How States Fund Education

Abstract

In the United States, the vast majority of funding for K–12 education is provided through state and local governments to school districts. Throughout history, school districts have remained highly segregated both by income/wealth and by race, leading to reduced levels of funding available for higher need districts compared to wealthier districts. The purpose of this chapter is to analyze funding disparities within states and to determine differences between states with respect to funding equity. First, the chapter begins with a discussion of the sources of revenue for education at the state and local levels. Second, it explains the purpose and design of state aid formulas to reduce funding disparities between districts. Third, using data from the School Finance Indicators Database, the chapter calculates funding effort and progressivity indices for each state. Fourth, it provides case studies on two states with more progressive and less progressive funding, New Jersey and Illinois. Finally, the chapter concludes with policy recommendations on how states can improve their school finance systems to provide adequate levels of funding for higher need districts.