NCPA - National Center for Policy Analysis

Schools Waste Funds on Phantom Students

June 17, 2013

Many state education leaders are taking a fresh look at school finance in hopes of containing costs. But state leaders too often overlook a common practice that inhibits both efficiency and productivity, namely, funding students who do not actually attend school in funded districts ("phantom students"), say Marguerite Roza, director of the Edunomics Lab at Georgetown University, and Jon Fullerton, executive director of the Center for Education Policy Research at Harvard University.

Policies that fund phantom students take several forms:

  • Protections against declining enrollment.
  • Hold-harmless provisions for districts competing with charters.
  • Small district subsidies.
  • Minimum categorical allocations.

In each case, affected districts receive funds in excess of what they would receive if only the students on its rolls were funded. An obvious downside is that these policies cause less funding to be available for all other districts. Policies intended to "protect" districts weaken the incentives that should drive change and adaptation as enrollments fluctuate.

Buried deep in numerous state charter laws are promises to districts, often made during charter law negotiations, that they will be protected financially when they lose students to charters.

  • In some states, these provisions (called double-funding) work much like the declining-enrollment protections.
  • The state funds students attending charter schools while still funding districts as though those students had remained.
  • These allocations could create a disincentive to improve services in an effort to retain more students. When students leave a district to attend a charter school, the district may see an increase in per-student revenues.

There are three primary arguments against the funding of phantom students:

  • By continuing to fund phantom students, states ensure that districts won't restructure expenditures for smaller enrollments.
  • Funding phantom students delivers the message that school districts should continue delivering education the way they have for the last century.
  • Funding phantom students diverts public funding from other more important uses.

Source: Marguerite Roza and Jon Fullerton, "Funding Phantom Students," Education Next, Summer 2013.


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