Over the past 30 years, Virginias school finance system
has been significantly impacted by two significant occurrences.
First, the State Constitution, ratified in 1971, contains
two provisions that relate specifically to school funding
contained in Article VIII:
- Standards of quality for the several school divisions
shall be determined and prescribed from time to time by
the Board of Education, subject to revision only by the
- The General Assembly shall determine the manner in
which funds are to be provided for the cost of maintaining
an educational program meeting the prescribed standards
of quality, and shall provide for the apportionment of the
costs of such program between the Commonwealth and the local
units of government comprising such school divisions. Second,
beginning with the 1986-88 biennial budget, the General
Assembly adopted a method proposed by the Joint Legislative
Audit and Review Commission (JLARC) for costing the Standards
of Quality, followed in 1988-90 with distribution changes
proposed in part 2 of the JLARC study.
The basic methodology for funding the Standards has remained
unchanged since the JLARC recommendations were implemented.
JLARC recently included funding for elementary and secondary
education as part of its study plan for the 2000-2001 fiscal
Local school divisions are not able to keep expenditure
data that relates to specific standards. Therefore, the method
used to cost the Standards of Quality has been
of issue since the Constitution was ratified in 1971. Governor
Holton appointed the Task Force on Financing the SOQ to study
the issue and make recommendations. The task force presented
two reports, the first in December of 1972 and the second
in July of 1973.
The methodology recommended in the task force reports differed
in their approaches. The first task force determined the number
of instructional personnel required to meet standards by type
of position. Average salaries were then used to determine
the cost of the personnel component, with statewide expenditures
for other services averaged.
The second task force recommended the instructional component
be calculated by using a predetermined instructional personnel
ratio (suggesting that a ratio ranging from 48 to 52 personnel
per 1,000 students in membership would be adequate). The concept
of calculating positions according to specific standards was
not included in the report.
As a result of these reports, in 1974 the Commonwealth made
several significant changes to educational funding:
- The Standards of Quality were adopted, setting forth the
instructional personnel and support services required by
each local school division.
- The minimum reasonable cost per pupil of funding these
requirements was established.
- The one-cent state sales and use tax distributed to localities
based on school-age population was subtracted from the calculated
- The State committed to paying approximately 50% of the
SOQ costs on a statewide basis, with the localities funding
the remaining 50%.
- The composite index of local ability-to-pay was created
to determine the actual apportionment of costs between the
state and the individual localities.
The methodology recommended by the second task force remained
in effect until the 1986-88 biennium when recommendations
made by JLARC in Funding the Standards of Quality Part 1:
Assessing SOQ Costs were implemented.
Two events led the General Assembly to direct JLARC to conduct
an in-depth analysis of the funding methods used to support
K-12 education. First, local school and government officials
continued to express concerns that the Commonwealth was not
fully funding its share of the SOQ. Second, JLARC had
completed an analysis of all state mandates and concluded
that education funding was not consistent with state requirements.
The General Assembly asked that JLARC first look at the methods
used to calculate the SOQ costs and then analyze the methods
used to distribute state funding to the localities. These
studies were published as Senate Document No. 20 in 1986 (Funding
the Standards of Quality Part 1: Assessing SOQ Costs) and
as Senate Document No. 25 in 1988 (Funding the Standards of
Quality Part 2: SOQ Costs and Distribution).
The first report recommended changes to the methodology in
both instructional and support costs.
The Standards of Quality set forth minimum staffing levels
for instructional personnel. Rather than calculate a statewide
number of positions per 1,000 students in membership, JLARC
applied the various requirements at the school level:
- Tested the validity of traditional Appropriation Act standard,
- Identified all references to staffing requirements or
pupil/teacher ratios in codified SOQ and the Standards of
- Applied these standards against enrollment at each grade
level in each school,
- Accumulated number of instructional personnel by school
division actually required to meet the SOQ,
- Established traditional Appropriation Act standard as
floor or minimal level of staffing funded, and
- Instructional staffing levels funded by state ranged from
59.5 per 1000 students to 100.0 per 1000 students, with
a statewide average of 62.9. Support Costs
As opposed to personnel, quantifiable standards are not available
for instructional salaries and other support costs (administration,
transportation, health, operations and maintenance). To accurately
determine the cost of doing business, these costs must
What is Reasonable Cost?
What is Prevailing Cost?
Counts the cost experience of every school division but
is not overly influenced by the highest or lowest cost,
Weighted average cost where weights are determined not
by size but by proximity to the middle cost in the distribution,
Affords the greatest weight to costs clustered around
the middle cost.
Most school divisions actual costs are either a little
less or a little more than the prevailing cost.
Prevailing cost is less than the statewide average but
higher than the median.
- The prevailing calculation was used on all costs not quantified
by the SOQ.
Salaries (7 distributions) and
Support costs (50 distributions).
The second JLARC report dealt with the question of how SOQ
funds should be distributed. Despite perceptions to the contrary,
the key decisions about the distribution of SOQ funds did
not come from JLARC but from policy decisions made by the
Governor and the General Assembly.
Six basic questions determine state funding of the SOQ:
- How should total SOQ costs be shared between the state
- Which programs should be equalized (based on ability-to-pay)?
- How should ability-to-pay be measured?
- How should sales tax revenue be distributed?
- What level of local effort should be required?
- How much should be appropriated as state aid?
How should costs be shared?
Prior to the JLARC study, the state had paid on average 50%
of the basic operating costs and 100% of recognized fringe
benefit costs. To reduce disparity, it was determined that
the state should increase its share of the operating costs
to 55%. A decision was also made to reduce the state share
of recognized fringe benefit costs to 55%. These changes increased
the overall cost to localities.
Which programs should be equalized?
Prior to the study, only Basic School Aid and Gifted funding
were equalized. A decision was made to equalize all program
funds that related to the Standards of Quality.
- Basic Aid
- Remedial Education
- Gifted and Talented
- Pupil Transportation
- Vocational Education
- Fringe Benefits
- Special Education
How should ability-to-pay be measured?
- The JLARC study presented several measures of ability-to-pay
that were technically sound:
- Composite Index: Measures local wealth through
property values, adjusted gross income, and sales tax
collections; doesnt really measure local ability to
generate revenue; 50/40/10 weights are artificial; is
well-known and understood.
- Revenue Capacity Index: Measures the revenue
a locality would generate if it levied average tax rates
for each tax; is linked to local ability to raise revenue,
but is technically complex.
- Equalized Effort Index: Ensures that each locality
would have to tap its overall tax base equally in order
to meet SOQ costs; produced tax equity in one action,
but was a radical change.
- Both the revenue capacity and equalized effort index were
technically superior to the composite index in measuring
- Decision was made to retain composite index because of
its level of acceptance and general accuracy.
How should sales tax revenue be distributed?
- Use of school-age population to distribute the 1 percent
state sales and use tax was a compromise carried forward
from the early 1970s.
- JLARC study produced several alternatives for distribution
other than this measure: Average daily membership (ADM)
Population Several combinations of school-age population
- Decision was made to retain school-age population because
it was generally accepted.
What level of local effort should be required?
- Until the JLARC study, required local effort meant matching
basic aid and gifted funding only.
- To fully fund the calculated cost of the SOQ, a local
share for all SOQ programs needed to be appropriated.
- During the 1988 session, required local effort was changed
to require a local match for all equalized accounts: For
most localities this did not require any more local funding
than already being appropriated; some localities were affected
How much should be appropriated as state aid?
- Totally the decision as to how much to appropriate for
public schools is left to the General Assembly
- The General Assembly has fully funded the requirement
according to the JLARC methodology since its inception
- Additional state funding has been provided for other programs
not included in the methodology
Since the completion of these two studies, Virginias SOQ
funding system was challenged in court. In 1994, the Virginia
Supreme Court upheld the system when it was challenged on
education disparity grounds.
However, concerns have remained about either the adequacy
of the standards themselves or the costs that are determined
to meet the standards. The 2000 session of the General Assembly
asked JLARC to conduct a study on the adequacy of funding
of the SOQ. Specifically, the language amendment was as follows:
The Joint Legislative Audit and Review Commission shall
study the funding of the Standards of Quality (SOQ) and prevailing
school division practices for elementary and secondary education
in the Commonwealth. The study shall include, but not be limited
to, a review of (i) current statutory and budget provisions
governing the calculation of SOQ costs and funding; (ii) the
practices of local school divisions that exceed the Standards
of Quality and that are not currently funded by the Standards
of Quality, including the costs for technology; (iii) potential
enhancements to the methodology for calculating the costs
of the Standards of Quality, and potential methods for calculating
the costs of other prevailing school division practices; (iv)
the extent to which school division practices which exceed
the Standards of Quality are associated with local ability-to-pay;
(v) the Department of Educations processes and procedures
for calculating and distributing state funds based on the
current funding methodology; and (vi) the extent to which
the state distribution of funding for elementary and secondary
education, through the Standards of Quality or other means,
is based on local ability-to-pay. The Commission shall submit
an interim report to the 2001 Session of the General Assembly
and a final report by June 1, 2001.
Governor Gilmore vetoed this language amendment. The Joint
Legislative Audit and Review Commission, however, has placed
a study of funding for elementary and secondary education
on its agenda. According to information released by JLARC,
the proposed study issues are:
- Is the State currently implementing the SOQ cost methodology
and fully funding SOQ costs? Are all localities funding
their share of SOQ costs?
- Are there improvements or enhancements to the SOQ methodology
that appear appropriate?
- Are there funding gaps for State-mandated
or sponsored programs?
- To what extent is funding distributed based on local ability-to-pay?
- For what specific practices do localities make expenditures
in excess of recognized SOQ costs? How widespread are these
practices? Is the extent to which the practices are used
related to local ability-to-pay? How much is spent for these
practices? (The proposed issue would include capital outlay
and debt service costs).
- What factors should be considered in determining the degree
of State support that may be appropriate for local practices
that exceed the SOQ?
- If the General Assembly wishes to enhance the level of
State support for elementary and secondary education by
funding certain practices that exceed the current SOQ, what
options are available and what are the associated costs?
Timeline for study
Forums to obtain local input and team work plan development
Assessment of SOQ model and FY1998 school division
Interim status report
(DOE finalizing its database for FY2000)Implement JLARC
supplemental survey on school divisions expenditures
and resources in FY2000
Fall 2000 - Winter 2001
Analysis of FY2000 data
Complete FY2000 data analysis;
development of options and draft
Since the mid-1980s, the majority of states have had the status of school
finance and its constitutionality challenged in court. Some, like New Jersey,
have had multiple cases before the lower courts and at the state supreme
court level. In 10 states, the plaintiffs have won at the state supreme court,
resulting in significant changes to the states funding system. The most
notable of these was in Kentucky, where the Kentucky Education Reform Act
affected not only the funding system, but instituted an accountability system
and a revamped assessment system as well.
Virginia is one of 12 states in which the plaintiffs lost
at the state supreme court level and either no additional
complaints were filed or further complaints were also ruled
by the courts in favor of the state system. A state by state
listing of complaints and decisions can be found at www.coe.ilstu.edu/boxscore.htm.
Over the years, the primary debate in school finance has focused on the
unequal property tax base among local governments. Following a great deal of
debate and many court battles, states have taken different approaches to
attempt to address the inequality in per pupil spending. States that previously
used a foundation program moved to a guaranteed tax base approach, with
others moving in the opposite direction. Some states have combined a
foundation program with a guaranteed tax base approach to attempt to
ensure an identified per pupil spending goal. In 1993, Michigan replaced the
property-tax-based system with one financed in large part by an increase in
the state sales tax.
Regardless of the state system in use, without capping the amount of funding
that local governments can provide to education, fiscal inequities continue to
exist. In many cases, even with reforms in place, statistics show that spending
disparities continue and often widen.
The focus has slowly shifted from the level of funding provided to school
districts to how the funds are being spent to increase student achievement.
Among states and within states, spending patterns are surprisingly consistent.
The percent spent on classroom instruction, transportation, maintenance, and
other large categories does not vary much among school districts. However,
the majority of new resources are not being placed in the regular classroom,
but are being directed to programs outside of the classroom to serve special
needs. The special needs continue to grow in areas such as special education,
English as a Second Language, and remedial programs to address standards
based reform efforts.
Several major issues immediately come to mind when discussing current state
funding of the Standards of Quality.
- Pupil/teacher ratios set out in the Standards of Quality are significantly
higher than the current practice in most school divisions. This leaves
localities with the burden of funding 100% of the cost for teachers and
other instructional personnel not recognized by the Standards of
- Even though the State has begun to appropriate some funding in
support of construction, costs for debt service and/or construction and
renovation of facilities continue to be primarily a local burden.
- With the infusion of funding at both the local and state levels for
technology, the need for technical support and instructional personnel
as well as replacement of equipment is increasing at an outstanding
- Programs designed to assist students in meeting the Standards of
Learning and passing required tests are becoming more and more
necessary. While the state has provided funding for some of these
programs, it is fragmented and is becoming increasingly more difficult for
localities to track funding to specific programs.
Consideration of these issues is a must during the upcoming study. However,
inclusion of any of these costs will require significant infusions of state
resources and likely will impact some of the Commonwealths smallest and
poorest localities as well.
As this study progresses, additional information will be included on this site.
Click here for summary of recent Virginia Legislative history
and the Standard of Quality (SOQs).
Funding of the Standards of Quality Part 1: Assessing
SOQ Costs, Joint Legislative Audit and Review Commission,
Senate Document No. 20, 1986.
Funding of the Standards of Quality Part 2: SOQ Costs
and Distribution, Joint Legislative Audit and Review
Commission, Senate Document No. 25, 1988.
Governors Commission on Educational Opportunity for All Virginians Final
Overview of Direct Aid to Public Education, Review
of State Funding of the SOQ, House Appropriations Committee
Staff and Senate Finance Committee Staff, May 1990 and updated
by the Department of Education, December 1993.
Briefing by JLARC staff on the proposed JLARC Study on Funding for Elementary
and Secondary Education, 2000.
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