The National Report Card is a critique of state school funding systems and the extent to which these systems ensure equality of educational opportunity for all children, regardless of background, family income, place of residence or school. The report is based on the assumption that "fair" school funding is defined as "a state finance system that ensures equal educational opportunity by providing a sufficient level of funding distributed to districts within the state to account for additional needs generated by student poverty."

The Second Edition of the National Report Card evaluates the states on four funding fairness measures, now based on data updated through 2009. The Report is designed to shine a spotlight on the states’ critical role in funding public education and the importance of fair funding as an essential element of ongoing efforts to boost academic performance in our nation’s schools.

The Fairness Principles

The National Report Card evaluation is based on a number of assumptions:

• A fair funding system provides varying levels of funding according to student need.
• Context matters: a valid comparison of state funding systems must take into account a number of factors that influence educational costs, such as geography, regional labor markets, district size, population density, and various student characteristics.
• A fair funding system is "progressive;" in other words, funding should increase relative to the level of concentrated student poverty.
• Student poverty is the most critical variable affecting funding levels and can serve as a proxy for other measures of disadvantage, including achievement gaps, racial composition, English Language Learners, and student mobility.
• A sufficient overall level of funding is crucial. Without sufficient resources as the starting point, the distribution of funding relative to poverty becomes much less consequential.

The Fairness Measures

All 50 states are evaluated on the basis of four separate, but interrelated, fairness measures:

• Funding Level: Using figures adjusted to account for a variety of interstate differences, this measure allows for a comparison of the average state and local revenue per pupil across states. States are ranked from highest to lowest per pupil funding.
• Funding Distribution: This measure shows whether a state provides more or less funding to schools based on their poverty concentration. States are evaluated as "regressive," "progressive" or "flat" and are given letter grades that correspond to their relative position compared to other states.
• Effort: This measures differences in state spending relative to the state’s fiscal capacity. States are graded according to the ratio of state spending on education to per-capita gross domestic product.
• Coverage: This measures the proportion of school-age children attending the state’s public schools and also addresses the income disparity between families using private schools and those sending their children to public schools. States are ranked according to both the proportion of children in public schools and the income ratio of private and public school families.

Summary of Findings

The table below provides state results for all four measures. The letter grades (from A to F) show how a state ranks. The arrows indicate whether a state’s ranking improved, stayed the same or worsened between the first and second editions of this report. Consideration should be given to each of the four measures, which, when taken together, provide a complex picture of state finance systems. While how states rank on particular indicators can be important, it is critical to understand how the indicators interact and create unique conditions of funding fairness or unfairness. Depending on a state’s performance on the combination of indicators, the relative success of one or two indicators may be misleading. For example, a state with an insufficient funding level is not fairly serving its students, even if the funding is distributed with some progressivity. Likewise, a high state effort grade is of little consolation if it still fails to generate a sufficient funding level. It is the combination of results on all of the indicators that give the most accurate picture of school funding fairness in any given state.

Highlights

General

• Six states are positioned relatively well on all four measures. Four states remain in the top in the 2012 report: Iowa, Massachusetts, New Jersey, and Vermont. Kansas – which began implementing remedies to address the inequity exposed in a successful school finance case – and New Mexico have joined the top states.
• Most states have at least one area in which to improve, and many do poorly on the most important indicators from a state policy perspective: state effort and funding distribution.
• Three states receive below-average ratings in each of the four indicators: Florida, Missouri, and North Carolina. Florida is new to this group after seeing a substantial decline in state effort and funding level.

Funding Level

• The national average funding level, adjusted to account for student poverty, regional wage variation, economies of scale, and population density, is $10,774 per pupil, a $642 increase over the estimate in the 2010 report.
• The highest funded states are those in the northeastern region of the country, with the exception of Wyoming and Alaska. The lowest funded states predominate in the South and West.
• The disparity between the highest and lowest funded states is vast – using our nationally adjusted figures, a student in Tennessee receives less than 40% of the funding of a comparable student in Wyoming.
• The effects of the economic recession are beginning to show with about half the states experiencing declines in per pupil spending between the two most recent estimates. The District of Columbia, Florida, and Vermont saw declines in excess of $1,000 per pupil during that time period.

Funding Distribution

• Only 17 states have progressive funding systems, providing greater funding to high-poverty districts. Utah, New Jersey, Ohio, and Minnesota remain the four most progressive states.
• Six states have regressive funding systems, meaning districts with higher poverty rates actually receive less funding than more well-off districts. The most regressive state is Illinois, followed by North Carolina, Alabama, Michigan, Texas, and Colorado.
• Some states have improved funding distribution by at least one letter grade (Delaware, Kansas, Louisiana, and Maryland), while other states have regressed one letter grade (Minnesota, Montana, North Carolina, North Dakota, and Texas).

Effort

• Delaware, South Dakota, North Dakota, and Tennessee rank lowest on effort.
• Vermont, New Jersey, New York, and New Hampshire rank highest.
• While states’ relative rankings shifted, the overall trend saw states increasing funding effort. Thirty-four states had higher effort indices than in the 2010 report, though the magnitude of the changes was small.
• Two states – Hawaii and Maine – each had a particularly large disinvestment in public education, reducing their funding effort by over 20%.
• The resources available to schools are a function of both state effort and state wealth. A state may exert above average effort, but if it has low wealth it may still have low funding levels (e.g., Kentucky). A state with high wealth may need to exert little effort to generate relatively high funding levels (e.g., Delaware).

Coverage

• The top ranked states – Wyoming, Utah, Alaska, and Idaho - have few students enrolled in private schools, and private school students are from households with incomes that are only about one-third higher than their public school counterparts.
• In the lowest ranked states – the District of Columbia, Louisiana, and Delaware –about one-fifth of the student population is enrolled in private schools, and those students come from households with significantly higher incomes, as much as two and three times those of public school students.

Improving Funding Fairness

The goal of the National Report Card is to provide a deeper understanding of the condition of state finance systems across the county. The results of this evaluation can be used by stakeholders, community leaders, elected officials, and concerned citizens working to reform state school funding.

As education reform initiatives capture the public’s attention, the National Report Card presents the critical element for successful public schools. The ability to improve states’ educational outcomes, whether closing achievement gaps, increasing college and career readiness, or supporting teacher quality, depends on the foundation of a fair school funding system. The National Report Card contributes valuable information that can help determine the direction of public education policy at the federal, state, and local level.

State	Funding Distribution Grade		Effort Grade		Funding Level Rank		Coverage Rank
	Grade	Change from 2007	Grade	Change from 2007	Rank	Change from 2007	Rank	Change from 2007
Alabama	D		C		39		38
Alaska	--		C		2		3
Arizona	C		F		47		7
Arkansas	C		B		44		27
California	C		F		42		33
Colorado	D		F		35		11
Connecticut	C		B		5		28
Delaware	C		F		11		49
District of Columbia	--		--		7		51
Florida	D		F		40		45
Georgia	C		B		33		39
Hawaii			D		13		48
Idaho	D		C		48		4
Illinois	F		C		27		34
Indiana	C		A		17		29
Iowa	C		C		20		10
Kansas	C		A		18		18
Kentucky	C		C		41		40
Louisiana	C		F		24		50
Maine	D		D		15		5
Maryland	C		A		9		47
Massachusetts	B		C		8		23
Michigan	D		A		31		15
Minnesota	B		C		16		26
Mississippi	C		C		46		43
Missouri	D		D		36		42
Montana	C		C		34		6
Nebraska	C		C		23		31
Nevada	F		F		38		17
New Hampshire	F		A		14		8
New Jersey	A		A		4		21
New Mexico	C		A		25		19
New York	D		A		3		44
North Carolina	F		D		28		35
North Dakota	F		F		32		13
Ohio	A		A		21		37
Oklahoma	C		F		49		20
Oregon	C		F		37		16
Pennsylvania	D		B		12		41
Rhode Island	C		B		10		36
South Carolina	C		A		30		32
South Dakota	B		F		45		14
Tennessee	C		F		51		46
Texas	D		C		43		22
Utah	A		F		50		2
Vermont	C		A		6		12
Virginia	D		D		22		25
Washington	C		F		29		24
West Virginia	C		A		26		9
Wisconsin	C		B		19		30
Wyoming	C		B		1		1