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Money matters: At a glance

Nothing riles the U.S citizenry more than taxes—and how those taxes are spent. We are culturally wired to question the fiscal decision making of those in authority, and as a result debates swirl around the subject of school funding.

As a school board member, you need to prepare to be questioned yourself. Anticipating the questions constituents might ask, or the objections they might voice, means first understanding where schools in your state and your district get their funding.

It’s also important to understand why your state’s school-funding pie gets divided as it does. While it might not be necessary to agree with how state legislators determine the pie should be split, it’s crucial to be able to explain the funding formulas as accurately and simply as possible. 

If you’re a member of the voting public, you need to know enough about where school funds come from and what they pay for in order to ask good questions.

Every district in the United States has a slightly different funding situation. And every school (or district) has different needs. Here are your first steps to being able to evaluate your budget accurately.

Where does the money come from?

The federal government is not the biggest contributor. On average, federal funds currently make up approximately 9 percent of a school district’s budget. Individual states and local school districts add the rest. How much each state and district provides varies from state-to-state (U.S. Department of Education, 2007).

The federal government. The percentage of funds the U.S. government supplies flows into a school’s coffers through a variety of laws and programs, including, among others, Title I, Reading First, IDEA, and the school lunch program. 

State and local dollars. Traditionally, states and local communities are charged with delivering the majority of K-12 education revenue. Each state determines how much it will contribute to its schools’ budgets , with percentages ranging from 32 to 89 percent of total K-12 funding. 

As each state came into the union, it stipulated its obligation to provide for residents’ education in its constitution. Most states then assigned much of the responsibility to local school districts, which raised revenue primarily through local property taxes. But the policies that govern how those taxes are levied and collected are as varied as the states themselves.

In some states, local school boards are given the authority to develop a district budget and set a tax rate to support that budget, according to the Education Commission of the States (ECS). These districts are “fiscally independent." (ECS June 2004)

On the other hand, “fiscally dependent” school boards, as the name implies, can’t impose their own taxes. Another entity—such as the city or county government, for example—must approve the school board’s budget and levy taxes to meet it (ECS June 2004). These often occur in countywide school districts and New England townships.

Other revenue sources. When federal, state, and local revenue sources don’t provide enough money to fund special projects schools want to provide, often, school districts then seek private funding.

The school fundraiser is a tried-and-true method of generating small pools of money or materials. And teachers themselves often spend their own money to purchase supplies they believe are necessary for their lessons. While significant to the individuals involved, compared to the amount districts contribute (on average, around $9,000 per pupil), the money from these sources is limited. 

Another locally-based source of revenue is a district or school education foundation. Such foundations are privately operated, nonprofit organizations that qualify as charitable organizations. 

Fundraisers and education foundations help, but “increasingly, the financial support necessary to develop small- and large-scale initiatives is coming from grant-funded sources, including the government, private foundations, and corporate sponsors” (Gadja and Tulikangas 2005). Though grants won’t (and shouldn’t) provide the kind of money schools need for their day-to-day budgets, there can be a lot of money available from them. See Going for the green for one school's experience and advice.

No matter what kind of organization funds the grant—federal, state, or local agencies, private or corporation foundations—the grantor has criteria that must be met if the school is to receive the money. And grant money goes away. It’s important, therefore, that schools know how long the money will last.

Where does the money go?

Each state has its own way of divvying up money among districts. The most common approach—used by 25 states and the District of Columbia—is called the Foundation/Base Formula. These states set a base-level amount of monetary support for each student. That base-level amount is then adjusted, based on how much support that student would need from the district.  (Specific information about your state’s formula is available in a separate table .) No matter the formula, once districts receive state money they are generally able to allocate it as they see fit. However, there have been some proposals to restrict this ability by funneling funds directly to schools. For instance, money allocated for a school’s limited English proficient students would be earmarked specifically for those students at that school.

What’s probably easier to understand is where the money is spent. It’s a simple accounting: a portion of every dollar a district receives is spent on a variety of instructional items, such as salaries for classroom teachers, as well as for supplies and professional development. That education dollar also pays for essential non-instructional items, such as support and community services, as well as transportation (see Tracking the education dollar ).


Spending money equitably

The funding formulas are designed to help each state determine its education funding obligations. Since states want to give all students a good education, funding formulas often come under debate. Two terms that come up frequently in these debates are equity and adequacy. Equity refers to distributing a given amount of money evenly among students. Adequacy is not about a given sum of money; it’s an open-ended question of what funding students need in order to succeed. (For answers to other frequently asked questions, see the guide's Money matters: Q&A .)

Equity issues come up because many parents, educators, and policymakers argue that relying heavily on property taxes to fund K-12 education leads to disparities. “Districts with more-costly-to-educate youngsters are often not the ones with the large property tax bases,” write the authors of a National Research Council report, Equity and Adequacy in Education Finance: Issues and Perspectives (1999). Some major court decisions mean that many states have legislated that tax revenue be redistributed more equally. In Texas, for example, districts with assessed property values that exceed a certain amount are considered “property wealthy” and are subject to the state’s wealth equalization school finance law, write the authors of A Citizen's Guide to School Finance (Round Rock ISD 2005). Even so, gaps between high- and low-poverty districts remain. To see if there’s a gap in your state, go to Data First .

Two other developments over the years have served to make school finance a more hotly litigated issue in the state courts. First, an attempt to argue that funding inequities among school districts violated the U.S. Constitution failed in 1973 (Serrano v. Priest I and II1971 and 1976). That decision shifted the focus of such efforts to the education clauses in state constitutions. Although these provisions vary, state courts have held that they establish a legal duty on the part of states to provide for children’s education.

Second, as states adopted standards-based reform and started defining legally what kind of education they would hold school districts accountable to provide, this gave state courts a clearer legal standard for what constitutes a legally adequate education. In many states, “costing-out” studies have been conducted in order to argue whether school funding was adequate to give students the opportunity to achieve these standards.

As a result of these studies, a host of adequacy lawsuits have been filed against state-level funding strategies, with plaintiffs bringing claims of inequity or inadequacy of funding. In recent years many of these lawsuits have been successful.

The search for fair funding, however, is further complicated when state economies are struggling, reports the ECS. States with shrinking budgets may search for more politically palatable alternative funding sources, such as lotteries and increases in sales taxes or “sin taxes” on purchases on items like tobacco or alcohol. But the public often questions the fairness of these sources as well. 

Obviously, answers to questions about funding are not simple.  Moreover, the American public is ambivalent about how and when to give money to schools.

In Equity and Adequacy: Americans Speak on Public School Funding, ETS reports that the opinions expressed by those surveyed fail to provide policymakers with a clear mandate. “In the end, Americans resist making hard choices to either limit education spending or raise additional revenue,” write the report’s authors (ETS, Executive Summary 2004). 

The poll reveals that the public is willing to devote more dollars to education, but citizens want to know that more money spent will result in a better education for all, and that more money spent won’t be more money wasted. “The priority that Americans place on education makes them willing to bear extra costs for changes to education if they can feel confident that those changes will result in measurable improvements,” write authors of the report. “Securing such support,” the authors continue, requires “voter education messages that take the issue of waste head-on,” (ETS 2004).

Find the answers before questions are asked

Which leads us back to where we started. If it’s the job of school board members to ensure that students get the best education for the tax dollars spent, then it’s also the responsibility of those members to dig deeper into the issues related to school funding in their states and districts. Armed with that knowledge, school board members are then better prepared to educate the public about those issues. Go to How to dig deeper  to get started yourself.

This summary was based on a guide written by Kathy Checkley, a freelance writer who lives in Austin, Texas. Kathy has more than 13 years experience writing about education issues. References  for the research behind the guide are on a separate web page.

Posted: July 10, 2008

©2008 Center for Public Education