How are Public Schools Funded?

The way public education dollars flow from funding sources to classrooms is complicated and often mysterious. This blog explains the main sources of education funding and the variety of formulas used to determine how dollars are allocated to school budgets. An infographic illustrates how different allocation models may impact resource equity.

Nearly $700 billion per year flows through the K-12 public education system, but the way dollars flow from funding sources to classrooms is complicated and often mysterious - even to people who work within school systems. Many dollars flow through more than one funding formula before reaching students, making it even harder to follow the money. The method used to determine how resources reach students in schools has a significant impact on whether expenditures are equitable, so it’s critical for school communities to critically evaluate different allocation methods and choose a formula that best meets the needs of the local student population.

School districts are funded through a combination of state, federal, and local dollars, many of which come with a dizzying list of regulations dictating how, where, and on whom they may be spent. Federal grants (Title, IDEA) are allocated to districts based mainly on student need. State-provided education funds go through a state-specific funding formula to calculate the amount of the state education budget that will be allocated to each district in the state. State general aid funding formulas typically take into account district enrollment, student characteristics, and community wealth. States also provide categorical grants that are more similar to federal funds, in that they are restricted to specific kinds of expenditures.

About half of district funding comes from local revenue sources, the most common of which is property taxes. Higher property values can yield more property tax revenue per student, even at lower tax rates. The dependence on property tax revenues to support schools often reinforces inequity by ensuring that wealthier communities have better-funded schools. State funding is often meant to equalize these differences between local school communities but is rarely successful at overcoming these differences.

Once the district has the total revenue projection from each of these sources, districts have broad autonomy over how dollars and staffing resources are allocated to each school in the district (federal grants are often an exception because they have very rigid guidelines). Creating and modifying funding and/or staffing allocation methods can be especially challenging with large districts where there can be huge variances in enrollment and student need from one school to another.

To make this even more complicated, there’s no standard method or formula for allocating district dollars to schools: there are unweighted staffing ratios, weighted staffing ratios, and weighted student funding models, to name a few, and each of these can be almost endlessly tweaked and customized. If you’re keeping score at home, that means that across about 100,000 public K-12 schools in the US, there are about as many unique funding calculations that generate individual school budgets. Even most principals struggle to get clarity on the calculations driving their school’s budget allocations.

Understanding why funding inequities exist between schools requires understanding both interdistrict inequalities generated by federal, state, and local policies and intradistrict inequities, driven by district-controlled resource allocation methods and processes.

The new ESSA regulations require reporting per-pupil actual expenditures at the school level, which is a break from reporting average per-pupil spending across the district or state. Inequities are easily obscured in averages, and allocation methods are often the culprit for perpetuating school funding inequity. Unexamined, the wrong allocation method can lead to a model where the highest need students in the district are effectively subsidizing the education of other students in schools across town.

The infographic below illustrates the impact on per-pupil funding for two schools with very different student populations, but the same enrollment. This scenario shows how these schools would be funded differently if the district used an Unweighted Staffing Ratio or a Weighted Student Funding method.

While there is no one “right way” to allocate dollars to schools, staff and communities should understand the levers in their district funding formulas. Understanding how dollars are allocated to different student groups across schools and modeling different scenarios for more equitable distributions will give district leaders and communities the tools they need to have uncomfortable, politically-charged conversations about where dollars are being spent and how different allocation methods could create equity for all students.

About the Author

Image of Jess Gartner Jess Gartner is the founder and CEO of Allovue, where edtech meets fintech - #edfintech! Allovue was founded by educators, for educators. We combine powerful financial technology with education data, giving administrators the power to connect spending to student achievement. Jess has been featured as one of Forbes Magazine’s 30 Under 30 in Education (2015, 2016 All-Star), The Baltimore Sun’s Women to Watch (2013), and Baltimore Magazine’s 40 Under 40 (2013). In 2014, she was recognized as the Maryland Smart CEO Innovator of the Year in the Emerging Business category. Before founding Allovue, Jess studied education policy at the University of Pennsylvania and taught in schools around the world, including Thailand, South Africa, Philadelphia, and Baltimore. As a Teach for America corps member, she taught middle school humanities in Baltimore City and received her M.A. in teaching from Johns Hopkins University.