Using last year’s enrollment for funding can help schools manage budgets better amid declining student numbers

Phoenix: So, here’s the deal. In the U.S., public schools get their funding based on how many students are enrolled. If more kids show up, they get more cash. In 31 states, schools use last year’s numbers to figure out this year’s budget. This helps cushion the blow when fewer kids enroll. But in other states, funding is based on the current year, so any drop in attendance hits the budget hard.
Some folks aren’t fans of the last-year funding method, calling it the “hold harmless policy.” They argue it pays schools for “ghost students,” which seems unfair and costly. This criticism might be why Arizona changed its funding model back in 2017, giving experts a chance to study how these different methods impact school budgets.
We looked at data from 190 school districts in Arizona from 2011 to 2020, covering six years before and three years after the policy change. After Arizona stopped the funding protection, districts with fewer students immediately saw a drop in state funding.
Our findings suggest that schools have more budget stability when funding is based on last year’s enrollment. When student numbers fell, wealthier districts were more likely to cut back on spending and even lay off teachers, especially those with less experience. This was a short-term effect, and we’re not sure what the long-term impact will be.
We didn’t dig into why this happens, but it seems wealthier districts had more wiggle room in their budgets to make cuts, while poorer districts were already running on a tight budget. It looks like richer districts gain more from using last year’s enrollment figures for funding.
As student enrollment in public schools is expected to drop by 5% from 2022 to 2031, understanding the effects of this policy change is crucial. Plus, with plans to cut federal funding for K-12 schools, states will have to shoulder more of the financial burden. Federal money makes up about 10% or less of school funding, so cuts could lead more schools to switch to current-year enrollment funding.