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School Finance refers to how public primary and secondary education is funded in the United States.

Federal, State, and Local K-12 School Finance Overview

America spends over $500 billion a year on public elementary and secondary education in the United States. On average, school districts spend $10,314 for each individual student, although per pupil expenditures vary greatly among states, school districts and individual schools. Spending also differs among school districts in the same state and among schools within the same district.

All three levels of government – federal, state, and local – contribute to education funding. States typically provide a little less than half of all elementary and secondary education funding. Local governments generally contribute about 44 percent of the total, and the federal government contributes about 13 percent of all direct expenditures.

The share of education funding that federal, state, and local governments provide has changed significantly over time. Historically, elementary and secondary education was funded largely by local governments and states played only a supporting role. Today, states play a large and increasing role in education funding, a trend that emerged in the 1970’s when state spending first overtook education spending by local governments. Federal funding has always been minor with respect to total direct elementary and secondary education spending, though the federal government’s role in education funding has slowly increased, along with the role of the federal government in education policy.

 School Finance

Source: National Center for Education Statistics

Federal Funding

The federal government spends more than $40 billion annually on primary and secondary education programs. Much of the funding is discretionary, meaning it is set annually by Congress through the appropriations process. Funds flow mainly through the Department of Education although other federal agencies administer some funding for education related activities.

 School Finance

Source: National Center for Education Statistics

Through the U.S. Department of Education, the federal government provides more than $40 billion a year on primary and secondary education programs. The two biggest programs are No Child Left Behind Title I Grants to local school districts ($13.7 billion in fiscal year 2013) and IDEA Special Education State Grants ($11.0 billion in fiscal year 2013).

Other federal agencies that administer funding for primary and secondary education include the Department of Agriculture, which coordinates the funding for the child nutrition programs ($20.4 in fiscal year 2013), the Department of Health and Human Services, which supports the Head Start program ($8.0 million in fiscal year 2013) and the Department of Labor, which supports Youth Employment and Training Activities and Youthbuild ($0.9 billion in fiscal year 2013).

 School Finance

Source: National Center for Education Statistics

Federal education funding is distributed to states and school districts though a variety of formula and competitive grant programs. While the federal government contributes about 13 percent of direct funding for elementary and secondary schools nationally, the amount varies considerably from state to state. In some states the federal share of total elementary and secondary education spending is less than 5 percent of the total, while in other states it is higher than 16 percent.

 School Finance

Source: National Center for Education Statistics

As an overall share of the total federal budget, federal spending on elementary and secondary education programs through the U.S. Department of Education account for less than 3 percent of the total federal budget. In the annual appropriations process, elementary and secondary education funding accounts for about 5 percent of discretionary funding across all federal programs.

State Funding

States rely primarily on income and sales taxes to fund elementary and secondary education. State legislatures generally determine the level and distribution of funding, following different rules and procedures depending on the state.

State funding for elementary and secondary education is generally distributed by formula. Many states use funding formulas that provide funding based on the number of pupils in a district. Some formulas are weighted based on different factors such as the number of students with disabilities, the number of students living in poverty, or the number of students for whom English is a second language. The allocation for students with different types of needs can vary significantly depending on the funding formula. Additionally, in some states the formula is designed so that higher poverty school districts with less access to local funding receive additional assistance.

The share of total education funding provided by the state government differs from state to state. In some states the state share is as high as 86 percent, while in others it is as low as 31 percent. States that rely heavily on local property taxes instead of state funding to fund elementary and secondary education, often have larger funding disparities between school districts in the state.

 School Finance

Source: National Center for Education Statistics

Local Funding

Property taxes support most of the funding that local government provides for education. Local governments collect taxes from residential and commercial properties as a direct revenue source for the local school district. Wealthier, property-rich localities have the ability to collect more in property taxes. Having more resources to draw from enables the district to keep tax rates low while still providing adequate funding to their local school districts. Poorer communities with less of a property tax base may have higher tax rates, but still raise less funding to support the local school district. This can often mean that children that live in low-income communities with the highest needs go to schools with the least resources, the least qualified teachers, and substandard school facilities.

Funding Disparities

There are large disparities in the amount of funding that schools receive which create differences in educational opportunity. The funding disparities can be broken down into three main areas:

1. Interstate disparity – School finance inequities among different states

There are significant differences in education funding across different states. For example, in the 2008-09 school year, New Jersey spent $16,271 per student while Utah spent only $6,356 per student. Even when adjusted for regional variations in costs, large disparities between states exist. The disparity is caused by a number of factors, including: (1) capacity – how well off a state is based on their economy and resources, and (2) effort – the states willingness to provide funding for education. Wealthier states with a high fiscal capacity, (typically those in the Northeast), have more funding available to spend on education than states with more limited resources (typically those in the South and the West). Additionally, some states spend more of their total available funding on education. Montana, for example, is a low fiscal capacity, but high fiscal effort state.

2. Intrastate disparity – School finance inequities within a particular state

There are large differences in funding among school districts within the same state. Some districts spend significantly more on education than other school districts even if they are within the same state, and sometimes only a few miles apart. For example, in Illinois, the New Trier Township High School District spent $19,927 per student in 2008-09 while the Farmington Central Community Unit School District spent only $6,548 per student. When school districts rely on the local property tax as their primary source of funding, schools located in wealthier districts have more resources to draw from than schools in low-income communities.

The Federal Government established a standardized measure, called the “equity factor” as part of Title I, Part A of the No Child Left Behind Act that measures school finance equity among districts in a state. Click here for a detailed graph that shows how states rank in school finance equity based on the federal standard.

3. Intradistrict disparity – School finance inequities among schools within the same district

Even within a single school district, the amount of funding that individual schools receive can differ significantly. For small school districts this is not usually an issue, but in large school districts that operate many schools, intradistrict disparities can be significant. Until recently, resource allocation at the individual school level has been largely ignored, partly due to a lack of transparency and understanding of the budget process at the local level. Recent research suggests that resources are not evenly distributed among schools in a school district and that some schools, often those that serve students with greater needs, receive less resources. A large portion of the disparity is related to the allocation of teachers. Higher paid, more experienced teachers tend to be congregated in lower needs schools, while less experienced teachers end up in high needs schools. In many school districts disparity in teacher pay does not factor in the way in which funding distributions are calculated. A handful of notable school districts, however, including New York City, are recalculating the way they allocate funding to schools.

The Role of the Courts in School Finance

In 1973, the United States Supreme Court, in a case called Rodriguez v. San Antonio Independent School District, 411 U.S. 1 (1973), held that education is not a fundamental right under the federal constitution and that wealth is not a suspect classification. However, many states have clauses that provide for education in the state constitution. In most of the 50 states there has been some type of lawsuit or legal action to address education funding disparities.

Early school funding litigation efforts generally focused on education equity, which sought the same level of per-pupil funding for every student in the state. Since the late 1980’s, litigation has focused more on education adequacy, which seeks funding levels necessary to ensure that every student receives an adequate education. Defining what constitutes an adequate education as well as what resources are necessary to provide that level of education, have been central questions in the litigation. “Costing-out studies”, which have been done in over 35 states, are one method which has been used to help calculate the amount of funds needed to provide students with an education that meets state standards. From 1989 to 2010, plaintiffs won 26 education adequacy cases and there a number of cases still pending in courts across the nation.