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 report proposes a series of state aid formulas based on the gap measure that Connecticut policy-makers may use to improve equity and adequacy in education funding.

Through rigorous statistical analysis of recent data, this report measures each school district’s education cost and revenue capacity based on factors that are outside the direct control of local officials at any given point in time. The cost factors include, among others, the percentage of school-age children from families living in poverty and the percentage of students living in single-parent or non-family households. The revenue capacity estimate for each district is based mostly on taxable property wealth.

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.

The policy simulations show that the gap-based formulas introduced in this report address funding inequity and inadequacy more effectively than the existing formula does. Some of these new formulas incorporate tools intended to enhance their appeal to state legislators whose communities do not have large cost-capacity gaps. These tools include minimum and maximum levels of per-pupil state aid and a hold-harmless provision. However, a gap-based formula that contains any of these tools would fail to fully eliminate funding inequity and inadequacy and require a larger state aid pool than would be needed otherwise.