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Back to school, and back to another year of our dumb education funding system

Students board a school bus for the first day back to school.
John Patriquin | Portland Press Herald | Getty Images

Tens of millions of American children are back at school this week, and that means we've begun another year of what has to be one of the wackiest and least effective ways of funding education on Earth.

Instead of assessing school taxes directly to the parents of kids currently in the school system, states mostly use property sizes and values to determine how much residents pay in taxes to fund local schools. That's regardless of a homeowner's ability to pay, whether or not he or she has any children in a school system, and no matter how badly a local real estate market may be faring.

That doesn't sound like the best foundation for education, does it?

But wait, there's more! The property tax-dependent education funding system creates a massive disconnect between the consumers of education and those providing it. It's a third-party billing set-up on steroids. People or families who actually pay for education may not ever even receive that education, creating an unpredictable or even non-existent framework for accountability on both the buyer and provider sides of the equation.

This scenario is eerily similar to some other essential services Americans tend to buy in this kind of indirect way, with health care being the best example. The bottom line is when consumers don't pay for something directly, the actual price and even the overall quality of what they're paying for gets murky at best.

On top of all those problems, we have a millennial generation that continues to reject the very idea of home ownership in larger numbers than previous generations. That's an ominous sign for the future of education, especially in suburban areas where millennials aren't even showing much interest in living in rental properties.

Before you throw in more exotic forms of education funding like sales taxes and multi-state lotteries, remember that they're both even more likely to be funds coming from sources disconnected to the actual payer-provider relationship. Also remember that lottery proceeds are not used as extra money for education. Instead, those funds simply replace state income that used to go to education that's been lost or diverted to other areas of the budget. The line fed to the public about lottery money helping to meaningfully boost education spending and quality nationwide has long been debunked over, and over, and over as misleading marketing at best.

Then there's the problem of just how that money is spent. With the rising costs of teacher pensions and retiree benefits, more of the money is not even going to teachers currently in the classrooms. It's not that these pensions or benefits have to be cut or eliminated, it's just that they need to be restructured or at least not included in those highly misleading "spending per student" figures so many school districts pump out to the public.

Lastly, ask any teacher what usually makes the biggest difference in student performance and they'll probably tell you it's less about money and more about parental participation in their child's education and repeated reminders in the home about the importance of education.

How do we fix the funding issue?

An old idea that gins up undue political controversy every time it's mentioned is school voucher programs. While vouchers solve the disconnection issue and encourage more parental participation, it's a fair argument that giving parents taxpayer money to fund private school enrollment likely just hurts already failing public schools even more. Other than the most conservative states, school vouchers will likely never fully catch on in blue and purple states where public teachers unions and school administrators have so much political clout.

But what if parents were given access to funds to use not just for private school education? That's the idea behind a 10-year-old program in the Chicago suburb of Chicago Heights funded mainly by hedge fund billionaire Ken Griffin. A key component of the program gives parents $7,000 per year to attend educational parenting workshops with their children and also to help pay for additional educational tools like tutoring and laptops. The program is being administered by the University of Chicago, which claims the program has been wildly successful in raising test scores.

Instead of relying on billionaire donations, what if more states simply calculated how much they really want to spend on each student regardless of property tax values, and allow the parents to use that money for any combination of educational expenses? That would include private school tuition, tutoring or working closer with public school teachers to help their children learn. In other words: provide parents with an equal amount of public funding to use as they see fit for a decent number of educational options every school year. Of course, wealthier parents would still be at liberty to spend a lot more on their kids as they see fit. But that's always been the case for everything from education to iPhones.

Americans at all income levels have so much choice when it comes to how they spend their money. But because of our mixed up funding process, education is not one of them. It's time we stop letting that restricted freedom of choice continue to adversely affect the way our kids learn.

Jake Novak is a political and economic analyst at Jake Novak News and former CNBC TV producer. You can follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

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