When dollars follow students: the political viability, equity and workability of weighted funding formulas.

For more than a decade, education reformers have admired the achievements of the Edmonton Public Schools in Canada, and school districts across the United States have attempted to replicate Edmonton's success with school-site decision making. However, most districts have stopped short of implementing one policy that is central to Edmonton's success: a radical new method of allocating resources to schools.

Under the leadership of Superintendents Mike Strembitsky, Emery Dosdall and now Angus McBeath, Edmonton has pioneered a program called Weighted Student Formula, in which each student receives an allocation--weighted according to his or her specific needs--that follows the student all the way to the school. Families are free to choose any public school, and principals have a great deal of discretion over their school budget, which is an aggregation of all the individual student allocations.

The advantages of such a system are numerous. First, financial equity is virtually guaranteed, since every student carries funding appropriate to his or her level of need, and those resources move to the child's school. Second, with budget control held locally, principals can tailor the school's services to meet the needs of local families. Finally, district leaders can focus on hiring and supporting principals who understand the link between spending decisions and instructional leadership.

Following Edmonton's lead, several districts in the United States have launched their own versions of weighted student formulas, or WSF: Houston, Seattle, Washington, D.C., and Cincinnati already have implemented the program, while San Francisco has launched a more limited version (see "The Weighted Student Fourmula: A Superintendent's Perspective". Supported by grants from the National Science Foundation, the John M. Olin Foundation, Peter Bing, the Frank and Kathrine Baxter Family Foundation and the Thomas B. Fordham Foundation, our research team spent much of 2001-02 analyzing and comparing the WSF systems implement ed in three cities: Edmonton, Seattle and Houston.

As a result, we have identified a dozen of the best practices that school districts have used to successfully implement WSF. We hope school system leaders will be able to use these lessons to design weighted student formulas that are politically viable, financially equitable and managerially workable.

Revolutionary Funding

By distributing dollars using such formulas, Edmonton, Seattle and Houston have taken a radical step away from the typical enrollment-driven allocation policies used in most large, urban school districts. Our study also included the three largest school districts in North America: New York, Los Angeles and Chicago. Despite repeated attempts at decentralization, these large districts still use strict enrollment formulas to dictate what resources a given school will receive.

In Los Angeles, for example, a middle school in 2001-02 received one teacher per 39.25 students, plus $24 per student in materials and supply money. Ratios like these drive the allocation of almost every type of operating expenditure, including administrator positions, counselor and nurse time and textbooks. In these systems of enrollment ratio formulas, principals and teachers have little control over the school's staffing, schedule or educational program.

Our team conducted interviews with 185 principals in the six public districts and found, on average, that principals in the WSF districts have discretion over 77 percent of their school budgets. By contrast, principals in New York and Los Angeles report discretion over only 6 percent of their budgets. In Edmonton, we found principals have control over an astounding 92 percent of their budgets. We also perceived that the morale of principals was linked to their perception of flexibility and adaptability, with WSF principals appearing to have much higher levels of job satisfaction. Weighted student formulas also are fundamentally different than--and we believe superior to--proposed allocation systems that would provide financial rewards to schools that show performance gains. Pay-for-performance schemes make local educators accountable to politicians, who determine how performance is measured.

In contrast, when combined with public school choice, WSF makes schools accountable to parents, who decide which school their child will attend, thereby determining where the education dollars will flow. Local educators then are empowered to meet the needs of the families they serve.

How it Works

While specific policies vary from district to district, WSF systems share the following key characteristics:

* Dollars follow students all the way to the school.

By creating a base allocation that follows each student to his or her school, WSF guarantees financial equity among schools within a district. In our three districts, the base allocation per student ranged from $2,506 in Houston to $3,712 (Canadian) in Edmonton.

* Each student allocation is weighted, based on the child's needs.

Students with special needs--English learners, special education students or even students from impoverished families--carry a weighted supplemental allocation that allows schools to provide the extra services necessary to serve these children. This system of weights also ensures that schools have an incentive to recruit students with special needs.

In Seattle, the following types of students qualify for a supplemental allocation: (a) limited English proficient (27 percent of the base allocation), (b) special education (95 to 776 percent), and (c) low-income (10 percent). Theoretically, a student who falls in all of these categories could receive an allocation of as much as 9.6 times the value of the base allocation ($2,607), meaning that a school could receive more than $24,000 for the education of one student. (For a full comparison of weightings, see Guideline 5 on page 13.)

* Families choose the school that is right for their children.

Public school choice empowers parents to choose the school that will best meet their children's needs, giving schools a powerful incentive to meet the needs of local families. When a child switches schools, the fully-weighted allocation follows him or her to the new school, ensuring they have access to the resources and services appropriate to their level of need.

* Local educators enjoy significant budgetary discretion.

In a WSF system, principals have much more responsibility for the educational program and for the operation of the school. For example, in Houston, the superintendent waived all district mandates, requiring principals only to operate their schools in accordance with state law. These district policies create tremendous flexibility for principals and teachers, even if state laws and union contracts remain unchanged.

In WSF districts, principals have the ability to change student-teacher ratios, and schools are allowed to purchase products or services from outside vendors instead of relying solely on the school district's central office.

District Role

Despite a radical decentralization of daily decision making, a superintendent in a district using a weighted student formula remains accountable for student achievement and financial performance. Using three key levers, a superintendent and senior staff can still exert a tremendous amount of control over the system's behavior.

First, in a WSF system, a superintendent's main priority is the hiring of principals. Not all educators will be capable of seeing the link between spending decisions and student achievement. Not all principals will possess the managerial skills necessary to thrive in a market-like environment in which resources, discretion and accountability are school-based. Those who can learn must be trained. Those few who cannot learn must be moved out of principal positions. By making good personnel decisions, a WSF district can ensure that school-level authority is not abused.

The second major role for the superintendent is the oversight of schools. By implementing financial systems that are transparent and easy-to-use, the central office ensures not only that principals can track their budgets and expenses but also that the superintendent can monitor schools' spending patterns. Effective oversight is essential if system leaders are to have confidence in school-site decision making.

Finally the central office should be redesigned as a service organization. Because schools have the ability to purchase from external vendors, central-office units will need to learn to price their services competitively and adjust their mix of services to best meet the needs of schools in the field.

12 Guidelines

As a district moves toward a weighted student formula, school executives also will be asked to provide informed advice to policymakers. Specifically, policymakers need assistance in setting the key financial variables of WSF: amount of total budget in the WSF pot, level of base allocation, weightings and so forth. In addition, policymakers may require help in analyzing how specific policy decisions will affect the incentives of local educators and the performance of their schools.

Based on the experiences of Edmonton, Seattle and Houston, we have compiled the following 12 guidelines for implementing WSF successfully:

No. 1: Distribute close to 100 percent of the operating budget to schools via the weighted student formula.

For principals and teachers to feel fully empowered, they need access to adequate resources. Thus the district should distribute as much of its operating budget as possible via the WSF. Of the three districts we studied, Edmonton distributes the highest percentage of total district funds to principals via its weighted formula--more than 73 percent--with the remaining expenditures devoted to a variety of school programs and central-office departments. Seattle and Houston each distribute less than 55 percent of the total district budget to principals via WSF. When principals are forced to pay for the instructional program (including teacher salaries) out of a school budget that accounts for less than 55 percent of the educational funds allocated to their students, budgetary flexibility is greatly constrained.

In an ideal world, a district would distribute 90 to 95 percent of funds through the WSF, with the remainder reserved for district governance, administration and state compliance. The closer a district comes to this goal, the more successful the WSF program will be.

No. 2: Allow parents to choose the public school that best fits their needs.

Public school choice complements a weighted system by creating a financial incentive for schools to improve their educational programs, thereby attracting more students (and more dollars). Importantly, weightings ensure that schools have an incentive to recruit and serve students with special needs, limited English proficiency and other difficulties.

All three WSF districts have some form of public school choice, giving each system some market-like characteristics. Edmonton's system is particularly effective, allowing students to apply directly to any school in the system. A system like Houston's--in which families must apply to the central office for transfers--is less desirable since parents must justify their preferences to the district, thereby inhibiting full choice.

No. 3: Phase in the financial impact of WSF over two to three years.

While a district may be tempted to implement a pilot program for a small group of schools, this approach is likely to create conflict between schools because some schools will see declines in funding as a result of the change to the formula. These are schools that have been historically overfunded on a per-pupil basis, usually schools with special magnet programs, small schools or those with more senior teaching staff.

In Houston, the financial impact was phased in for all schools over two years, giving principals time to prepare for budgetary and managerial changes while getting all schools on the new system quickly.

No. 4: Minimize subsidies for small schools.

Initially, all three of our WSF districts implemented supplemental funding mechanisms that protect small schools, which often see their budgets decline under WSF. In Edmonton, schools are given an extra allocation when their enrollment is below 350. In Seattle, all schools are given a "foundation allocation" of $194,000 (for elementary schools) to $529,000 (for high schools).

However, these adjustments are fundamentally inequitable because, by definition, they result in the underfunding of students who attend larger schools. In effect, these districts are robbing Peter (students at large schools) to pay Paul (students at small schools). Politically, though, it may be necessary for WSF districts to provide temporary subsidies to smaller schools to ease them through the transition. Houston initially subsidized small schools but has since abolished these subsidies, improving the equity of the WSF system.

No. 5: If possible, phase in the use of actual teacher salaries over 5 to 10 years.

All three WSF districts charge each school not for the actual salary of each teacher, but instead for "average teacher salaries." This means that, for the sake of school budgets, differences in teacher salaries are ignored. Thus a first-year teacher costs the school the same as a 30-year veteran on paper. This accounting distorts the incentives of principals, making them less inclined to hire a younger teacher when they can get a more costly one for the same average salary.

Houston has devised a 10-year plan, currently postponed, that will gradually introduce the use of actual teacher salaries. We believe this extended transition is warranted since principals cannot immediately change the make-up of their teaching staff. Schools need an extended period of time to address the complex financial consequences of their hiring decisions. Because it has the potential to influence the job market for teachers, the shift to actual salaries may generate scrutiny in some districts. But to derive the full benefits of WSF schools need to be accountable for the financial impact of their hiring decisions.

In Boston, the district has implemented a system of per-pupil budgeting for 15 pilot schools, including the Boston Community Leadership Academy. Because the school is charged for actual teacher salaries, BCLA has been able to reduce the average class size to approximately 20 students by hiring a large number of dedicated young teachers to work under the guidance of a core group of veteran teachers.

No. 6: Establish an inclusive process for making weighting decisions.

In all three WSF districts, a formal committee of principals makes decisions about the weights with input from school business officials, educational experts and policymakers. Weighting decisions should be driven by the educational needs of different types of students, and school leaders will increasingly play a key role in providing information about the relative cost (and effectiveness) of different educational programs.

Whatever the process, it is vitally important that principals, district administrators, parents and teachers all accept the weights as valid. The table below shows the different weightings used by Edmonton, Seattle and Houston in 2001-02.

No. 7: Base funding on a combination of enrollment and attendance.

If a school's funding is based purely on enrollment, then schools have a perverse incentive to overlook or even encourage absenteeism since they will receive dollars for children who are not in the school. On the other hand, a funding formula based solely on average daily attendance will be regressive, punishing schools that serve at-risk students (who are typically absent more often).

Therefore a district's funding mechanism should be based on a mix of enrollment and attendance. In Houston, schools receive funds based on 75-25 mix of enrollment and attendance. This ensures that principals have a financial incentive to improve attendance, while protecting those schools that serve at-risk students. Edmonton uses a special system for high schools. Schools receive funding based on the number of courses successfully completed by their students, with some compensation for schools that teach lower-income students.

No. 8: Carefully evaluate grade-level differences in funding levels.

For reasons that are unclear, all three WSF districts in our study seem to underfund secondary schools relative to historical levels. In Houston, all general education students receive the same base allocation regardless of grade level, while Seattle's mechanism gives secondary students only 89 percent of the base allocation for elementary students. Edmonton uses a complex formula to fund high schools, but the overall effect is similar. Cincinnati, another district that has recently implemented weighted funding, has taken a hybrid approach, funding grades K-3 and 9-12 at higher rates than the middle grades.

Historically, secondary schools have received up to 25 percent more funds per student, presumably because they must provide specialized courses, programs and facilities such as science labs and workshops. However, high schools also have larger class sizes, implying the need for lower per-pupil funding levels. For this reason, we believe that more research is needed to determine the relative financial needs of different grade levels.

No. 9: Give schools information on expenditures as soon and often as possible.

To make responsible spending decisions, principals need easy access to timely financial information. District data systems should be transparent, accurate and up-to-date.

With more than 20 years of WSF experience, Edmonton has done the most in this area. Each school has one staff member--usually the school secretary--trained on the district's web-based information systems. Via this Web system, principals have immediate access to their prior month's spending and attendance data, allowing them to track expenditures against budgets and make necessary adjustments in staffing, programs and spending.

No. 10: Make it easy for schools to purchase from outside vendors.

Schools in a WSF system are often allowed to purchase products and services from outside vendors. Central-office units compete for the schools' business and therefore are pushing themselves to improve services. In 2000-01, Edmonton schools spent more than $8.2 million--or 2 percent of their total budget--on external service providers.

Furthermore, Edmonton makes it easy for principals to purchase from external vendors. Credit cards allow schools to make instantaneous spending decisions, and schools can spend up to $3,000 per month without generating a purchase order through the central office. To protect against abuse, however, the financial system allows district leaders to review such school spending on a monthly basis.

No. 11: Provide appropriate training for principals and support staff.

To operate in a world of managerial discretion, new principals need more training in budgeting, information technology, decision making and management. Houston and Edmonton have implemented particularly rigorous training programs for new principals.

Under WSF, the business and bookkeeping functions of a school are greatly simplified compared to traditional schools, which are allocated resources based on complicated enrollment formulas. Complex financial requests and administrative rules are largely eliminated, and with them go the corresponding administrative tasks in the school. In Edmonton, the bookkeeping function is typically delegated to the school secretary. In a large school, the principal might assign budgetary responsibilities to an assistant principal or a comp-time teacher.

No. 12: Share information on school performance with educators and parents.

For WSF to work effectively, everyone should have access to available data on student outcomes: test scores, absenteeism, graduation rates and so forth. Edmonton, Seattle and Houston all issue some form of school report card that details the school's performance and, theoretically, helps parents to choose the school that is right for their children.

Non-WSF districts also have made strides in this area. New York City provides clear school report cards, and Los Angeles Unified makes much school data available to the public via its website.

Ideally, test scores should be reported on a value-added basis, showing average gain score between the beginning and the end of the school year. This approach is used by the nationally acclaimed Wesley School in Houston, which serves mainly disadvantaged African-American children and boasts test scores in the top 10 percent of Houston's schools.

Second Generation

By adhering to these guidelines for implementing a weighted student formula, school leaders can provide informed advice to policymakers, ensuring that dollars follow students all the way down to the school. Drawing on lessons from Edmonton, Seattle and Houston, we hope other school systems will implement a second generation of weighted funding policies that will be even more effective than the first.

Weighting allocations for different types of students

                                       Allocation as Percent
Type of student                        of Base Allocation

                                       Edmonton   Houston   Seattle

Limited English proficient             126%       110%      127%
Special education--lowest weighting    199%       210%      195%
Special education--highest weighting   546%       700%      876%
Economically disadvantaged             NA         120%      110%
High-mobility school                   NA         120%      NA
Gifted and talented                    126%       112%      NA

Source: School districts

NA = not applicable

Related Article: The weighted student formula: a superintendent's perspective.

BY ARLENE ACKERMAN

As an educator with 34 years of K-12 experience, I have spent most of my career developing and implementing systemic L strategies to improve academic outcomes for urban public school students. As a teacher, principal and district administrator, I have been part of myriad reform initiatives intended to raise achievement. Unfortunately, few initiatives manage to sustain student Improvement.

Something is missing in the progression of instructional, structural and governance reforms. Too many reform proposals are sold as the answer to what ails public education. This thinking is misguided. No single solution can guarantee success. A strategic alignment of academic initiatives, fiscal and human resources and districtwide accountability systems is required to improve and sustain achievement.

When I became San Francisco's superintendent four years ago. It became clear after listening to hundreds of parents, educators, students and community members that we needed a coherent plan to address the entire system. The result was our Excellence for All plan, subsequently passed by the board of education.

In this plan, all strategies are aligned and focused on three guiding principles: improving achievement for all students by raising the bar and closing the performance gap; ensuring equity in the allocation of resources; and implementing accountability systems. The weighted student formula is one of the plan's major initiatives.

Building the Case

Should your school district consider moving to a weighted student formula system that allocates dollars based on student characteristics and under which principals and other school site constituents make more decisions?

Let me suggest a few ways to answer this question. Ask yourself whether the following statements describe your district:

* Funding under the current system is unfair and/or arbitrary;

* Parental and staff decision making is limited;

* Annual site academic plans are of uneven quality, and schools view their as a chore instead of a useful tool; and

* Central offices are mewed as an obstacle to schools' success.

Moving to a weighted funding system is not easy. However. [f your school district sounds like the one I've just described, it may be a worthwhile strategy to consider for the following reasons:

* Allocation of resources will match individual student needs:

* Principals and school communities will have more flexibility and control over staffing and instructional decisions;

* Parents, teachers and other staff will have ownership;

* Site academic plans will be more relevant: and

* The central office will become more service-oriented.

These are the same points I recommend in seeking buy-in from stakeholders. Like it or not many school districts are closer to the first example and there. fore may find the promise of a weighted system very appealing. This is not a process to be undertaken lightly, yet a case for change exists in many districts.

Our weighted student formula now includes about 60 percent of our total unrestricted general funds. Base funding is differentiated by grade levels within a range of approximately $2,520 to $3,350 per pupil. English learners and students from low socioeconomic households receive additional funding ranging from $155 to $530. Each year our advisory committee reviews and can recommend potential modifications to the weights and characteristics.

Central-Office Role

The successful implementation of WSF would require a culture change in most central offices. It may surprise some that moving to a site-based decision-making system requires the central office to be stronger and better functioning. For the WSF to succeed, central offices have to do more than simply get out of the way. They must devote a considerable amount of effort to establish systems that support school sites' expanded authority.

Academic and operational offices must work diligently and cooperatively to provide training, prepare written guidance that addresses potential areas of confusion, respond to school sites' questions immediately and review academic plans and budgets against quality and compliance criteria. They must provide accurate budget allocations, staffing parameters, site-specific school performance data and other relevant information to allow schools to make appropriate decisions.

District offices must coordinate their efforts carefully and must exceed schools' expectations to persuade the inevitable skeptics. To measure the quality of service and support they provide, central-office departments can be evaluated annually through surveys of school staff and governance teams.

Our central-office staff members now see their role as facilitating the work of school sites, not arbitrarily declining requests because "we've never done It that way." Generally they are happier with this new role.

Our budget and human resources staff members appreciate being included, for the first time, in discussions with colleagues on how to read and evaluate school academic plans. Most importantly, staff members from all central departments now see much more clearly how their work can support schools' success. After all, no one comes to work for a school district central office hoping to frustrate school principals, but bureaucratic forces sometimes lead to these types of relationships. Many central-office staff members welcome the changes prompted by a weighted formula as much as anyone does.

Responsive Assistance

The most important test of whether a WSF system is working is how well the district's principals and other school site representatives can perform their additional responsibilities. Their successful performance requires high-quality written materials, effective training and responsive technical assistance.

Our training and written resources emphasize several key components: building an effective site-level team; using data in developing school site plans and budgets; and monitoring the implementation of the academic plan. We conduct training throughout the year and have designed modules of training targeted to specific needs and varying degrees of familiarity with the subject matter.

It is also crucial to provide enough time and support to principals and site teams, particularly as they undertake the process for the first time. This may include being prepared to provide a principal who is struggling with hands-on technical assistance, sitting shoulder-to-shoulder with a knowledgeable staff member if necessary. A sign of true success will be principals and site team members over time increasingly assisting and sharing effective practices with each other and with counterparts across school sites. In fact, some of our best and most articulate spokespersons for our work with WSF are our principals, teachers and parents.

The Academic Link

The weighted student formula can be emphasized as a budget allocation methodology, but in San Francisco it has become much more closely linked to the district's academic goals. The increased emphasis on site-based decision making has led to higher quality site plans and more effective planning and monitoring. School governance teams are working more effectively, and parents and teachers are more consistently engaged in academic planning.

For example, school community meetings at one of our more challenging elementary schools that formerly drew only a handful of parents are now attracting dozens. The meetings are also conducted in Spanish and English, for the benefit of the school's large immigrant population.

Our schools' parent clubs used to focus most of their time on booster activities, fundraisers and the prom. Now, parents, teachers and principals are working together in schools across the city to prioritize academic services and interventions for students once they study disaggregated achievement data;

The assistant superintendents who supervise the schools are deeply involved in supporting the local school planning and budgeting process and in monitoring the implementation of academic plans. Academic plans are prepared, reviewed, revised and approved more thoughtfully, and budgets are more closely aligned to identified student needs. Finally, plans are linked to principals' evaluation and district instructional strategies. In other words, the WSF is not an isolated budgeting tool but is strategically linked to other elements of our comprehensive instructional reform strategy.

Right Direction

Just over three years ago, San Francisco began implementing the WSF in tandem with other reform initiatives and redesign efforts. We began this initiative with a clear recognition of the amount of work involved but also a vision for the significant potential rewards.

Initially many voices expressed caution and skepticism. Today our site-based decision-making initiative is well-established and clearly recognized as an important aspect of how education works in San Francisco. Most importantly, our implementation of WSF and other reform initiatives has resulted in increased student achievement.

Will San Francisco Unified School District sustain its progress? Only time will tell. For now, I am convinced the academic gains our students have made over the last four years indicate that an unrelenting focus on improving student achievement coupled with a strategic instructional plan and the alignment of resources will keep us moving in the right direction.

Arlene Ackerman is superintendent of the San Francisco Unified School District, 555 Franklin St., San Francisco, CA 94102. E-mail: [e-mail]

Tim DeRoche, an independent consultant and educational TV producer, can be reached at 1624 Silverwood Terrace, Los Angeles, CA 90026. E-mail: [e-mail]. Bruce Cooper is a professor and chair of the Division of Educational Leadership, Administration and Policy at the Fordham University Graduate School of Education. William Ouchi is the Sanford and Betty Sigoloff professor in corporate renewal at the Anderson School of Management at UCLA.