State School Funding Formulas

All levels of government (local, state and federal) in the United States play a role in funding schools through a system called fiscal federalism.  Today the goal of most states’ funding systems is two fold:

  • To ensure that each district has an adequate level of funding per pupil, including additional funds for students who struggle to learn to standards (mainly students from lower income backgrounds, students who are English Language Learners, and students with disabilities.)
  • To ensure that the overall system meets fiscal equity standards.

To accomplish these goals, states provide districts with aid through four different school finance formulas: flat grants, foundation, guaranteed tax base (sometime called power equalizing or percentage equalizing), and combination formulas.

  1. Flat grants provide every district the same amount of money per pupil; today only a few states have a flat grant as part of their overall funding system.
  2. Foundation programs are the most popular funding structure; such programs ensure that all districts have a “minimum” amount of funding per pupil; state aid is the difference between the per pupil foundation level and the yield of a required minimum tax rate.  In today’s world the foundation level would be what has been determined as an “adequate” funding level.  As noted above, we use our Evidence-Based model to determine the adequate spending level.
  3. Guaranteed tax base programs do not necessarily specify a minimum spending level but provide all districts with access to a state guaranteed level of property wealth per pupil; districts determine how much they want to spend by applying a tax rate to that guaranteed tax base; the higher the tax rate the higher the spending per pupil.
  4. Some states use a combination of foundation and guaranteed tax base programs.

Chapter 6 of our text uses a 20-district simulation to show how these various school finance formulas work (i.e., their costs, effects of equity and adequacy, and political impacts re winner and loser districts).  The chapter also discusses different ways states can adjust funding formulas for several categories of pupil needs, drawing on the programmatic strategies for such students discussed in Chapter 4.

Finally, there is the issue of how to use various school finance formula structures to “fix” various state school finance problems.  Chapter 7 of our text gives examples of doing exactly that.

  • The Washington data set discussed in Chapter 7 presents a more “traditional” school finance problem of unequal distribution of funds due to unequal distribution of property wealth per pupil, and shows how the various school funding formulas impact that problem.
  • The Wisconsin data set presents the “new” school finance problem where wealthier districts have higher spending but also higher tax rates, while districts poorer in property wealth per pupil have lower spending per pupil levels but also lower property tax rates.  The data show how guaranteed tax base programs exacerbate equity issues for states with the “new” school finance problem.
  • The Illinois data present a situation that not only is tricky to resolve but also requires substantial additional resources to make progress on either adequacy or equity standards.

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