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Taxing Problem – Oregon’s Unstable School Funding Shows up in Falling Grades

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Imagine you’re planning a big dinner party. You’ll have money to work with, but there’s a catch: You won’t know how much money until after your dinner has begun.

Would you gamble, ordering lavish meals for each guest? Or keep it cheap, to avoid possibly ending up in the red? Maybe, if it turns out you’ll be flush with cash, you can rush to add an additional course or two?

This scenario is not unfamiliar to Oregon’s public school administrators, who are trapped in a state of perpetual fiscal uncertainty. They don’t control most of their funding—it comes from the state legislature and the amount changes frequently. So administrators can’t plan with any certainty what they’ll have to spend on their guests—that is, Oregon’s school-age children.

This is more than simply a nuisance for everyone concerned. The inability to plan funding hurts student performance.

So say Matthew Davis ’14 and Andrea Vedder ’15. The economics alumni found that math scores for Oregon eighth graders can drop by as much as 5 percent due to unstable funding that disrupts planning.

Their research began as an honors thesis and grew into an academic paper that was published earlier this year in the Journal of Education Finance.

Property taxes used to provide most of the funding for schools. This changed in the 1990s, when Oregon voters approved measures that kept property taxes down and severely limited the portion of property-tax revenues that could go toward schools.

These limits on local funding put the state on the hook for the bulk of school support. But fits and starts in the economy and other factors mean that the state’s budget picture is volatile, to say the least. That makes it difficult for lawmakers to guarantee the funding that will go to school administrators, especially over the long term.

Working with Joe Stone, a professor emeritus, Davis and Vedder initially found a correlation between low math test scores and communities whose school-tax revenues had been severely cut due to the measures. Stone challenged them to find out why.

Districts work with year-to-year budgets. But the legislature uses two-year budgets, which include the money that goes to schools.

So Davis and Vedder looked at both years of the state budget cycle, individually.

They found that during the first year, districts generally didn’t know how much funding they would receive from the state until the school year was well underway.

Talk about uncertainty: In one example, an urban school district reassigned hundreds of teachers outside their subject areas to make a meager budget work—but later learned that the budget would be better than expected.

Worse, Davis and Vedder found that the inability to plan ahead is most damaging to districts that are already cash-strapped. Those districts have less of their own property-tax money as a fallback when money from the state drops.

For Davis and Vedder, it was a surprise to discover just how big a role planning plays in student performance. “I always assumed that a lack of money caused problems,” Davis said. “But it was fascinating to discover the impact it had on planning.”

Even more surprising for Stone was that two undergraduates had been able to wade through the Oregon tax system to reveal this phenomenon.

“How could you pull out this one thing from something that can barely be explained?” he asked. “I was stunned.”

—Kit Alderdice