A birds-eye view of school funding policy in the U.S.

Creating school funding policy is a delicate juggling act for state leaders. Contentious issues include deciding the responsibilities of local and state governments; determining efficient and fair ways to allocate funds; and ensuring economically friendly tax policies while raising sufficient revenue. Those seeking a firmer grasp of these topics should read a recent policy brief by Urban Institute researchers Matthew Chingos and Kristin Blagg that summarizes funding across the U.S. Three points in particular are worth highlighting.

First, the analysts show that state governments have increased their contributions to public education since the 1930s. When that decade began, local revenues almost fully financed U.S. schools, contributing more than 80 cents of every dollar. Since then an increasing percentage has come from states. In most states today, local and state contributions each constitute about 45 percent of school funding; the federal government supplies the rest. Yet these funding statistics, authoritative as they may be, arguably understate the true role of state governments in financing public education. In Ohio, for example, districts must levy a minimum 2 percent property tax in order to receive state funds. While these revenues are deemed “local,” they are integral to the state funding program and might be better categorized as state funds.[1]

Second, Chingos and Blagg look at the relationship between districts’ capacity to generate local funds and the educational needs of their pupils. Conventional wisdom suggests that low-capacity districts—those with weak property-tax bases—educate the neediest students. This is true in some cases. For instance, the property-poor Dayton school district serves a disproportionate number of students from low-income families. But, in eleven of the sixteen states analyzed in this paper, districts’ property wealth and poverty rates are weakly correlated; the other five (including Ohio) show a somewhat closer link. The point is this: Relying on property wealth alone to target state money doesn’t necessarily ensure that districts serving low-income students receive the funds they need. To Ohio’s credit, it now incorporates resident income into its formula (though in a complicated way) and provides additional aid for economically disadvantaged students.

Third, the brief finds that 72 percent of state dollars nationwide are distributed via formula aid, or general assistance grants, and the rest comes from categorical aid designated for specific programs or students, such as special education, transportation, and gifted or bilingual programs. But the ratio varies across states. In Ohio, for example, formula aid constitutes 90 percent of state funding. Yet it accounts for less than half in places like Connecticut, Florida, and South Carolina. As the Chingos and Blagg mention, categorical funding can restrict districts’ flexibility while formula-based aid is generally less rigid.[2] They don’t argue strongly for one over the other, but many school reformers favor more flexible formula-driven aid so long as states hold schools accountable for outcomes. As a recent paper from Foundation for Excellence in Education argues, “Districts are in the best position to decide which services are most beneficial for their students and should have maximum flexibility to do so. Funding restrictions harm this important flexibility.” Following this idea, states such as California have enacted reforms that shift from categorical to formula aid.

The analysts touch on other important matters in school finance too. Overall, the policy brief is a worthwhile introduction to the complex world of school funding policy.

Source: Matthew Chingos and Kristin Blagg, “Making Sense of State School Funding Policy,” Urban Institute (2017).