a program with eligibility requirements mirroring free and reduced price lunch requirements. Only students in families earning 130 percent or less of the Federal Poverty Level (FPL) – or about $600 a week for a family of four – will be counted for complexity grant calculations. By eliminating students receiving reduced price lunches from complexity grant calculations, House Republican budget writers are effectively saying more than 80,000 students in families earning between 130 percent and 185 percent of FPL – about $600 to $850 a week – earn too much to be counted as low-income.

The second change caps the complexity grant base amount, lowering the amount school corporations receive per eligible student. The current formula multiplies the corporation’s complexity index (See how complexity index is calculated here>>) by the corporation’s foundation amount to determine the complexity grant amount per student. House Republicans capped the base amount by which the complexity index is multiplied at $4,000. For example, consider a school corporation with 5,000 students – of which 50 percent receive free lunches – at the FY15 target foundation amount per ADM of $4,583. Under the previous formula, the school would receive $5,733,750 in complexity funding. Under House Republicans’ version, that amount drops to $5 million – or nearly a 13 percent reduction in overall complexity funding.

The third modification eliminates the added funding allocated to schools serving extremely high-poverty students. In past formulas, the ‘second tier’ of complexity grants were awarded to school corporations serving populations with more than 70 percent of students receiving free or reduced price lunches (See how second tier complexity was previously calculated here>>). The understanding being schools needed resources like additional counselors, specialists and aides to help extremely high-poverty students catch up and meet state standards. The House-passed budget cuts these ‘second tier’ complexity grants across the board by 50 percent in FY2016 and completely eliminates them by FY2017.

The final change expands eligibility for ‘second tier’ funding to school corporations with 67 percent of students receiving free lunches in FY2016. The previous level was 70 percent of students receiving free and reduced price lunches. The change is temporary as ‘second tier’ complexity grants are eliminated by FY2017.

The House budget adds more dollars to the foundation amount for schools, increases special education funding, counts full-day kindergarten as one ADM for funding purposes and directs additional funding to Honors Diploma Grants earned by low-income students among other changes.

Indiana’s $115 million voucher program also draws funding from the same source as Indiana public school corporations. Any resources directed to voucher schools directly impacts public schools and charters, lowering the overall amount available to be distributed to them.

Budget negotiations have now shifted to the Senate, where Senate Democrats will fight for a more transparent, accountable and equitable school funding formula.