NCPA - National Center for Policy Analysis

Performance Based Funding Realigns Education Spending

June 15, 2015

U.S. taxpayers spend at least 5.4 percent of the nation's Gross Domestic Product (GDP) funding elementary and secondary education and the current Federal practice for funding schools is based almost exclusively on attendance. This funding method is a fundamentally flawed model that misaligns incentives, rewards sub-par performance and diminishes the imperative for significant and sustained educational outcomes.

Misaligned incentives can have negative, and at times devastating, impacts. In education, the misalignment between funding and performance is, at best, a drag on the system and student performance, and at worst, a fundamental flaw that prevents our schools from improving as widely and deeply as necessary for this country to be competitive internationally and live up to our founding ideals of equality and opportunity.

Performance Based Funding (PBF) is a first step in aligning the incentives in the educational system and breaking the current funding structure that pumps money to all schools regardless of performance.

Policymakers have turned to PBF as a way to incentivize educational institutions to improve educational outcomes:

  • Since 2012, Michigan has provided performance based funding as an extra incentive for elementary and secondary schools. Using a student academic performance change metric, a school district can earn up to $30 per pupil for both mathematics and reading in elementary and middle school and $40 per pupil for all tested subjects in high school.
  • In the last fiscal year, Arizona distributed $21.5 million through an initiative called Student Success Funding, which was centered upon a district or charter school's achievement profile, improvement category and high school graduation number. 

PBF is a policy innovation that deserves more attention and analysis, and which can provide a new approach to improving academic outcomes outside the traditional reform approaches, while addressing systemic inefficiency. 

Source: Chad Miller and Doug Mesecar, "Performance Base Funding: A New Approach to Funding Elementary and Secondary Education," American Action Forum, June 11, 2015. 


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