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Connecticut's public K-12 education system relies heavily on local funding, resulting in substantial disparities between affluent districts and low-income districts with a large proportion of socioeconomically disadvantaged students who are more costly to educate. Despite recent improvements, the existing state aid formula has been criticized for failing to provide sufficient funding to districts with the fewest resources and the highest education costs. To help improve state aid distribution, this report estimates a "cost-capacity gap," which measures the difference between a district's education cost and revenue capacity and uses it as an indicator of the district's need for state education aid. The analysis shows large disparities in the cost-capacity gap across the state. While districts with larger gaps, on average, receive more per-pupil state aid under the current formula compared with smaller-gap districts, the largest-gap districts still receive less aid than they need to close their cost-capacity gaps. As a result, inequity and inadequacy remain in the state's education finance system. To improve the state aid distribution, this report introduces five gap-based formulas. The policy simulations show that by using these gap-based formulas instead of the existing formula the state can target education aid more effectively to school districts with greater need for financial assistance.

After being sued for inequity and inadequacy in school funding, many states have reformed their education aid policies. Using Connecticut as an example, this paper shows how to design a state education aid formula that can effectively address funding inequity and inadequacy while taking political feasibility into account. It first develops a measure of the gap between education cost and revenue capacity, both of which are estimated using school district characteristics that are outside the direct control of local officials at any given point in time. It then uses each district's cost-capacity gap to evaluate the state's existing education aid distribution. This paper shows that while larger-gap districts, on average, receive greater amounts of state aid per pupil under Connecticut's existing distributions, significant inequity and inadequacy remain. This paper proposes, as a potential solution, a gap-based formula that allocates state aid to close the cost-capacity gaps. The formula includes tools such as minimum and maximum levels of aid to increase its political appeal. The research method and the formula design that this paper presents are sufficiently general and flexible to be adapted easily and applied to other states.

Facing legal challenges and public pressures, Connecticut needs an objective and rigorous study of its public education costs. This study is the first to estimate the cost function of Connecticut public K-12 education and to evaluate the equity and the adequacy in the state's school spending based on regression-estimated education costs. It finds large disparities across districts in education costs and cost-adjusted spending. Districts with the largest enrollments, the highest school-age-child-poverty rates, or the least amount of property wealth, on average, have the highest costs and the lowest cost-adjusted spending. A large percentage of the state's public school students are enrolled in districts where spending is inadequate relative to the predicted cost of achieving a common student performance target, which contributes to student underperformance. Thus, school districts, especially the high-cost ones, need a large amount of additional spending to improve student performance. The research approach used in this paper can be generalized and applied to other states.

Public higher education produces many benefits that are vital to the New England economy, but it is increasingly at risk following years of state budget cuts. In 2017 in New England, real per-student state funding for higher education was lower than it was in 2008, with a double-digit decline in each of the region's states except Maine. States have reduced funding for higher education to address short-term budget gaps caused by recessions and long-term budget gaps attributed to the growing costs of Medicaid and public pensions. Research in this report shows that reductions in state appropriations have resulted in higher tuition and fees, greater student loan debt, decreased resources for education and research, and fewer graduates and approved patent applications from public colleges and universities. If the New England states wish to better meet the educational needs of the region's students and the workforce requirements of employers, policymakers will need to restore some of the reduced appropriations and safeguard public higher education against future budget cuts. This report recommends that policymakers provide robust financial support for public higher education, particularly community colleges, which are the most vulnerable to the negative consequences of state disinvestment. To reduce the chances of having to make state funding cuts, or to at least mitigate future cuts, policymakers should consider both short-term and long-term solutions such as strengthening state budget stabilization funds and addressing long-term state budget gaps. If states need to raise more revenues to safeguard public colleges and universities, the social, economic, and fiscal benefits associated with public higher education likely will justify the additional costs to taxpayers. [The New England Public Policy Center of the Federal Reserve Bank of Boston promotes better public policy in New England by conducting and disseminating objective, high-quality research and analysis of strategically identified regional economic and policy issues.]