Empty classrooms should not be subsidized.
Taxpayers are still funding school districts for students who have fled public schools.
S ince the start of the pandemic in 2020, public schools have been flush with cash despite losing 1.2 million students. Between 2020 and 2022, inflation-adjusted funding per student increased in 47 states. In addition to $190 billion in federal Covid aid, public schools have benefited from state policies that end up funding students they no longer serve.
Most states are projected to have further enrollment losses over the next decade, and thousands of schools are already well under capacity. State and local officials are starting to face difficult decisions — and, as is often the case, California should serve as a textbook example of what not to do.
Statewide enrollment in California’s public schools fell 5.1 percent from 2020 to 2022, losing 318,000 students. But public-school funding grew by $11.6 billion in real terms, about $7.5 billion from federal taxpayers and $4.1 billion from state and local sources. A new study published by Reason Foundation sheds light on why state dollars aren’t tracking with enrollment.
Our research found that in 2023, California’s public schools received state funding for 400,000 “ghost students” they no longer served. While states such as Texas, Indiana, and Arizona base K–12 dollars on current-year enrollment, California funds schools based on the greater of the current year’s enrollment, the prior year’s enrollment, or the average of the three most recent years’ daily attendance.
This is supposed to make budgets more predictable, and other states have similar “hold-harmless” provisions of varying scope. But California’s policy is among the most generous. Reason Foundation estimates California spent $4 billion on students no longer in schools in 2023 alone.
Most of California’s public school districts received taxpayer money for ghost students, with San Diego Unified, San Francisco Unified, and Long Beach Unified netting tens of millions of extra dollars each. But the big winner was Los Angeles Unified School District (LAUSD), whose 50,000 ghost students garnered nearly $508 million from the state in 2023, or about $1,459 per student the district still has.
LAUSD enrollment has been dwindling for years as families leave the city’s underperforming schools and high living costs. But Covid-19 politics put this trend into overdrive, and the district has lost nearly 10 percent of its students since 2020. LAUSD could have used its hold-harmless funding — plus billions in federal pandemic cash — to get its fiscal house in order. Instead, it has added hundreds of mental-health workers, increased pay for support staff, and doled out appreciation bonuses.
California is an early warning sign of the fiscal challenges ahead for other states. The National Center for Education Statistics projects that by 2031, total public-school enrollment will be lower in 40 states. States such as Wisconsin, Michigan, and Ohio could lose more than 5 percent of their public-school population, and states such as Oregon and New York might lose more than 10 percent.
Fifteen other states have ghost-student policies similar to California’s, according to research published by EdChoice. Twenty-two states also have carve-outs that protect school districts from revenue losses.
For instance, Missouri guarantees that districts receive at least the same amount of state funding they did nearly two decades ago, the last time legislators changed its education-funding formula. Reason Foundation estimates this policy cost Missouri taxpayers $134 million in 2022, on top of the $197 million it spent on ghost students. That’s $331 million Missouri is giving to public schools based on outdated and arbitrary factors.
These policies will grow costlier as more students exit public schools in the coming years. Schools will only adapt if the right financial incentives are in place, which means ensuring that dollars are tied directly to current-year student counts. As painful as school closures or hiring freezes can be, propping up under-enrolled schools as California has done spreads resources thin and is worse for students in the long run. Empty classrooms should not be subsidized.