School Finance Overview
The expenditure of public funds for K–12 education has a long tradition in the United States. While the U.S. Constitution does not make any federal provisions for public education, every state’s constitution guarantees some level of free public schooling for its citizens. Each state governs its own public education system and decides how to pay for it.
The amount of money spent on schools is certainly a factor in the quality of the education students receive. Of even greater importance is the way funds are spent. To understand school finance, then, it is important to know how much money is available, how it is spent, and who controls those decisions.
Where the money comes from
Historically, local property taxes have been the major source of funding for public schools. Typically, the property tax rate was set by the local school board, other local officials, or directly by citizens. This local control led to dramatic differences in school funding, usually depending on the relative property wealth of the surrounding community. During the 1970s and 1980s, the courts in many states ruled that these wealth-related differences in school support needed to be eradicated. They called on state governments to come up with new ways to fund public schools more equitably.
As a result, school finance systems today look dramatically different from state to state. The general trend has been toward a larger portion of state funding and control, but the proportions and funding structures vary. Illinois and Pennsylvania, as well as many other states, depend somewhat on state funds but still rely most heavily on local property taxes. A few states, most notably California and Michigan, have state-controlled school finance systems. Hawaii is unique in that it has one statewide school district.
Data: Rankings and Estimates 2004-05, National Education Association, EdSource 7/06
Although its contribution has been increasing,
the federal government provides less than 10% of funding for public education nationwide. Nearly all of it is earmarked to support specific programs or to help certain categories of students, primarily those who are poor or require Special Education.
How the money is used: Decisions about expenditures
What the money is used for and who decides how to spend it is the other half of the picture. The federal government, state governments, school districts, and schools all have some decision-making role, again with substantial variation from place to place. (For more about this topic as it applies to California, see School Management.)
Policymakers and educators must balance the need for equity and standardization against the need to tailor services and instruction to unique local circumstances.
The largest expense in every school system is salaries and benefits, particularly to pay for teachers. Instructional materials, utility costs, and building maintenance are among the other types of expenditures.
California’s school finance system: The basics
California’s current school finance system evolved through a combination of various court decisions, legislative actions, voter-approved initiatives, and government regulations. The result is a system in which school revenues are controlled at the state level.
Each year, the California Legislature and governor determine how much state and property tax funding will go to public education. The provisions of a 1988 voter-approved constitutional amendment, Proposition 98, set the minimum level of funding. State leaders are free to spend above this amount if they choose. They also can—and do—use their power over the state budget to influence educational change by creating categorical programs that prescribe how school districts spend some of the funds allocated to them. Both the state and federal governments earmark a large portion of school funding for specific purposes or to serve specific groups of students. These programs represent a sizable part of a school district’s budget and can have a major effect on local expenditure decisions.
School districts are responsible for managing the money they receive within both state and federal guidelines. In turn, the policies, employee union agreements, and practices of the local school district determine the amount of financial and operating discretion an individual school has.
For a quick overview of California school finance, see Q&A: The Basics of California's School Finance System.
For a more thorough explanation of California’s school finance system, order Understanding School Finance: California’s Complex K–12 System.
The schedule for state budget actions
Early in January each year, California's governor presents his budget proposal. This includes recommendations for funding ongoing operations and new programs for the upcoming school year. Throughout the spring, the governor and Legislature work on refining these and other proposals for education and on developing a specific budget. Few decisions are made, however, until after the "May revision," an annual gubernatorial adjustment of the budget proposal based on the state’s revised economic projections and April income tax returns. A final state budget is due at the end of June. At this point, local school districts get the first official information about how much they will have for running their schools in the fiscal year that starts July 1. After the official budget adoption, the Legislature and governor continue to debate and pass additional laws, some related to implementing the budget, until about mid-October. Some of these laws will not be implemented until the following school year.
Special Education funding
Special Education remains a large portion of the education budget. Federal and state Special Education laws require that all students with disabilities receive a free and appropriate public education in the least restrictive environment. About 10% of California’s public school students qualify for Special Education services. The funding comes from both state and federal government programs and from local school districts. School districts receive funds based, for the most part, on their total student enrollment. They may receive some extra funding to serve the needs of individual students with disabilities that require particularly expensive services. Both the funding and services are administered through Special Education Local Plan Areas (SELPA), which operate somewhat separately from the regular school district.
The construction and upkeep of school facilities
School districts throughout California are in need of funds to expand, maintain, and modernize their facilities. The California Department of Education (CDE) estimates that more than 32,000 new classrooms will be needed from 2005 through 2010. For up-to-date information on facility spending and needs, see the Office of Public School Construction (OPSC).
In recent years, the facilities problem has received substantial attention from state leaders and California citizens. In November 2000, California voters made it easier for school districts to pass local general obligation bonds. The passage of Proposition 39 lowered the required threshold for local voter approval from two-thirds to a 55% "super-majority" (but only if specific accountability provisions were included). This chart shows the effect of Proposition 39 on the passage of local general obligation bonds.
Since 1998 school districts have been allowed to establish School Facility Improvement Districts (SFIDs) in which property taxes for a portion of the district are raised to service debt incurred from the sale of general obligation bonds. A law passed in July 2001 (SB 1129, O’Connell) changed the voter approval minimum for SFIDs from two-thirds to 55% (and required Proposition 39’s accountability provisions). See the following tables in our School Data section for the results of local elections:
Since 2002 California voters have passed school bonds that totaled $25.35 billion for the construction and modernization of public elementary, secondary, and higher education facilities ($21.4 billion of that amount was earmarked for K–12). In November 2006 a $10.4 billion bond for school, college, and university facilities will go before the voters. It will be part of a package of four bonds for rebuilding infrastructure, such as highways and levees, that together total more than $37 billion. For more information, see the Secretary of State's website.
Questions & Issues
The nationwide call for higher standards for school and student performance has fiscal implications. Many argue that there is a need for reciprocal accountability; that is, higher standards must be matched with the resources schools and students need in order to meet these higher expectations. They say it is unjust to hold schools and students accountable for meeting higher standards if they do not have access to the necessary resources. In many states, this realization is leading to a fundamental shift in the way courts, state policymakers, educators, and researchers think about school finance.
Currently, the common approach to school funding is to determine how much money is available and then decide how to spend it. Increasingly though, the emphasis is on funding adequacy—that is, defining the educational goals of the system and then determining the level of resources schools need in order to meet those goals. Courts have required many states—including Wyoming, Ohio, New Hampshire and Montana—to completely redesign their school funding systems based on this concept. In Oregon and Maryland, by contrast, policymakers were redesigning their school finance systems toward adequacy without mandates from their state courts.
- What level of achievement is expected from students?
- What are the most important components for an effective education system?
- What is needed to give students equal access to educational opportunity?
- How do local differences affect the level of resources needed and the way resources should be used?
- What can be done to make the system more efficient and more effective?
During 2005–2006 a series of 23 education research studies are tackling these issues. The studies will consider what reforms are needed to improve the efficiency and effectiveness of the state school system, and how much it should cost to provide a quality education for every child in California. This $2.6 million project is supported by state leaders from both political parties and is funded by the William & Melinda Gates, William and Flora Hewlett, James Irvine, and Stuart foundations. Associate Professor Susanna Loeb of Stanford University’s School of Education is coordinating these studies. For more information, see Getting Down to Facts. A Research Project to Inform Solutions to California's Education Problems
Funding levels a continuing issue in California
In California the question of funding adequacy consistently underlies other discussions about educational improvement.
Data: National Center of Education Statistics (NCES), EdSource 11/05
From the 1970s to the current day, per-pupil expenditures in California have been below the national average. That fact, combined with the high cost of living in California, has meant that the state’s public schools have had less money to work with than the majority of their counterparts, particularly in the nation’s other industrial states. Generally speaking, that translates into more students for whom each staff member is responsible. In fall 2003, California ranked next-to-last in total school staff to students.
The issue of how much money schools need also came before the courts in California. In 2000 the ACLU filed a court case (Williams et al. v. State of California et al.) charging that the state had not met its obligation to provide all students with "basic educational necessities," defined as textbooks, trained teachers, and safe, clean, uncrowded facilities. The lawsuit further argued that low-income students and students of color were the most likely to bear the burden of inadequate resources. Legislation in September 2004 enacted provisions of a settlement that included accountability measures (such as empowering county superintendents to intervene in the lowest-performing schools) and extra financial support over several years for facilities, textbooks, and other help for low-performing schools.
For the most current information, see EdSource's annual school finance report and Related Data
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Last updated July 24, 2006
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