INDIANAPOLIS — Of all the sweeping legislative changes coming to K-12 education, from private-school vouchers to performance-based pay for teachers, the one that may have the most impact is tucked inside the 270-page budget bill.

It changes the way schools are funded, following a new formula to divvy up nearly $13 billion in K-12 education dollars.

The new formula follows the mantra that “money follows the child” espoused by Indiana Gov. Mitch Daniels in his quest for education reform.

It jettisons some of the long-standing protections built in for small school districts and those with declining enrollments. And it simplifies what one of its legislative authors calls a complex “mathematical disaster” on which the old funding formula was based.

It also means that despite an increase in total state dollars going into K-12 education over the next two years, some school districts will see big financial losses while others see significant gains.

Dennis Costerison, executive director of the Indiana Association of School Business Officials, said the new formula forces fast changes to an old formula laden with disparities decades in the making. The result is that school districts that were getting much more money per student than others — in some cases $4,000 or more per student — will have to ratchet down their spending quickly. “For those schools, this will have an immediate negative impact,” Costerison said.

Overall, the $28 billion budget bill increases funding for K-12 public schools from nearly $6.25 billion this year to nearly $6.28 billion in 2012 and $6.34 billion in 2013. But because of the new formula, it affects school districts differently. Anderson Community Schools, for example, will see its funding go from about $58 million this year to about $53 million by 2013. Much of that reduction reflects its projected decline in enrollment, of about 600 students.

But it also reflects the jettisoning of old formula factors, such as the minimum-guarantee funding, that buffered schools with declining enrollments from sliding into the red. It also eliminates what’s called the “de-ghoster,” which spread out a reduction in funding for schools losing students.

Rep. Scott Reske, a Democrat from Pendleton, said the state can afford to keep some of those buffers in place for schools like Anderson. He noted that state budget analysts have predicted an increase in tax revenues in the next two years, and most of that money is going into reserves to build up a budget surplus.

“It’s sad that we are further cutting schools while beefing up a rainy day fund while it’s raining,” Reske said.

Rep. Ed Clere, a New Albany Republican who sits on the House education committee, said: “We’re no longer funding schools. We’re funding students.”

That shift will eventually benefit growing school districts but it forces declining schools into making some hard choices fast, said Sen. Tim Skinner, a Terre Haute Democrat and schoolteacher who sits on the Senate education committee.

He noted that the increase in statewide funding doesn’t make up for the $300 million cut in education funding last year. He foresees additional closing of schools, increasing teacher layoffs, and a higher student-teacher ratio in the classroom in districts already struggling. “This isn’t good for children,” Skinner said. “I think the ultimate goal to kill public education in Indiana.”

Supporters of the new formula disagree. “It’s the most positive change we’ve made in public education in years,” said Rep. Eric Turner, a Republican from Cicero. “The net result will be stronger public schools.”

Rep. Jeff Thompson, a Republican schoolteacher from Danville who helped draft the new formula, said it was driven by the disparities the old formula created.

Among the things the old formula was supposed to do, he said, was to give more money to schools with a higher percent of low-income students. But because of other factors in the old formula, that didn’t always happen.

The Gary school district, for example, received $9,525 per pupil in state funding this year under the old formula. Neighboring Hammond received only $7,004 per pupil, yet Hammond has a higher percent of students on the free and reduced lunch program — an indicator of poverty — than Gary. Meanwhile, the school district in New Harmony, with 30 percent of its students on the free and reduced lunch program, got $9,603 per pupil — almost as much as Gary.

“That just doesn’t make sense,” said Thompson. “It’s not equitable.”

The new funding formula went through 41 revisions before Republicans who control the Statehouse locked into the final budget bill presented to legislators Friday. Thompson said its based on a long-term plan to equalize funding.

Under the plan, each school district will be moved closer toward a “target” amount of per-pupil funding — a base amount of spending plus additional money for districts with a larger percentage of low-income students. It’ll take seven years to fully implement.

That means school districts with increasing enrollments won’t necessarily see a jump in funding. The Zionsville Community Schools, for example, is projected to have an increase in enrollment of nearly 250 students in two years, but it has one of the lowest percentages of low-income students in the state. So it will see a small decrease in funding of about $200,000 over the next two years.

Thompson said there’s no doubt the new formula will mean some school districts will be compelled to make hard decisions, while other districts will benefit from more funding. “There are schools that have been getting more than their fair share,” Thompson said. “This puts an end to that.”
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