Cities 101 -- School Financing

School building
School building

Background

The provision of elementary and secondary education is a key function of government today, but it was not among the rights afforded explicit protection under the U.S. Constitution. Since the Constitution did not explicitly grant the federal government authority or responsibility for education, the Tenth Amendment reserves that power to the states or to the people. As a result, public education has historically been funded by state and local government, with state spending overtaking local spending since 1979.

Funding Sources

State and Local Funding:  State governments provide a national average of around 45 percent of their education budgets using a combination of income taxes, corporate taxes, sales taxes and fees. Local or county governments contribute on average about 45 percent, typically using revenue from local taxes from residential and commercial properties.  Because property values fluctuate, the annual quantity of local funding may vary between school districts and from year to year.  For the states that rely heavily on local property taxes instead of state funding, this often equates with larger funding disparities between school districts. As a result, there have been efforts in many states to find more stable and equitable sources of funding, including shifting more of the burden onto state governments.

Federal Funding:  The federal government contributes between 8 and 10 percent of the public education budget. This amounts to $55 billion annually as of FY 2013 according to the National Center for Education Statistics. Much of this funding is discretionary, which means that Congress sets the amount annually through the appropriations process.  

Distribution of Funds:  While all states use funding formulas set forth in state law to determine how to distribute their funds to school districts, there is substantial variation between states. Generally, funding formulas have two distinct parts that are used exclusively or combined in some way: foundation funding ensures a minimum amount per pupil, and categorical funding finances specific tasks, facilities, and special programs. The formulas consider any combination of factors, including median family income levels, property values, teacher allocation, total student enrollment, inflation and additional weighting for students with extra need, like low-income, special education, English language learners or low-performing students.  

As a result of these factors, total spending per pupil varies widely among and within states, and among and within school districts. According to the National Center for Education Statistics, the average spending per pupil was $11,011 in 2012-2013.   

Equalization:  Since public education is locally financed by property taxes, it is common that communities with less revenue from property taxes will give less funding per pupil than communities with higher tax revenue. In order to compensate for this inequity, many states have intervened in order to equalize per-pupil spending rates. Equalization attempts to give equal educational opportunity to all students by reducing the link between a community's fiscal resources and its ability to educate its residents. In California in 1971, for example, a Superior Court declared the state's funding disparities between its districts to be in violation of the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution and the California Constitution. In California as in other sixteen states that have intervened, the state government standardizes revenues and expenditures across school districts with state taxes determined by a funding formula.    

Sources

Education Commission of the States, "Funding Formulas." Accessed March 9, 2011, http://www.ecs.org/html/issue.asp?issueid=48&subIssueID=43.

Education Week "School Finance." Education Week, December 6, 2007. Accessed March 9, 2011, http://www.edweek.org/ew/issues/school-finance/.  

Griffith, Michael. "State Education Funding Formulas And Grade Weighting." Denver, CO: Education Commission of the States, 2005. Accessed March 9, 2011, http://www.ecs.org/clearinghouse/59/81/5981.pdf.   

National Center for Education Statistics. "Revenues and Expenditures for Public Elementary and Secondary Education: School Year 2007-08 (Fiscal Year 2008)." Accessed March 9, 2011, http://nces.ed.gov/pubs2010/2010326.pdf.   

New America Foundation. "Federal Education Budget Project, School Finance." Accessed March 9, 2011, http://febp.newamerica.net/background-analysis/school-finance.   

National Center for Education Statistics. "Fast Facts." Accessed March 9, 2011, http://nces.ed.gov/fastfacts/display.asp?id=66.   

Reschovsky, Andrew. "Fiscal Equalization and School Finance." National Tax Journal, Vol. 47, no. 1, (March 1994), pp. 185-197. Accessed March 21, 2011. http://ntj.tax.org/wwtax/ntjrec.nsf/175d710dffc186a385256a31007cb40f/a880e735ecc4c1818525686c00686d32/$FILE/v47n1185.pdf

U.S. Census Bureau, "Public Elementary-Secondary Education Finance Data, 2008." Accessed March 9, 2011,http://www.census.gov/govs/school/.   

U.S. Department of Education. "10 Facts About K-12 Education Funding." Accessed March 9, 2011,http://www2.ed.gov/about/overview/fed/10facts/index.html.   

Zuzic, Matt. "Equalization of Education Revenues after Reform: Does Legislation Exceed in its Goal?" Accessed March 21, 2011.http://aysps.gsu.edu/econ/files/Econ_09_SummerIntern_M.Zuzic_Paper.pdf.

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