• Bell Wilkins

School Finance Fundamentals: How Are US Public Schools Funded?

Edstruments helps K-12 school systems use best practices in school budgeting with its intuitive and visual school finance platform. In addition to our software offerings, we also aim to build administrator and public knowledge about school finance fundamentals. This post starts at the beginning: How are US public schools funded?


While the specifics vary widely across the country, the short answer is that public schools receive money from local, state, and federal sources. Read on to see how each of these entities supports school systems in more detail.


Local:

A significant amount of public school budgets come from local sources, largely through property taxes. The owners of homes, commercial buildings, and land within the school district boundaries pay a tax set by the local government, and a portion of that money helps school districts pay their operating expenses (e.g., employee salaries and benefits, curricula, and Mittens the class hamster).


Areas with higher property values generally collect more property tax dollars, which translates into more local dollars for school districts compared to areas with lower property values. In addition to local government funding, many individual school sites and districts have Parent-Teacher Associations (PTAs) and/or district foundations that pay for additional resources, such as classroom technology, field trips to the ice cream plant, or a goat-yoga teacher for wellness workshops (yes, it’s a thing).


In some areas, it’s quite common for PTAs and foundations to raise $500,000 to $1,000,000 for a school district each year. Many districts, however, (especially those in underserved communities) have PTA funds that are effectively negligible.

State:

Under the Constitution, states are ultimately responsible for public school funding. (Actually, the Constitution doesn’t explicitly guarantee the right to public education at all—probably why you didn’t hear any songs about it in Hamilton.) State governments collect revenue largely through sales, property, and income taxes (the reason your direct deposit is less than you’d like it to be). States then use complex formulas to allocate money to school districts, often calculating a “per-pupil” spending amount they ensure each district meets, thus attempting to correct for local funding disparities detailed in the previous section. Other states who don’t fully rely on direct per-pupil formulas fund schools based on the cost of resources and inputs (e.g., number of staff members and textbooks). States also often enact laws and policies to try and ensure students more expensive to educate, such as English learners or students with disabilities, receive more funding to accommodate their special needs.


States, of course, have vastly varying priorities, tax revenues, and demographics, and the amount of money they can spend per-pupil is a function of all three. As such, total annual per-pupil-expenditure ranges from roughly $7,600 in UT to over $23,000 in NY-- a difference of 3x! Why these disparities? States may choose to prioritize infrastructure, healthcare, or other public services over education. States with large economies may not actually have the most tax revenues on a per-person basis, which translates to less money available per student. As for demographics, a state with a high amount of school-aged children relative to tax-paying adults will likely be able to spend less per-pupil than states that skew older (and thus have relatively fewer students to support).


(Curious about how your state funds K-12 schools? Not to worry, you can find out here.)


Federal:

The vast majority of school funds come from state and local government, but because a well-educated population is in the interest of the federal government, Uncle Sam also contributes a significant amount to K-12 public school funding. Federal funds often take the form of grants and programs allocated to school districts for specific student groups and purposes.


The two largest and best-known allocations include Title I funds (meant to support economically disadvantaged students), and IDEA funds (meant to support students with disabilities). What many don’t realize, however, is that federal departments other than the Dept. of Education also allocate funds to public schools.


For instance, the Dept. of Agriculture allocates money for school nutrition programs, and the Dept. of Health and Human Services allocates money for Head Start programs, which support early-childhood education centers. While their contributions are smaller than those of the Dept. of Education, they still represent critical resources for many schools nationwide (and for many parents eternally grateful for government-funded early childcare).

So, there you have it: three main sources of funds support every public school across the country. The vast majority of funds (~92%) come from state and local governments, with the federal government stepping in to support these funds through grants and programs. Make sure to subscribe as we go into more detail for each of these entities; in upcoming posts, we'll explore how a school district's mix of local, state, and federal funding may impact its susceptibility to COVID-driven budget cuts – don't miss it!

Edstruments exists to equip education leaders with the knowledge and tools to most effectively and equitably serve their students. To learn more about how we can help your school administrators make better financial decisions, email us at hello@edstruments.com or fill out the contact form on our main website.

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