Learning from Our Mistakes: A Funding Formula Cap

In my youth, I made some irresponsible financial decisions. The first thing I purchased on a credit card was a tennis racket; I don’t even play tennis. Then, of course, there was the college spring break trip to Panama City that was put on the credit card. Now, a decade later, I’m still paying for many of those unsound fiscal decisions. It may sound strange, but in many ways Missouri’s education funding system is in the same boat—decisions made long ago continue to plague us today.

After Missouri’s school funding system was challenged in the courts, lawmakers went to work and put in place a new school funding formula in 2005. The plan was to phase in the new, more expensive formula over a number of years. Lawmakers realized that the formula could potentially grow at a rate that made it impossible to fully fund, so they put in place a cap. The cap restricted growth to five percent over a two-year period.

In 2009, while the formula was still in its youth, lawmakers removed the cap, allowing the state’s obligations to grow at a rapid pace. Lawmakers were expecting a financial boon from lottery proceeds—which, of course, didn’t pan out. At the same time, Missouri and the rest of the country experienced one of the largest economic downturns in recent memory.

Today, our foundation formula for public schools is underfunded by roughly $500 million. This shortfall can be tied directly to the legislature’s unsound fiscal decision to remove the cap, along with the Great Recession of 2009.

 Some might scoff at what I’m suggesting. They’ll say, “The problem is that the legislature just needs to value education more and put more money into the formula.” There is just one problem with that. Believe it or not, more funding actually exacerbates the problem. Let me explain.

When I make a payment on my credit card debt, the next month’s payment is lower. However, when lawmakers increase funding for the foundation formula, it triggers an increase in the funding that will be required for the next go-round. This occurs because the formula is updated bi-annually based on how much a select group of districts spend per pupil.  The legislature gives districts more money, the formula gets recalculated based on this new spending, and the target moves ever upward.    

We have created a vicious circle in which more spending begets more spending.

Now, the legislature is considering reinstating the five-percent cap. This would not necessarily fix the perpetually increasing funding cycle, but it would slow it down. It would make it more feasible for lawmakers to fully fund the foundation formula.

We all make unwise financial decisions from time to time. The key is to learn from our mistakes and correct them. I stopped buying things, especially things like tennis rackets, with credit cards. Some lawmakers have realized that removing the cap has created an untenable situation where we will never be able to fully fund the foundation formula for public schools. Reinstating the cap is one step toward fixing that problem.