Title I’s Education Finance Incentive Grant Program Is Unlikely to Increase Effort and Equity in State Policy

This work is part of a series, Understanding and Improving Title I of ESEA. Nora Gordon is Professor at Georgetown University’s McCourt School of Public Policy, and Sarah Reber is the Joseph A. Pechman Senior Fellow in Economic Studies at the Brookings Institution.

The Education Finance Incentive Grant (EFIG) program, one of the four formulas used to allocate federal funding under Title I of the Elementary and Secondary Education Act (ESEA), is meant to promote a higher level—and more equitable distribution—of state and local funding for elementary and secondary education by creating incentives for states to change their school funding levels and finance systems. The EFIG formula primarily attempts to do this by using two unique factors that are not used in the other Title I grant formulas:

• The Equity Factor is a measure of how per-pupil spending varies across school districts in the same state.
• The Effort Factor is a measure of how much average per-pupil spending in a state, relative to the state’s per-capita income, is higher or lower than the average of that ratio for the United States overall.

Detailed below are four reasons why EFIG is unlikely to incentivize states to change their school funding levels and finance systems and why it would be difficult to reform EFIG to be more effective.

Not Much Money Is on the Line

EFIG allocations are small; therefore, any resulting financial incentives for states to change policy are weak. Title I accounts for only about 2% of funding for schools nationally, ranging from 1% to 4% depending on the state. EFIG allocations make up about one-quarter of Title I funding, which accounts for only about 0.5% of total school funding. Even fairly large proportional changes in EFIG funding would be small compared to total funding from state and local sources; the small amounts of money at stake limit the extent to which the EFIG formula could change state policy. State policymakers can do more to influence K–12 school funding by focusing on the first-order effects of how the state allocates its own aid for education than any secondary effects those allocation choices might have on EFIG.

The Formula Is Complicated and Opaque

The complexities of the EFIG formula make it difficult for state legislatures to understand the relationship between the distribution of state and local funding and the EFIG incentives. Even if the formula were clearer, state policymakers are unlikely to know what changes in state policy would yield additional EFIG funding because the relationship between specific state school finance policies and changes in the distribution of state and local funding across different types of school districts is not straightforward. State policymakers are ill-equipped to manipulate EFIG’s Effort Factor and Equity Factor even if they wished to do so, and improvements in progressivity may not map to improvements in “equity” according to EFIG.

The Formula Does Not Reward Progressivity

The EFIG formula awards more funding to states with higher Equity Factors, but the formula uses a measure of variance, which captures the extent to which school districts spend the same amount per pupil, instead of a progressivity measure, which would capture the extent to which districts serving more disadvantaged students spend more on average. In other words, the formula incentivizes more consistent state and local school funding but not necessarily state and local funding where the poorest communities receive more funding than wealthier ones.

We simulated the effect on EFIG allocations of a $4,000 increase in funding from state and local sources per formula child in all school districts—with no increase for other children. Such a change would direct significant new resources to school districts serving disadvantaged students, but our simulations showed it would not change the Equity Factor for the typical state very much, and in many cases, it would decrease the Equity Factor. For example, we estimated that if Connecticut spent an additional $278 million in state and local funding, the state would receive only $364,000 more from EFIG, a match of just 0.13 cents to the dollar (see full simulations in Title I of ESEA: How the Formulas Work).

Lower Spending States Are Not Rewarded Sufficiently for Spending More

The application of a minimum and maximum for the Effort Factor in the EFIG formula means that the incentive operates over a small range, and many states would see no change in their Effort Factor without making significant changes in spending (because they are far below the minimum or above the maximum values). Having the maximum Effort Factor instead of the minimum Effort Factor would increase a state’s EFIG allocation by about 10%, but the EFIG allocation is typically less than 1% of total spending—and this would involve a large increase in state and local spending. For example, we simulate that even a 23% increase in state and local education spending in Idaho would not increase its Effort Factor.

Conclusion

Each of these issues alone prevents EFIG from creating strong incentives for greater equity or effort in state education finance. Well-meaning state policymakers are likely to find it difficult to identify specific policies that would produce the school finance outcomes rewarded by the EFIG formula and result in additional EFIG funding to their state, which in any case is not a lot of money.

See All4Ed’s series of reports on Title I of ESEA for more details on the EFIG formula and how Title I allocations are distributed across states and school districts: https://all4ed.org/ImproveTitleI