Kentucky Spending More, But Academic Results Lag

Published March 1, 2009

When the Kentucky Education Reform Act was passed in 1990, the law was hailed nationally as a model for closing funding and academic gaps in one of the nation’s poorest—and poorest-performing—states.

While KERA steeply increased education spending and closed gaps in per-pupil funding between metropolitan and rural schools, a huge chasm remains between the amount of state and local funding flowing to various school districts. A new report by University of Kentucky economists indicates poorer districts rely heavily on state funding while their wealthier counterparts tend to get more of their revenue from local sources.

Centralized Funding

Overall, Kentucky relies much more on non-local revenue than do other states.

According to the report, “Educational Spending: Kentucky vs. Other States,” released December 15 by Kentucky’s Bluegrass Institute for Public Policy Solutions and the Indianapolis-based Friedman Foundation for Educational Choice, local revenues accounted for only 31 percent of school districts’ funding, while the national average is 43 percent.

“I knew Kentucky’s education system was pretty centralized. I was just surprised to find that so much money flows from the state,” said University of Kentucky economist Kenneth R. Troske, the report’s lead author.

Poorer, rural districts benefited greatly from KERA’s new funding formula. The law closed a $600 per-pupil spending gap that existed in 1987 between districts in the poverty-stricken Appalachian region of Eastern Kentucky and the state’s metro areas to only $10 in 2006.

Yet while KERA led to greater overall uniformity in per-pupil expenditures, the sources from which individual school districts receive their funding continue to differ dramatically, with urban areas being forced to get a much-greater portion of their funding from local revenues.

According to the study, local revenues account for only 17 percent of eastern Kentucky school districts’ funding, while they contribute 40 percent in metropolitan areas. Overall, only 20 percent of rural districts’ funding comes from local revenue, while 66 percent comes from the state and 13 percent from the federal government.

More Funding, Less Control

Citing the Fayette County school district, where the University of Kentucky is located, Troske said the state wants to dictate equal control over metropolitan and non-metropolitan districts while supplying less funding to some.

“I was surprised at how much more reliant we are on our local resources in contrast to other districts,” Troske said. “The state isn’t giving us much support, but at the same time is dictating to us how to run our schools.”

KERA, which became law after Kentucky’s Supreme Court declared the state’s entire property tax-based education financing system unconstitutional, resulted in an additional $950 million being pumped into the state’s public schools during the next two years—a 32 percent increase over the previous biennium. The October 21, 1991 edition of Fortune magazine declared KERA “probably the most radical piece of educational engineering ever embraced by a state government.”

The spending boom also moved Kentucky from being the fifth-highest to No. 1 in per-pupil spending among the eight states comprising the federally designated South-Central region, which includes Alabama, Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee, and Texas—states to which Kentucky is traditionally compared in the areas of taxes, economic development, and education spending.

Kentucky also has significantly narrowed its per-pupil spending gaps with the rest of the nation—from $3,471 in 1989 to $1,113 in 2006.

Continuing Domination

The dramatic increases in education funding have not kept state politicians from continuing to make revenue the centerpiece of debates about Kentucky schools. Neither have they produced evidence of having solved the state’s student achievement problems.

Centralized funding formulas appear to have resulted in inefficient practices and no better academic results. According to a Bluegrass Institute report published on January 24 by John Garen, chairman of the University of Kentucky’s economics department, teacher salaries represented 46 percent of the state’s education budget before KERA was implemented, but only 41 percent after—raising a red flag about spending practices.

School choice, by contrast, provides incentives for more efficient spending, Garen said.

Other experts agree, pointing out school choice programs benefit parents who need alternatives and also help cash-strapped state budgets nationwide.

“There’s a great deal of evidence that school choice programs can save tax money and are an efficient use of resources,” said Robert Enlow, president and CEO of the Friedman Foundation for Educational Choice. “Research conducted by the foundation found that school choice programs have saved a total of about $444 million from 1990 to 2006, including a total of $22 million saved in state budgets and $422 million in local public school districts.”

Jim Waters ([email protected]) is director of policy and communications at the Bluegrass Institute for Public Policy Solutions in Bowling Green, Kentucky.

For more information …

“Educational Spending: Kentucky vs. Other States,” by William H. Hoyt, Ph.D., Christopher Jepsen, Ph.D., and Kenneth R. Troske, Ph.D., Friedman Foundation for Educational Choice, Bluegrass Institute for Public Policy Solutions, December 15, 2008:

“Fears versus facts about school choice: An overview of issues surrounding the effects of competition on public schools,” by John Garen, Ph.D., Bluegrass Institute for Public Policy Solutions, January 24, 2009: