Solution Two: Focus on School Incentives. Same Amount of Money Should Yield Better Results by Eric A. Hanushek California's education finance system is broken in every way, but the real story is the dismal achievement of kids in California. What needs to be fixed is not just how schools are financed, but more important how the whole K-12 educational system is organized, and especially the incentives given to schools to do better. The judgment that California's schools are not serving us well comes from considering outcomes, not spending. Earlier this month, the National Assessment of Educational Progress provided another iteration of the unacceptably bad performance of California schools. In reading, California students can thank students in the District of Columbia (fourth and eighth grades) and Louisiana, New Mexico and Mississippi (fourth grade) for keeping them from the bottom of the nation. In mathematics, a slightly larger set of states from the Old South provides that service. This performance is not simply a reflection of the more difficult population that California has to educate. Regardless of race or economic status, California's fourth- and eighth-graders are near the bottom in reading and math. Given the performance, one could even look at the state's school finance statistics from the other side. While the system is bad, it is at least inexpensive by national standards. A worse situation would be a bad system that is also expensive (think, for example, of the District of Columbia). Of course, many argue that the low spending is what causes the bad performance. Indeed, this is part of what is behind Professor Kirst's push to spend enough to provide an ''adequate'' education. (Kirst's arguments appear in another article in this section.) Unfortunately, we have tried this spending approach again and again in California and elsewhere, without result. Even with the restraint of Proposition 13, California spending per pupil grew 50 percent after adjusting for inflation between 1980 and 2000. There is no way to escape a simple fact: Spending by itself is not the answer. As a graphic example, Texas, with a similar mix of disadvantaged students, spends just a few hundred dollars more per student than California, and gets dramatically better performance in both math and reading, regardless of race or economic background. No amount of money will yield results if the money is misspent. In education, misspending is buying unproven programs that do not work. It is overpaying bad teachers and underpaying good teachers. It is inappropriately constraining local districts in their choices of class size, curriculum and classroom materials. It is protecting administrative incompetence at all levels of the education system: state, district and school. All this happens in California. We cannot spend our way out of the current problems. The only hope is moving to a finance system that rewards what we want -- high student performance. The system does not have to be complicated. Schools would receive a fixed amount per pupil from the state and would be rewarded or punished based on the achievement gains of their students. If a school shows strong gains on state tests, the school or teachers would get bonuses. Looking at gains helps to determine if a school falling short of overall standards is doing a bad job or simply has less-prepared students. The state would stop trying to tell each district exactly how to run its schools. What it would do is provide clear information about the level and gains of student performance in each district. It also would encourage parental choice -- through letting a student take the fixed amount allocated to him or her and spend it at another public school, at a charter school or even at a private school. Sacramento also would provide a block grant to each district to cover the expected added costs of most special-needs students, language-deficient students and disadvantaged students, and would shoulder the extra burden for very-high-cost special-needs students and unusually high concentrations of disadvantaged children. It could also adjust funds up or down based on the local-market costs of hiring college-educated workers in different areas of the state. How large should the funding be? Contrary to the suggestion by Professor Kirst, there is no scientific answer to what is ''adequate.'' This choice is a political decision that our elective representatives cannot and should not avoid. For simplicity's sake, the amount to start with could be the amount the state is now providing from its general fund per student. What is different about this? The whole idea is to back away from a system that is highly regulated centrally, that promotes gaming based on perverse incentives and that does not encourage better student achievement. The new system would move in the direction of a focus on performance, while encouraging individual districts to develop innovative solutions. No incentive system would work if the state continues to want to run local districts. By dealing with all school problems as we currently do, through increased regulations -- for example, ''tighter'' certification for teachers or blanket class-size policies -- the state removes the ability of local districts to make wise choices that use resources efficiently. It surprises many that there is resistance to openness in funding, to providing clear information on student performance and to rewarding results.The resistance is easily seen by remembering that the state recently had large bonuses for school performance, only to have them dropped even before the current round of cuts related to budget problems. The simple fact is that many currently in the system do not want any focus on performance. The underlying philosophy here points toward the fundamental elements of the currently broken system and away from fixating just on budgetary allocations. Focus on Success At first, each school would receive the same amount per student that the state is now providing from its general fund, with flexibility on how it is spent. Extra money would be provided for special needs and disadvantaged students. Reward achievement. If students at a school show strong gains on state tests, the school or teachers would get bonuses. Students could take the fixed amount allocated to them and spend it at another public school, at a charter school, or even at a private school. Bottom Line: A system costing no more than today's could expect much better performance. Eric A. Hanushek (hanushek@stanford.edu), an economist, is a member of the Koret Task Force on K-12 Education and a senior fellow at the Hoover Institution at Stanford University. He wrote this article for Perspective.