Resources

As the nation faces an economic recession due to the coronavirus pandemic, states struggle to align spending for public education and other services with contracted revenues resulting from widespread sector shutdown.

States face difficult choices regarding spending in the context of an economic recession. One option that many are likely to consider is lifting restrictions on how school districts can use allocated funding. In considering whether to “loosen the reins” on such funding, state policymakers must grapple with finding the right balance between state control versus more local control.

To support policymakers in this decision-making, this brief explores trends in state categorical funding as well as recent experiences of states. It addresses the effectiveness and efficiency of categorical funding, including what is known from research. Based on the benefits and tradeoffs suggested by states’ experiences and by research evidence, the brief offers the following takeaways:

• Lifting restrictions on categorical programs can help local school districts navigate declining revenue by enabling more local choice.
• If using categorical funding, states should focus it on student groups (e.g., students who are English learners) rather than on operations such as transportation.
• When creating more funding flexibility for school districts, states should consider enacting reporting requirements that support effective resource use and accountability.

About This Series

The National Conference of State Legislatures (NCSL) has partnered with WestEd to publish a series of briefs summarizing the evidence and research on common school finance issues that arise during an economic downturn. Specifically, with the onset of an economic downturn, states face the prospect of reduced tax revenue available to fund public services, including public education. This series of briefs leverages what we know from evidence and research to present approaches that state policymakers may take to address these funding realities while supporting public education.

Also available from this series is, Special Education Funding: Three Critical Moves State Policymakers Can Make to Maintain Funding and Bolster Performance.