SOQ and LCI: What They Are and How They Impact School Funding

Virginia’s students, parents, and teachers all want our students to have a high-quality education. We know that students need resources to learn, and schools need funding to provide those resources. How Virginia determines the amount of funding it will provide, and how much goes to each school division, deeply shapes outcomes for our students. And the main way that Virginia does that is through the Standards of Quality and the Local Composite Index.

At a basic level, the Standards of Quality (SOQ) funding formula determines how much money Virginia policymakers think is needed in order to provide a high-quality public education in each school division (or, at least, how much they’re willing to pay toward a high-quality education), and the Local Composite Index (LCI) determines who pays (what share of that money is paid by the state and each local government). Over 80% of state funding for Virginia schools flows through the SOQ funding formula and LCI.

The Standards of Quality funding formula in Virginia is quite complex, with a myriad of requirements in the Code of Virginia, state budget, and Board of Education regulations related to the number of staff needed to meet the needs of different student groups and then the cost of providing those staff. In the world of education finance research, this is known as a staffing-based (or resource-based) funding formula. Additionally, the SOQ formula falls far short of meeting the actual educational needs of Virginia students. In its 2023 report, JLARC recommended a number of improvements to the SOQ funding formula, some of which the General Assembly has implemented in recent years. JLARC also suggested that policymakers consider switching from a staffing-based funding formula to a student-based model (see below).

After the SOQ funding formula determines how much funding is needed for each school division, the Local Composite Index (LCI) of Ability-To-Pay determines what share will be paid by the state and how much must be paid by local governments. It does so by estimating a locality’s revenue capacity based on the value of local property, aggregate income of local residents, and sales tax collections, and comparing that to local costs as measured by the number of students in the public school and local population. Those factors are then compared to the statewide numbers so that, statewide, the state will pay 55% of SOQ costs and local governments will pay 45% of costs. In that same 2023 report, JLARC recommended adjusting the data for the Local Composite Index to use three-year averages, which would lead to greater predictability for local school divisions, and also provided some policy options for tweaking the LCI to better measure revenue capacity.

Because the SOQ funding formula is so inadequate, almost all local governments provide extra money on top of what’s required by the SOQ and LCI formulas to provide a better-quality education for their students, but wealthy communities are able to do far more than struggling communities. That means students in communities with fewer resources are too often left behind. 

This isn’t new: Virginia has had the same basic system since we adopted the modern Constitution of Virginia in 1971, and the Standards of Quality have been insufficient for just as long. 

The Constitution of Virginia states that the Virginia Board of Education shall “prescribe” the Standards of Quality, subject to revision by the General Assembly, and the General Assembly decides how much it costs to meet those standards and how much the state will pay versus each local government. 

In practice, the General Assembly typically decides how much funding they have available for public education and then adjusts the Code of Virginia section for the Standards of Quality to match that funding (or override it in the budget). There were some years when Governor Northam was in office that the Virginia Board of Education prescribed robust improvements to the Standards of Quality, helping drive legislators to increase investments to partially meet those prescriptions, but that has not been true in most years. (Confusingly, the “Standards of Quality” is used to refer both to a “prescription” from the Board of Education for what our students need and the funding formula that is established by the General Assembly in the budget and Code. Most of the time, when people refer to the SOQs, they’re talking about the funding formula, not the Board of Education prescriptions.)

Most states instead use a relatively simple K-12 funding formula with a base student amount and then add-ons for students who face certain barriers and, sometimes, adjustments for school division size and local costs.

As noted above, Virginia’s SOQ formula is a complex staffing-based formula. We do have an important add-on for students in lower-income communities, which has been strengthened in recent years, and in 2025, legislators created a small add-on for students with disabilities. But these are outside the main Standards of Quality funding formula according to the Virginia Department of Education and do not account for the majority of school funding.

As part of their 2023 report, JLARC suggested that policymakers consider switching Virginia’s funding formula to a student-based model with add-on weights for students facing higher barriers, and setting the baseline funding amount at actual average spending levels in Virginia, which are well above what Virginia currently recognizes (and funds its share of) in the SOQ formula. They also offered the option of just switching the current, highly complex funding for students with disabilities and the less complex funding for English language learners to be an add-on, as is currently done with the funding for students in lower-income communities. 

Changing funding formula types could have a lot of different outcomes depending on how the new formula is designed. Will it be more adequate than our current formula? Will it be more fair, in terms of getting more resources to the students who will most benefit from them? Will it have automatic adjustments built in so that it keeps up with changing costs and conditions? How will it balance flexibility with accountability and an emphasis on best practices?

Virginia’s legislature has asked its Joint Subcommittee on Primary and Secondary Education to study these policy options and make recommendations on implementing them. You can get updates on the work of this committee by visiting their website.

Category:
Education