Title I funds are intended to supplement, not supplant, local and state education funding. Although part of title I, this program is funded separately. The 95-percent floor undermines the incentive for low-effort states to increase their effort in funding elementary and secondary education. Conclusions

The definitions of effort and equity in title I’s Education Finance Incentive Program could be improved in a number of ways. The definition of equity used in current law could be improved by (1) more fully considering differences in students’ needs among districts, (2) considering differences in purchasing power among a state’s districts, and (3) rewarding states for improving their level of equity in education spending, not just for already being equitable. Specifically, we believe that the Congress may wish to consider reducing the floor on the effort factor so that low-effort states are rewarded for increased effort; modifying the effort factor to eliminate the penalty on states where a high percentage of the population is school-age; using, in the effort factor, a more comprehensive measure of states’ revenue raising capacity, such as the total taxable resources indicator published by the Secretary of the Treasury; including in the effort and equity factors a bonus for improvement over time; expanding the needs component of the equity factor to include children with limited English proficiency and children with disabilities; adjusting the equity factor for differences in the cost of educational services across each state’s districts; and basing the allocation formula on the number of poor school-age children rather than all school-age children. I). Second, the current effort factor penalizes states with high proportions of school-age children. Development of Alternative Definitions of Equity

To improve the current measures of equity used in the Education Finance Incentive Program, we examined (1) the comprehensiveness of the various measures of equity available, (2) the comprehensiveness of the measures accounting for differences in student needs across districts, (3) the effect of including a measure of purchasing power across districts, and (4) the effect of including a direct incentive for states to improve their levels of equity over time.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the measures of equity and effort included in the Title I Education Finance Incentive Program, focusing on: (1) several options for improving these measures; (2) the characteristics of states with higher levels of equity and effort; and (3) alternative ways of using these measures in allocating title I funds.

What GAO Found

GAO found that: (1) the Education Finance Incentive Program's definition of effort does not include a comprehensive measure of states' funding capacity, penalizes states with a high proportion of school-age children, and provides no incentive for low-effort states to increase their effort in funding elementary and secondary education; (2) the title I definition of equity excludes a comprehensive measure of the differences in students' needs among school districts and the differences in purchasing power among districts; (3) adjustments to the effort factor should include using states' total taxable resources in establishing the states' education funding capacity and eliminating the bias against low-effort states; (4) adjustments to the equity factor should include rewarding states for increasing their level of equity in education spending and considering more fully the differences in educating higher-needs students; and (5) the allocation of title I funds should be based on the number of children in poverty rather than on the states' total number of school-age children.