Jul 14, 2021

Public schools for students in kindergarten through 12th grade, often referred to as K-12, are financed through a combination of local, state, and federal dollars in proportions that vary across and within states. In the 2018–2019 school year, the most recent data available, spending for public K-12 education totaled $752 billion across all jurisdictions, reflecting an increase for the seventh consecutive year.

State and local governments, in relatively equal proportions, provide the vast majority of funding for education. State governments rely on formulas that attempt to distribute education funds equitably across school districts. Local education agencies (LEAs) oversee school districts, manage state and local funds, and use standardized factors to allocate resources. Although both states and localities apply approaches intended to allocate funds fairly, disparities nevertheless occur. Such disparities primarily stem from the sources of revenues and the costs of education in each school district.

The federal government plays a relatively small, but important role in K-12 education funding

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Meanwhile, the federal government provides a small share of education funding through specific grant programs. They are designed to minimize the funding gaps not well addressed by states and LEAs for at-risk youth, including students with disabilities or from low-income households. During recent economic downturns, federal spending has also helped narrow funding gaps that developed in states and localities.

State Funding Formulas for K-12

States use formulas that aim to, at least in part, equitably distribute education funding across school districts. However, their ability to do so is limited by the resources available. In addition, those formulas account for locally raised revenues and the needs of students in each district. As a result, the state's share of education funding tends to be higher in districts with a low capacity to raise revenues. It is also higher in districts with a high concentration of students with characteristics such as English as a second language, low family income, or special needs.

State funding formulas often assign weights for students who are English learners, have low family income, or have d isabi I ities

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Nearly all states (46 out of 50) primarily allocate education funds through foundation program formulas. Such programs establish a minimum level (or "foundation") of funding per student that includes a combination of state and local funds. The funding provided through foundation programs may also take into account different student characteristics, such as family income and disability status. Other financing approaches include:

  • Full state funding programs, through which education funding is provided entirely by the state. Only Hawaii operates such a program.
  • Flat grants, which provide an equal amount of funding per student, is the primary approach in North Carolina.
  • District power equalizing programs, which assist districts with a low capacity to raise revenues up to a specified maximum, are the primary financing approach in Vermont and Wisconsin.
  • Categorical grants narrow funding gaps for students with specific needs and characteristics. No one state relies primarily on this approach, and it is used in combination with other programs.

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Local Funding Methods for K-12

LEAs are the link between education funds and schools in a particular district. Their role is to manage funds provided by the state and funds raised locally, as well as distribute resources to the schools under their purview. Revenues raised from local property taxes account for nearly 40 percent of total education funds. LEAs have typically allocated teachers, administrators, and equipment to each school while calculating funding per student retroactively based on the resources assigned.

In recent years, a number of LEAs have moved away from the process described above and have begun to develop budgets for individual schools that apply the concept of weighted student funding formulas to assign resources based on student need. Proponents of student-based allocation argue that it would improve transparency by reflecting actual expenditures per school and promote equity by linking resources to specific needs. However, many states have layers of rules and provisions that limit the application of this new approach. Moreover, as a relatively new practice among LEAs, comprehensive research on its effects is not yet available.

Federal Funding Programs for K-12

The federal government provides K-12 education support through specific grant programs administered by the states to school districts. Those programs include Title I grants under the Elementary and Secondary Education Act (ESEA) and Part B grants under the Individuals with Disabilities Education Act (IDEA). Federal funds made up just $57.9 billion or 8 percent of total education funding in 2019; federal dollars supplement state resources by narrowing funding gaps for at-risk students.

Title I ESEA

Title I grants provide funds to LEAs with high percentages of low-income students. It is the largest grant program of ESEA, totaling $14.1 billion in 2019. Such funds are allocated through four formulas that are based on the number of eligible students and several provisions, including a state's target level of funding per student. Eligible students include children ages 5 to 17 in

  1. low-income families (which account for 97 percent of eligible children);
  2. institutions for neglected or delinquent children or in foster homes; and
  3. families receiving Temporary Assistance for Needy Families payments.

Part B IDEA and Other Programs

In 2019, the federal government provided $11.8 billion in IDEA grants to states. Those funds are awarded through a formula based on a state's total population with disabilities between the ages of 3 and 21, the percentage of those individuals living in poverty, and the state's IDEA appropriations in 1999.

The federal government also allocated $16.6 billion for child nutrition, which was used to reimburse schools that provided free or reduced-price lunches to eligible students. About $4.7 billion of federal funds went directly to LEAs for various programs including Impact Aid, Indian Education, Head Start, Follow Through, Magnet Schools, Dropout Demonstration Assistance, and Gifted and Talented. In addition, the federal government provided $0.6 billion for vocational programs and $10.1 billion on the aforementioned programs for which reporting units could not provide distinct amounts.

Why Does Education Funding Differ Across School Districts?

On average, nearly 40 percent of funding for public education stems from local property taxes. As a result, funding can vary widely among districts based on the wealth of families living in them. Affluent LEAs often fund their schools above the minimum level established by the state, contributing to wider discrepancies. Those discrepancies become more apparent during economic downturns because wealthier LEAs benefit from the relatively stable revenues from property taxes. In contrast, funding for LEAs more reliant on the state tends to decline.

Differences in wealth among districts are partially attributable to remnants of racial covenants — legal contracts embedded in property deeds to prevent nonwhite people from moving in. Although none has been enforceable for decades, their effect remains visible today. For example, a 2019 analysis by EdBuild found that predominantly nonwhite districts received $23 billion less than predominantly white districts from state and local governments despite serving the same number of students.

Although LEAs allocate resources based on standardized factors like student-teacher ratios that, in practice, should fairly distribute funding per student between schools there can be significant disparities in the amounts actually spent on schools even within a district. That is partially due to the LEA practice of distributing resources, not dollars, which masks higher spending for some schools. For example, a school assigned educators with more experience would receive higher funding for teacher compensation.

While state financing programs aim to fairly distribute funding and resources across all school districts, almost all finance programs allow for some level of unequal spending. Such disparities are driven by differences among districts in the cost of education as well as the ability and willingness of districts to spend money on education. As a result, state financing has only a limited ability to address funding disparities. Finally, financing from the federal government has resulted in increased funding for disadvantaged students, though this means of financing is also limited.

How Has Education Funding Changed over Time?

Over the past century, the local share of education funding has declined, with state funding largely making up the difference. The federal share of education funding has been relatively constant over the last 40 years after generally rising from 1920 to 1980.

The decline in the share of local funding has mostly been picked up by state governments

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State revenue streams can be particularly volatile throughout recessions, leading to reductions in funding for programs like education. In recent economic downturns, for example during the Great Recession, federal support has increased to offset declines in state resources. However, while federal funding was used to mitigate state-level declines during the 2007–2009 recession, average education funding declined when the economy recovered and federal funding tapered off. Many states did not compensate for the loss of federal funding; in 2019, 17 states spent less than they did in 2008 (in inflation-adjusted terms), according to the Pew Charitable Trusts.

Federal COVID Relief to K-12 Schools

The COVID pandemic added to funding challenges primarily because necessary measures put in place to limit the spread of the virus dampened economic activity and reduced state tax revenues. At the same time, states increased spending on public health and social services, further limiting the resources available for education. That pressure has been compounded by increased costs associated with distance learning and building upgrades.

In response, the federal government's role increased to offset the declining capacity of state and local governments to fund public education with recent aid geared towards helping schools reopen safely. The Coronavirus Aid, Relief, and Economic Security Act, enacted in March 2020, established the Education Stabilization Fund, which included $16.8 billion for states and LEAs through the following programs:

  • Elementary and Secondary School Emergency Relief (ESSER) Fund — $13.2 billion was awarded to states based on their share of grants awarded under Title I; states were required to provide at least 90 percent of the funds to LEAs.
  • Governor's Emergency Education Relief (GEER) Fund — $3.0 billion was awarded to states based on their share of individuals ages 5 through 24 and the share of children counted under ESEA. Governors had discretion in disbursing funds to LEAs, post-secondary institutions, or other education-related entities.
  • Education Stabilization Fund Discretionary Grants — $0.6 billion was awarded to outlying areas, the Bureau of Indian Education, and states with the highest COVID burden.

The Consolidated Appropriations Act enacted in December 2020 included $54.3 billion specifically for K-12 schools through the ESSER fund. The bill also provided $4.1 billion to the GEER fund, stipulating that the first $2.8 billion be distributed to private schools.

Most recently, the American Rescue Plan Act allocated $122.8 billion for the ESSER fund with $0.9 billion specifically for outlying areas. Between the three pieces of legislation, the federal government injected $190.3 billion directly into K-12 education. That total aid has nearly quadrupled federal funding and is meant to help states and LEAs mitigate the additional demands that schools are facing during the pandemic.

Conclusion

K-12 education funding is an important investment in our future. Understanding the complicated joint commitment and relationship between local, state, and federal governments to fund education is a key part of discerning its place in the budget among other priorities and against the backdrop of an unsustainable federal fiscal outlook.

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