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School Funding: Do Poor Kids Get Their Fair Share?

Research suggests increased spending on education can improve student outcomes, especially among low-income students. This means that targeted increases in funding could help narrow the achievement gap between poor and nonpoor students. But given the complexities of our school finance system, can policymakers actually direct funds to the students who need them most?

Public schools are funded through a combination of local, state, and federal dollars. In the 1920s, local governments provided more than 80 percent of school funding; today, state and local governments provide an equal share of school funding, with the federal government covering less than 10 percent.

Money for public schools does not flow directly to the schools, however. Local and state dollars, as well as some federal funds, are distributed to districts, which then hire staff, build and maintain schools, and buy supplies.

State funding is the primary mechanism for targeting districts that serve disadvantaged students. The federal government similarly attempts to channel funding toward students from low-income families. But whether funding is progressive, with the most money going to low-income students, or regressive, with more money going to nonpoor students, depends on the interaction of multiple funding streams, policies, and the demographic structure of the state and its districts.

Where is education funding progressive?

Thirty-five states have funding formulas that attempt to target low-income students. To understand how well these formulas achieve that goal, we measured whether poor students tend to be enrolled in districts with higher or lower per-student funding levels than nonpoor students. A positive difference indicates that a state spends more on educating poor students—or is generally progressive.

Note: We exclude Hawaii and Washington, DC, because they are both single districts.

Local funding

At the local level, funding is often regressive; on average, districts with mostly nonpoor students tend to have more money to spend than districts that have many poor students. This is to be expected because local funding levels are often a reflection of school district demographics. A district with a large population of nonpoor students, for example, will be able to raise more in property taxes because the families paying those taxes have greater property wealth. In high-poverty districts, the opposite is true.

But the disparities in local funding between districts that poor and nonpoor students attend vary widely. In Connecticut and New Jersey, nonpoor students are enrolled in districts that receive over $3,000 more in local funding than their poor counterparts. On the other end of the spectrum, Louisiana and Utah have slightly progressive distributions of local funding.

State funding

State government spending tends to correct for inequitable local spending—or at least attempts to. The states with the most regressive local government spending are, generally speaking, the ones with the most progressive state government spending. In some cases, such as in New Jersey, Connecticut, Massachusetts, and Ohio, this is because courts have ordered the states to devise more progressive funding systems.

The addition of progressive state government funding balances regressive local funding to varying degrees across states. For example, New Jersey more than balances local funding, so that total state and local funding is progressive by $1,453 per student, whereas Connecticut only manages to just balance the two. All told, in nearly half of the states, students from low-income families receive less state and local funding, on average, than their nonpoor counterparts.

Federal funding

The third source of revenue—the federal government—shifts that balance through a set of funding streams that are largely targeted based on students’ incomes. For example, Title I, the largest federal funding program, directs dollars to low-income students, and the US Department of Agriculture administers child-nutrition programs for students from low-income families.

Eighteen states that are regressive when looking only at state and local funding become progressive with the addition of federal dollars. Considering federal, state, and local funding, almost all states allocate more per-student funding to poor kids than to nonpoor kids, though only a few—Alaska, New Jersey, and Ohio—are highly progressive. A handful—Nevada, Wyoming, and Illinois—are weakly regressive, and the majority have a weakly progressive distribution of funding to poor versus nonpoor students.

Why are some states more progressive than others?

The progressivity of school funding varies widely across states in part because of policy decisions local, state, and federal actors make. But there is at least one pattern: the states that are the most progressive in school funding also tend to be the most economically segregated.

Part of the reason for this connection is that higher levels of segregation create greater potential for funding progressivity. A higher concentration of poor students in certain districts makes it easier to direct funding to those districts—and thus those students—via a state funding formula. Conversely, in states where school districts vary less in terms of demographics, such as those with large, countywide districts, it is harder to target disadvantaged students because they are more evenly spread throughout the state.

A comparison of two states that are demographically similar but have different progressivity patterns illustrates this point. Though New York and Florida are essentially neutral in their education funding, they get there in different ways. New York has highly regressive local funding but highly progressive state funding to balance it out. Florida, meanwhile, has a neutral division of federal, state, and local funding. Examining the demographics and districts in these two states helps explain this difference.

By neighborhood

As the neighborhood (census tract) map demonstrates, Florida is highly economically segregated, with a mix of high- and low-poverty neighborhoods. For example, 30 percent of Florida families live in neighborhoods with a poverty rate below 10 percent, whereas 28 percent live in neighborhoods where more than 30 percent of families are in poverty.

By district (click for neighborhood map)

But Florida’s school districts are large. The entire Miami metropolitan area, for example, is one district. And when you combine a bunch of segregated neighborhoods into one district, you get a heterogeneous district with a moderate poverty rate—the high-poverty neighborhoods and the low-poverty neighborhoods cancel each other out. As a result, there are no Florida districts with a poverty rate below 10 percent, and only 2 percent of families are in districts with poverty rates above 30 percent.

This creates a problem for policymakers in Florida and other states with large, heterogeneous districts (such as Nevada and Utah) trying to direct funding to low-income students. Since funding flows to districts, a state formula that funds districts based on student characteristics is not going to find the kids who live in high-poverty neighborhoods but are enrolled in moderate- or low-poverty school districts.

New York
By neighborhood

The segregation by neighborhoods is similar in New York. Thirty-nine percent of New York families live in neighborhoods with a poverty rate below 10 percent, whereas 26 percent live in neighborhoods where more than 30 percent of families are in poverty.

New York
By district (click for neighborhood map)

But unlike in Florida, New York’s districts look a lot like its neighborhoods—highly segregated by income. Rather than a few districts with moderate poverty levels, New York has many districts with very low poverty levels as well as some with very high poverty levels.

This economic segregation, however, creates the potential for New York to target the school districts with higher concentrations of kids in poverty. Indeed, this is what the state does with its funding. But the same segregation patterns can also make local funding more regressive, and in New York, local and state funding balance out.

New York could have more progressive total funding if state policymakers chose to amend state funding policy. Florida policymakers do not have this option. There are, of course, other ways to direct funding to poor kids or poor schools, but these methods often involve complex funding streams that can come with a lot of strings.

How has school funding changed over time?

School funding is about as progressive today, on average, as it was in 1995. In most states, the combination of state and local funding was relatively neutral in 1995 and stayed neutral in 2014. (To make comparisons over time easier to view, we examined the ratio of funding for poor versus nonpoor students.)

There are, however, some exceptions. In Missouri, state and local funding became more regressive by 12 percentage points. This may be because, in 2006, the state adopted a new funding formula that provides additional money for disadvantaged students only to districts with higher than average low-income enrollment levels. So, disadvantaged students in less-disadvantaged districts don’t benefit.

More states became progressive than regressive between 1995 and 2014—six states increased in progressivity by at least 5 percentage points. Four of those states, Maryland, New York, New Jersey, and Ohio, made court-ordered changes to their funding formulas during that time.

Trends in funding progressivity have varied by funding source in each state, as you can see by using the buttons on the right. For example, in Missouri the progressivity of state funding fell 21 percentage points but fell only 4 percentage points for local funding.

How policy matters

The way a state divides its school districts affects its ability to target poor students through funding formulas. But demographics are not destiny; policy design also matters. States with similar levels of economic segregation can have different levels of progressivity. Ohio and Michigan provide a great example: both have high economic segregation across school districts, but Michigan is significantly less progressive in its school funding.

All states have some power to decide how progressively—or regressively—they want to fund education given the unique constraints they face. What varies among states is the means they can use to accomplish their chosen goals.

Clear selected states