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The ins and outs of school finance

Bewildered by budget battles, bonds, parcel taxes and complicated school funding systems? You're not alone.

Per-pupil expenditures for public schools: Fiscal year 2005. Graph courtesy of the National Center for Education Statistics.
Per-pupil expenditures for public schools: Fiscal year 2005. Graph courtesy of the National Center for Education Statistics.

By Marian Wilde , GreatSchools Staff

America has a proud tradition of providing a free education to its citizens, but the amount of money spent on public education varies widely from state to state, as it does from school district to school district. These differences affect quality, making it hard to provide an equal educational opportunity for all.

How are public schools funded?

You don't need a Ph.D. in school finance to understand our public education funding system, but it does take a little effort.

The state and local role

Historically, public schools in America have been funded largely by local property taxes. Local revenues, however, have not kept up with the needs of the schools and have actually decreased in many states. This has been especially true in those states that have had "taxpayer revolts," such as California, where voters passed Proposition 13 in the late 70s, which led to a dramatic change in the funding structure for public education. To compensate for this change, the states have entered into the picture and backfilled these losses.

"We know what that battle looks like in California," says Mary Perry, deputy director of EdSource, a California resource center with a mission Courtesy of the National Center for Education Statistics Distribution of revenue for public schools: School year 2001-2002 "to clarify complex education issues." According to Perry, "We're now in a situation where the state general fund is volatile and where state lawmakers have a lot of other pulls on that money."

The federal role

Despite all the media attention to federal programs like No Child Left Behind, the federal government does not contribute a large amount to running America's schools. And the federal money that is given to schools often comes with strings attached.

How it all breaks down

On average, schools receive:

  • About eight percent of their funding from the federal government
  • Almost 50 percent from the state budget
  • The rest, about 42 percent, comes from local taxes.

However, keep in mind that no two states have the same funding systems.

Inequity and under-funding

In the past few decades, school financing systems have been scrutinized, revised and adjusted as the nation tries to address problems of inequity. Paying for schools with local property taxes has been one of the main causes of unequal funding.

An affluent community can raise much more money through property taxes than a poor community can, and consequently can attract better qualified teachers, build and maintain more attractive buildings, and pay for more programs and better instructional materials. The poorer communities, precisely the ones that need more resources to educate their children, must make due with smaller pots of money.

State per-pupil expenditures

Perry explains that trying to understand calculations for per-pupil funding in California is not for the faint of heart. "The calculation is very complicated because it's built on historical funding levels. It's ABC Unified gets this amount because 25 years ago they got that amount. And since then there's been a formula calculation and other stuff that's happened and 32 pages of calculations, frankly, that get from what they got before to what they get today. So every single school district has to do a calculation. And they've tried over and over to adjust it and fix it, and every time it seems like it just gets more complicated."

Differences from state to state

Donna Kaufman, a mother of two children, and a transplant from California to New York, has had the opportunity to experience first hand the differences in per-pupil funding. The state of New York spends $13,703 a year per student, whereas California spends only $7,127 a year per student (according to 2004 data from the National Center for Education Statistics).

"There is a big difference between schools in California and schools in Long Island," she says. "I volunteered twice a week in the children's classrooms in California and when I was in there I was teaching children-pulling out the higher students and enriching them and pulling out the slower students and helping them. So I really was involved in teaching and that was the way the volunteering went. I participated in the classroom curriculum. In Long Island, there aren't parent volunteers in the classroom. There are teachers' aides and reading teachers coming in. So they supplement the classroom with professionals. I didn't see that in California."

Class size is generally lower in Long Island as well. "In elementary school it's 17 to 1," she says. "That's not what we experienced in fourth grade in California where it went up to 30-something kids in a class. So the class size is smaller here and the lunch programs are more varied."

Comments from readers

"This is a helpful overview of school finance. It would be really helpful though to see more current numbers. I've heard that California has or soon will fall to 50th in per pupil spending."
"very interesting"
"This was a very informative article, but it isn't an eye opener to us. Here in Holland, we encounter the same kind of problems, though the funding of our school is incomparible to the US. Here fund raising is still unthinkable. All money comes from our government. In my opinion, the power of the clercs has risen to a hight that makes it impossible to direct the money to those places where it really is needed; i.e. the classrooms. Do not forget that we all, the tax payers, have to pay for the education of our children. How the funds are collected is a minor problem to how it is distributed.... As tax payers, we should have more power over those that are said to use it well. A drastic change is definitly needed. Gerard CJ Vandenberg, Sanger, CA and Terheijden, The Netherlands"
"Texas is facing a financial school crisis. Our Council of PTAs has started a letter writing campaign encouraging our legistators to revisit the current school finance program. We do not have equal funding in the state of Texas. All of our children deserve equal funding in public schools. "
"if you have more resources in conjuction with higher student per teacher ratios, that will make a difference. Teachers and Superintendents that have high expectations for the student regardless of class, income and background...good article"
"It's NOT the money, at least not anywhere near exclusively. Compare the per-pupil spending in Wyoming and Utah, which are adjacent states. Researching small towns in both, Utah's High School proficieny rates were around 65-85 Math, 70-85 in Reading; Wyoming proficiency rates were 50-55 in Math, 65-67 in Reading. This was just a sampling of 4 schools in small towns near the shared border of the two states. Wyoming spends twice what Utah spends. One would expect a wide margin of advantage in Wyoming, yet the students actually lag and by a wide margin in math"
"You need to do some careful background reading. The California case is a well-known one on how not to have a school funding reform. Prop 13 was passed *because* of the school funding 'reform' in the late 1970s. When Californians realized that over 99 cents of an extra dollar in revenue that they raised from property taxes would move out of their district (to relatively poor districts), support for Prop 13 ballooned. Researcher estimate that spending per student dropped 12-15 percent (adjusting for inflation), depending on how the researcher controls for other things that were occurring. Do some homework."
"Nice article, where do these states rank on sucess in education vs. dollars spent. (ie. graduation rate, standardized test scores 'FCAT', ect) could you do a best to worst state to live in report."
"Excellent analysis!!!! Now, we need a method to get this information out to a maximum number of taxpayers, yes, even those who no longer have children in the schools."
"I appreciate a great eal what I learned from your site- Most of the time what one hears leads to such complications that we give up long before we get the answer to our question Thank you"
"The main thing required to have a good school is parents who value education. Children in households where education is no. 1 priority for children, have children who do well regardless of the 'quality' of the school itself. When there are enough students from this kind of home environment, the school becomes 'good'; and becomes capable of attracting the educators who want to have a career there, and bring their own families and children to the same schools! If the schooling is weak (for reasons noted above) families who have tradition of education value DO NOT reside in those areas - or they may try to start their own schools such as parochial schools-- so called charter schools, or may be even home schooled. Yes, this takes many years, even decades. There is no 'instant pudding'."
"I found this information very interesting. My 5th grade daughter attends a public school in Tulsa, OK, where we were suppossed to get so much money from a new lottery. Our school was two students off and could not hire an additional teacher we needed badly. Therefore, classes were rearranged and teachers moved around, and we still ended up with a large 2nd grade class. I think, in our district anyway, they should look at the counts in each class, not the overall count of the school. We have had alot of parents concerned and calling our Education Service Center, but they're not listening. It's very frustrating."
"A very great and informative article. Unequal public school funding promotes inequality in a very diverse nation, and it's due for a change. We as Americans no matter what class or social status have a commitment to see through that education is our priority and not an expensive war. Through that commitment we have a duty to pay for education even if we don't have children in public schools. You ask “why should I spend my money on someone else's kid?” Well, if we don't make it our responsibility to see that we all pay our dues than we have failed as productive members of society and inequality will remain."
"Very good article, an eye opener. I got my education in foreign countries, France, Belgium and Germany ( father was in the service). When I see what my son does in fourth grade compare to what they teach overseas we are so far behind. it is scary to think that our kids will have to compete for their futures later with what....There isn't enough priority and focus to improve our level of education. We as parents need to really get involved and be as loud as can be for our kids. "
"I think Americans should spend more money on eduaction. I mean, if we base ourselves as one of the most powerful nations in the world, then we have to realize that knowledge is one of our greatest advantages of power over other countries. If we want to stay a great country, we need to raise our rate of educated, working people. It is part of humanity to learn, and if we are unable to do so, we might as well be one with the beats. -Anonymous, California"
"Great and informative article! What I find most troubling about California schools is the growing percentage of money not reaching the classroom (nearing 50%), while at the same time there is constant clamoring for more money. What can we do to reverse this trend? Thanks again for the great article."
"The lowest per pupil spending per year is $4,900... the highest over $11,000?!! Unbelievable! I could send my child to one of the finest private schools in my area for roughly $4000 per child per year! If we had vouchers, I could save my state (MN) approximately $3,700 a year! But, no... that would make too much sense. Now I know why the Democrats and the unions do not want vouchers... it would put a sub-standard public education monopoly out of business."
"Very comprehensive and timely article. Thank you for putting this information together."
" I think this is a great article, although Ive been at private schools my whole life, I truly believe that the education in California needs to change."
"Very informational, specially the finance terms. We need more articles similar to this where everything is put on simple terms and anyone could understand and make the right questions when attending meetings. "
"This is a great article. I am very frustrated with the California school system. Things have got to change."
" I would love to see an article that discusses the many aspects of educating a child well. It is certainly not all about the amount of money spent per child. The cost of living factor could make a high-dollar-per-student state equivalent to another lower-dollar-per student state. Other factors might be how the money is spent, the quality of the teachers hired, the policies of the school, programs offered to help, challenge and enlighten students, good communication between parents and teachers and of course, parents' involvement at home with their children and homework. I think there have to be more ways to improve education than just reorganizing and increasing government funding. I plan to look into how other countries manage their school systems. "
"Reading the article saddens me. I don't understand how education could be such a low priority with our funding. Education is mandatory, it is not optional. Funding should not be optional either. We can pay a basketball or football player millions of dollars to run across a court with a ball, but we can't pay our school teachers what they deserve. We can't keep money in the education fund as it should be. Why don't we take some of the big moneymakers and have them to support the children's future. At the rate our government is going, the children of our future won't have a chance. Knowledge is the key and our future children can't even get that!"
"Arizona report is right on the money! (One is full-day kindergarten for all students. Number two is preparing and recognizing teachers for high performance. The third is reducing class size. Evidence shows that it is more effective to target a specific classroom to get them to a ratio of 15 to 1 rather than to lower all classes just a little. The fourth is creating smaller schools or implementing a “school within a school” for schools with large enrollments. Number five is providing one-on-one tutoring and extra help for struggling student) I would add that optional program is also very effective. The common sense will tell you that it is much effective to teach children of similar ability. A small fish in a big pound can be very discouraging, on the other hand, a small fish in a small pound can be quite at home."
"I'm curious. Today (Sunday 10 April) in the Outlook section of the Washington Post, there was a commentary by George Will. He wrote about Patrick Byrne and an initative that he is spearheading in AZ to have 65% of the education budget spent on expenses in the classrooms, ie teachers, students, curriculum. This sounds very reseasonable as many school districts have large adminstrative budgets. What do know about this? Do you believe that something like this would help the state of education in the US"
"I was wondering if you had any articles comparing school results by state on standardized test with the funding per student. I have been curious as to why we don't concentrate more on duplicating the success of states with the highest test scores at the lowest cost. It makes sense to me that we would duplicate what works instead of just asking for more money. Money is not the answer, successful education programs are."
"My husband is retired,and we feel we shouldn't have to pay school taxes.Every time a levy comes on the ballot we vote it down. Being on a fixed income we are paying out too much now. You would probably get the levy passed."
"I think that it is a disgrace that our government contributes 7-8% towards our childrens education. Children - America's hope for the future treated as after thoughts. NCLB - and our fearless leader came up with this slogan, yet he will only give 8% towards helping our children. When I was younger there was a slogan 'Charity begins at home' - when it comes to the education of our youth we should practice this and contribute everything we can to ensure that our children will be ready for THEIR future. "
"Great article! School funding is a subject close to my heart since we live in an area that gets short changed by our county govt. Being a rural community surrounded by larger cities gives the impression that the city schools always get the money and the county schools get the scraps. This helps me to understand a little better and give me ways to help corect the problems. Thanks"
"More money spent does not mean better eduation. My school district recently spent millions of dollars on a new math program with 'manipulatives'. I have always tought my children math with beans. These are very inexpenssive 'manipulatives' that the schools should adopt. There should be no shame on using beans instead of fancy other manipulatives that cost tons of money. Some of the best mathematicians and scientists come from very poor countries. They do not spend 10,000 dollars per year per student, but they have much better prepared students. Lets learn from them"