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Introduction

Every state uses a funding formula to distribute education dollars, and these formulas are frequent targets for policy debate and legislative improvements. The EdBuilder is an interactive web tool that allows users to view recommendations for every important area of school funding policy and to select among strong policy options to build a custom funding formula for their states. Below, see the key principles that guide the recommendations in this web tool. Then, click GO TO THE BUILDER to begin crafting your funding formula.

This tool is a companion to the report Common Sense and Fairness: Model Policies for State Education Funding. Download the report for a full exploration of the policy recommendations included in this web tool.

Every state uses a funding formula to distribute education dollars, and these formulas are frequent targets for policy debate and legislative improvements. This website offers guiding principles for constructing these funding formulas. For in-depth policy recommendations for specific funding formula elements, download the report here. To build your own formula from these recommendations, visit this website on a device with a larger screen.

Key Principles for School Funding

Adequacy

The school funding allocated through the state formula should be sufficient to support a rigorous, high-quality education program for all students. Students are ill-served when the system overall lacks enough funding or when the funding allocated for any individual district is inadequate.

The school funding allocated through the state formula should be sufficient to support a rigorous, high-quality education program for all students. Students are ill-served when the system overall lacks enough funding or when the funding allocated for any individual district is inadequate.

Equity

Funding should be targeted to districts based on their students’ needs, including disability, economic disadvantage, and English-language learner status. The state’s funding approach should result in comparable funding levels in districts serving students with similar characteristics. District spending decisions should also be guided by students’ different levels of need and by the goals of narrowing achievement and opportunity gaps.

Funding should be targeted to districts based on their students’ needs and yield comparable funding levels in districts serving students with similar characteristics. District spending decisions should also be guided by students’ different needs and by the goals of narrowing opportunity gaps.

Responsibility

District and school leaders should be treated as responsible decision-makers when it comes to education spending. This means that they are provided with sufficient resources to serve their students; that they have the flexibility to operate in the way that works best for their students and communities; and that they are held accountable to ensure that spending decisions support success for all students, including high-need students.

District and school leaders should be treated as responsible decision- makers when it comes to education spending. This means that they are provided with sufficient resources; that they have the flexibility to operate in the way that works best for their students; and that they are held accountable for their spending decisions.

Transparency

Reporting of district and school spending should allow for a feedback loop between state funding and district need. If districts receive adequate funding, then their spending should reflect students' needs. Expenditure reporting should therefore be aligned with student need categories to hold districts accountable for supporting students appropriately and to hold legislators accountable for funding districts based on the students they serve.

If districts receive adequate funding, then their spending should reflect students' needs. Expenditure reporting should therefore be aligned with student need categories to hold districts accountable for supporting students appropriately and to hold legislators accountable for funding districts based on the students they serve.

For more content and options, including the ability to build a custom funding formula from a range of policy recommendations, visit this website on a device with a larger screen.

  • Formula Fundamentals
  • Student Characteristics
  • District Characteristics
  • Local Revenue
    • Formula Type and Structure
    • Base Amount
    • Economic Disadvantage
    • English-Language Learners
    • Special Education
    • Grade Level
    • Gifted
    • Cost of Living
    • Sparsity and Isolation
    • Local Share and Property Taxes
    • Other Local Revenues

Welcome to the Builder!

The Builder will guide you through the process of building a state education funding formula. First, it displays policies that are fundamental to any strong formula; then, options for considering different student and district characteristics; and finally, options for how to account for local revenues. Recommendations are offered in multiple tiers: Silver (strong enough to advance policy in most states); Gold (especially strong and ambitious); and, in some areas, Moonshot (pushing further towards an ideal—more complex than other options, but also more equitable and precise).

Click the in the corner of any policy to add it to your formula. Use the button at the top of the screen to take a snapshot of your formula-in-progress, use to preview your formula, and click to start fresh.

Formula Complete

You can return to any section to choose a different policy option. If you’re happy with your selections, proceed to the Reports and Downloads page to download your formula and to see other downloadable reports.

Formula Fundamentals

There are two fundamental elements of a funding formula: The basic structure and approach of the formula calculation and the nature of the per-pupil base amount. These foundational elements set the parameters for much of the rest of the funding policy and are considered non-negotiable. As such, only one policy recommendation is offered in each of these areas. Once these fundamentals are added to your formula, you may go on to select from various options in other policy areas.
Every state uses a formula to distribute its school funding. The overall structure of the formula is tremendously important. It determines whether or not the funding allocation is focused on students and their needs; how funding increases or cuts will impact individual education priorities; and how responsive state funding will be to differences in student and community need. Use the button below to add this fundamental to your formula before moving on to the options in other policy areas.
Within student-based funding systems, the first step of the formula is a base amount. This amount reflects the basic per-pupil dollar amount in the calculation. In a weighted student formula, this is the amount that is weighted for students in particular need categories. Use the button below to add this fundamental to your formula before moving on to the options in other policy areas.

Student Characteristics

Though the base amount is meant to capture the basic costs of educating a student, many students have additional needs that must be met with greater resources. A strong funding policy will take students’ circumstances into consideration and will provide funding for those who may require additional supports, different instructional materials, specially trained teachers and staff, or other resource-intensive arrangements. This section provides options for constructing a funding formula that supports students in several different need categories.
Economically disadvantaged students face specific challenges to their wellbeing and academic success. Serving these students well requires increased resources. The formula therefore must include increased funding for economic disadvantage. High concentrations of poverty in a district also pose particular challenges that states should consider.
Students who are learning English require specific instruction and additional supports. The formula must therefore include increased funding for English-language learners. Additionally, these students have a range of needs, including different education histories and levels of English proficiency; this variation is worthy of state consideration.
Students with disabilities require, and have a legal right to, special services and accommodations tailored to their diagnoses and abilities. Accordingly, the formula must provide additional resources for these students. Properly calibrating funding levels to the needs of students with disabilities is both important and difficult, making the design of the special education funding mechanism particularly critical.
Some states’ funding formulas include funding adjustments for students in different grade levels. These can be used to signal support for grade-specific initiatives or to reflect notions of appropriate class sizes in different grade levels. However, beyond symbolic impact, these adjustments are unlikely to have a significant effect, because population sizes do not differ substantially by grade level in most districts. Additionally, state practices vary regarding whether prekindergarten and full-day kindergarten should be funded through the main funding formula.
Some state formulas include specific funding for gifted and talented students. However, methods for identifying gifted students can vary not only between states but even between and within districts. Identification procedures often favor families and communities with means, and as a result, students in high-poverty schools are less likely to participate in gifted education. Any approach to gifted funding must reckon with this issue and guard against inequity.

District Characteristics

Some states will want to consider that districts’ differing circumstances may carry different costs. Geographic factors in particular can affect districts’ resource needs, and state funding formulas can be structured to account for these differences. This section provides policy recommendations for constructing a funding formula that is responsive to specific and important local cost drivers.
Some states include an adjustment in the funding formula for regional cost of living or for differences in regional labor markets. These adjustments are meant to respond to the different resource costs facing districts in different areas. However, high-cost areas are often also high-wealth areas. As a result, such adjustments can have the inequitable effect of sending additional money to areas that are already well-off.
Districts that are sparsely populated or geographically remote face increased costs. Some of their specific functions, like transportation and teacher recruitment, carry greater inherent costs. Sparse districts also deal with general diseconomies of scale. These challenges should be considered in the formula calculation. (It is true that low-enrollment districts in densely populated areas also face diseconomies of scale. However, when communities maintain small districts in these areas, they do so by choice rather than by necessity and must bear the costs of that choice.)

Local Revenue

All the policies discussed up to this point have related to the allocation side of the formula, which calculates the amount of funding necessary for each district. Allocation, though, is not the only aspect of funding policy. The state must also set policy regarding revenues: where the money for the formula is raised and whether any funds may be raised for education in addition to formula funding. These policies are vital for both adequacy and equity. They determine how much money is available in each district; how per-pupil funding levels in different districts will compare to each other; and whether each districts’ residents are paying their fair share for education. This section provides recommendations for how to apportion the responsibility for funding the formula amount between the state and the district and how to govern local revenue both inside and outside the formula
In many states, districts may draw upon local revenue sources other than property taxes. These may include local government fees as well as taxes on sales, income, and natural resource extraction. If this funding is not considered in the formula calculation, then it can be a serious driver of inequity.

Preview

Formula Fundamentals
Formula Type and Structure
Base Amount
Student Characteristics
Economic Disadvantage
English-Language Learners
Special Education
Grade Level
Gifted
District Characteristics
Cost of Living
Sparsity and Isolation
Local Revenue
Other Local Revenues

Recommendation

The state should have a weighted student formula: a per-pupil amount that is increased for students with more resource-intensive needs.

The recommended structure is a weighted student formula. The calculation begins with a base amount—the standard per-pupil allocation. The base is adjusted upward through the application of weights, or multipliers, for categories of students with greater needs (e.g. English-language learners, economically disadvantaged students, and those with disabilities). This approach aligns with key principles: adequacy, through endeavoring to give districts enough for all students; equity, through the responsiveness to differing needs; responsibility, because districts can choose how to spend when funding attaches to the student rather than a program or input; and transparency, which is aided by the ability to match the calculation to counts of students with particular needs. Funding counts should be based on the number of students enrolled in the district—that is, all students for which the district is responsible, not just those in attendance. A student with multiple special needs should generate the full value of all the weights for which they are eligible.

Similar State Policies
  • Hawaii: See Haw. Rev. Stat. Ann. § 302A-1303.5-302A-1303.6 (2020).
  • Kentucky: See Ky. Rev. Stat. Ann. § 157.360 (2020).
  • North Dakota: See N.D. Cent. Code Ann. § 15.1-27-03.1 (2020).
  • Oklahoma: See Okla. Stat. tit. 70, § 18-201.1 (2020).

Recommendation

The base amount should reflect the costs of educating a single student. It must be uniform statewide.

The base amount must meaningfully reflect the costs of educating a student with no special needs (including staffing, materials, support services, etc.). The base amount must be uniform statewide: In a weighted student formula, special needs are addressed through the application of weights to the base amount. In order for this system to be transparent and equitable, the base amount cannot differ across districts before weights are applied. Beyond these guidelines, however, no single, numerical recommendation should be made for the proper base amount. Costs and economic conditions vary from state to state, and it would be unrealistic to suggest one figure for all states. A base amount should be set at a level that serves the individual state well and provides an appropriate foundation for an equitable overall formula, within the context of the state’s financial realities. (See the introduction letter to EdBuild’s complete recommendations for more discussion of this topic.)

Similar State Policies
  • Connecticut: See Conn. Gen. Stat. Ann. § 10-262f(9) (2020).
  • North Dakota: See N.D. Cent. Code Ann. § 15.1-27-04.1(3) (2020).

silver

A generous weight should be applied to the base amount for economically disadvantaged students, with eligibility based on participation in safety net programs.

A generous weight should be applied to the base amount for every student counted as economically disadvantaged. To arrive at a count of eligible students, the state should directly certify students as economically disadvantaged based on their inclusion in existing state and federal programs and designations. These should include Medicaid, the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Food Distribution Program on Indian Reservations (FDPIR), as well as the categories of homeless, foster, and refugee students. This approach makes use of existing data sources, reducing administrative burden; the multiple measures makes the count more robust; and generally, this approach avoids the problem of using numbers from the National School Lunch Program, which has become less reliable than it was in years past due to changes in federal regulations.

Similar State Policies
  • Oregon: See Ore. Rev. Stat. Ann. § 327.013(1)(c)(A)(v) (2020).
  • South Carolina: See S.C. Code Ann. § 11-11-156(A)(2) (2020).

gold

Weights should be applied to the base amount for disadvantaged students on a concentration-based sliding scale, with eligibility based on participation in an expanded set of safety net programs.

Generous weights should be applied to the base amount for economically disadvantaged students, with funding increasing based on the concentration of such students in the district. This can be done either with a single, sliding-scale weight, or with two weights: an initial weight applied for every disadvantaged student and an add-on weight applied for disadvantaged students that make up more than a given percentage of district enrollment. This approach both recognizes the needs of individual disadvantaged students and provides appropriate support for districts serving high-poverty populations.

To arrive at a count of eligible students, the state should directly certify students as economically disadvantaged based on their inclusion in existing state and federal programs and designations. These should include Medicaid, the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Food Distribution Program on Indian Reservations (FDPIR), as well as homeless, foster, and refugee students. States with high costs of living should also include programs with higher income eligibility thresholds, such as the expanded Medicaid program and Children’s Health Insurance Program (CHIP). Additionally, because safety-net programs may enroll fewer disadvantaged students in certain districts, including those serving immigrant communities and some rural areas, the state should offer districts the option to administer a state-funded income survey and to use those results if they reveal a higher count of disadvantaged students.

Similar State Policies
  • California: See Cal. Ed. Code § 42238.02(e-f) (2020).
  • Colorado: See Colo. Rev. Stat. Ann. § 4-1-101 22-54-104(4) (2020).

moonshot

Weights should be applied to the base amount for disadvantaged students on a concentration-based sliding scale (minimum value 2.0). Need should be measured using income information from tax records.

The minimum weight applied to the base amount for each economically disadvantaged student should at least double the amount of funding for these students relative to students with no special needs or disadvantages, in line with research recommendations. Funding should increase from this floor based on the concentration of disadvantaged students in the district. This approach both recognizes the needs of individual disadvantaged students and provides appropriate support for districts serving high-poverty populations.

With regard to counting eligible students, the state should seek to measure students’ actual household income levels using data from income tax records rather than relying on proxy data from other programs. This would require new efforts to link data systems, and states may explore different approaches, such as: linking student address records with income information from state tax returns; partnering with the federal Treasury Department to link student address records with income information from federal tax returns; or seeking anonymized household income data from the federal Treasury Department for home addresses located in each school district. States could also consider using multiple data sources to arrive at the most accurate measure of student disadvantage. Different counting approaches would lend themselves to different methods for distributing weighted funding; see EdBuild’s complete recommendations for a more thorough discussion of data and funding structures.

silver

A generous weight should be applied to the base amount for every English-language learner.

A generous weight should be applied to the base amount for every English-language learner. The weight provides districts with a substantial amount of supplemental, flexible funding to support appropriate instruction, including obtaining materials, developing programs, hiring staff, and providing training.

Similar State Policies
  • Georgia: See Ga. Code Ann. § 20-2-161(b)(18) (2020).
  • New Mexico: See N.M. Stat. Ann. § 22-8-22 (2020).

gold

Weights should be applied to the base amount for ELLs in three tiers, with greater funding for students with lesser English proficiency.

Generous weights should be applied to the base amount for English-language learners (ELLs) in three tiers, with greater levels of funding provided for students with lower levels of current English language proficiency. This approach allows the state to provide different levels of resources for ELLs with different needs and recognizes the costs facing districts that enroll a higher proportion of low-English-proficiency students. The state should also employ a mechanism to account for the diseconomies of scale associated with serving a small number of ELLs overall.

Examples include:

1. Set a minimum ELL count for districts with few ELL students and provide funding on that inflated basis.

2. Increase the ELL weight for districts enrolling few ELL students.

3. Provide per-pupil funding for districts to participate in a regional ELL program rather than providing for district-level instruction.

Similar State Policies
  • Maine: See Me. Rev. Stat. Ann. tit. 20-A, § 15675(1) (2020).
  • Michigan: See Mich. Comp. Laws Ann. § 388.1641 (2020).
  • North Dakota: See N.D. Cent. Code Ann. § 15.1-27-03.1 (2020).

moonshot

Weights should be applied to the base amount for ELLs in multiple tiers, with greater funding for students with lower levels of English proficiency and less common native languages.

Weights should be applied to the base amount for English-language learners (ELLs) in multiple tiers, with students assigned to tiers based on (1) their level of English language proficiency, with more funding for students at lower proficiency levels; and (2) the prevalence of their native language in the district, with more funding for students speaking less common languages. This approach targets funding to students’ need levels and accounts for the challenges of effectively serving a district population with a range of native languages. Additionally, the state should lay the groundwork for a funding system that accounts for students’ educational histories by beginning to collect data on the enrollment of students with limited or interrupted formal education. Finally, the state should address the diseconomies of scale in districts serving a small number of ELLs, e.g. by inflating the count of ELLs, increasing the ELL weight, or providing funding for regional rather than district-level programming.

silver

Weights should be applied to the base amount for students with disabilities in 3-5 tiers, with students assigned to tiers based on their diagnoses.

The state should provide funding for students with disabilities in 3-5 weighted tiers. Students should be assigned to different tiers based on their diagnoses. Those with diagnoses that are typically associated with lower instructional costs should be assigned to lower-funded tiers, while those with diagnoses that tend to carry higher instructional costs should be assigned to higher-funded tiers. If it is appropriate for the state’s particular population, diagnoses that reflect a spectrum of ability can be divided into categories such as “high-need” and “low-need” and assigned to two different tiers. Separate from the system of weighted funding, the state should maintain a high-cost fund specifically to support individual students whose resource needs are especially high.

Similar State Policies
  • Colorado: See Colo. Rev. Stat. Ann. § 22-20-114.7 (2020).
  • Georgia: See Ga. Code Ann. § 20-2-161(10-14) (2020).
  • Iowa: See Iowa Code Ann. §256B.9 (2020).
  • New York: See NY E.D.N. Law § 3602(5) (2020).

gold

Weights should be applied to the base amount for students with disabilities in 5 tiers, with students assigned to tiers based on both their diagnoses and their specific skills and abilities.

The state should provide funding for students with disabilities in 5 weighted tiers. Students should be assigned to different tiers using a hybrid system incorporating both diagnoses and students’ abilities. Students whose diagnoses tend to carry lower instructional costs are assigned to one of the three lower-funded tiers based on their diagnoses. Students whose diagnoses are either more variable or tend to carry higher costs are assigned to tiers based on the abilities listed in their Individualized Education Programs (IEPs). This can be done using a scoring system that assigns point values to particular abilities and skills; each IEP is scored and the point total translates into one of the weighted tiers. This hybrid system is more complex than a purely diagnosis-based assignment scheme, but it allows for better targeting of funds for the students with the most complex diagnoses. Separate from the system of weighted funding, the state should maintain a high-cost fund specifically to support individual students whose resource needs are especially high.

Similar State Policies
  • Colorado: See Colo. Rev. Stat. Ann. § 22-20-114.7 (2020).
  • Florida: See Fla. Stat. Ann. § 1011.62(1)(c) (2020).
  • New York: See NY E.D.N. Law § 3602(5) (2020).

moonshot

Weights should be applied to the base amount for students with disabilities in 5 tiers, with students assigned to different tiers based on both their specific abilities and skills.

The state should provide funding for students with disabilities in 5 weighted tiers. Students should be assigned to different tiers based on the specific abilities and skills listed in students’ IEPs. This can be done using a scoring system that assigns point values to particular abilities and skills; each IEP is scored and the point total translates into one of the weighted tiers. By using the scoring system and IEP-based assignment model for all students with disabilities instead of assigning some or all students based on their diagnoses, the state can take the guesswork out of assigning funding levels to students and achieve the greatest level of precision in targeting funds to needs. Separate from the system of weighted funding, the state should maintain a high-cost fund specifically to support individual students whose resource needs are especially high.

silver

The state should include prekindergarten and full-day kindergarten in the state funding formula. Within the K-12 system, there is no need to differentiate funding by grade level.

The state should include prekindergarten and full-day kindergarten as funded grades in the state funding formula. Treating these grades in the same manner as all the others provides important support for a PK-12 public school system. Additionally, by applying the same funding weights to per-pupil allocations in the early childhood years as in other grades, the state can extend its commitment to resource equity to these youngest students. Within the K-12 system, though, there is no need to differentiate funding by grade level. Population sizes are unlikely to differ substantially by grade level in most districts, so weights are unlikely to offer real funding differentiation.

Similar State Policies
  • Maine: See Me. Rev. Stat. Ann. tit. 20-A, § 15672(6) (2020).

gold

The state should include prekindergarten and full-day kindergarten in the state funding formula. The state can also use grade-level weights to signal support for grade-specific priorities.

The state should include prekindergarten and full-day kindergarten as funded grades in the state funding formula. Treating these grades in the same manner as all the others provides important support for a PK-12 public school system. Within the K-12 system, while unified districts are unlikely to see a significant funding impact from grade-level weights, the state can use these weights to signal its support for particular educational priorities, such as a K-3 weight to support early learning and literacy or a 9-12 weight to support college- and career-readiness programming. (These weights will have more practical effect in states where elementary and secondary grades tend to be separated into different school districts and in districts where high student mobility rates cause student populations to fluctuate from grade to grade.)

Similar State Policies
  • Maine: See Me. Rev. Stat. Ann. tit. 20-A, § 15672(6) (2020).
  • California: See Cal. Ed. Code § 42238.02(d)(3-4) (2020).

silver

A state that wishes to provide funding for gifted students should assume a standard percentage of every district’s enrollment is gifted and fund accordingly.

A state that wishes to provide designated funding for gifted students should do so on a “census” basis, assuming that a standard percentage of every district’s enrollment is gifted and provide weighted funding for that number of students. Given that giftedness is assumed to be uniformly distributed across the population, this approach provides funding for gifted students without creating the concern that uneven identification practices will create an inequitable funding distribution.

Similar State Policies
  • Arizona: See Ariz. Rev. Stat. Ann. § 15-779.03 (2020).

gold

Gifted education should be funded out of general education dollars.

Absent a strong political imperative, there is no particular need to provide specific funding for gifted students. If gifted students are appropriately identified, they will make up roughly the same proportion of every district, and any weights are likely to just increase all districts’ funding to the same degree. Instead, the base amount should simply be set high enough to account for gifted instruction, and these programs should be funded out of general instructional dollars.

Similar State Policies
  • Texas: See Tex. Educ. Code Ann. § 42.156 (2018) and TX H.B. 3, 86th Legislature, § 4.001(a)(36) and § 1.021(a).

gold

To avoid worsening inequities, no adjustment to funding should be made for within-state differences in cost of living or cost of labor.

Generally speaking, no adjustment to funding should be made for general within-state cost differences. While adjustments can be made for specific cost drivers, an adjustment that is driven only by general local cost of living or local wage data is more likely to worsen inequities than resolve them. This is because high-cost areas generally have healthy local tax bases that yield ample school dollars. Extra support for these areas is not an effective use of limited state funds. There may sometimes be districts that do not fit this description—districts where the cost of living is high but the per-student value of tax base is relatively low. Rather than address this challenge through a cost adjustment on the allocation side of the funding formula, however, it should be handled by setting revenue-side policies that do an effective job of decoupling districts’ ultimate funding amounts from their local wealth levels. For recommendations in this area, see the Local Revenue section.

Similar State Policies
  • Texas: See Tex. Educ. Code Ann. § 42.102 (2018) and TX H.B. 3, 86th Legislature, § 4.001(a)(31).

silver

A sliding-scale weight (higher in sparser districts) should be applied to the base amount for each student enrolled in a sparse district.

Most states contain districts for which sparsity and/or isolation pose significant challenges. In these states, a sliding-scale weight should be applied to the base amount for each student enrolled in a sparse district. The weight should be higher in districts with fewer students per square mile and phase out entirely at greater student densities. Since this funding is provided on a per-pupil basis, the upper limit of the sliding scale should be quite generous to properly provide for the funding needs of sparse districts with very low enrollments. For instance, a 400-square-mile district tasked with serving fewer than 50 students across three school sites will face extreme diseconomies of scale; in such a district, the sparsity weight should multiply the base amount by 4-5 times to account for those challenges.

Similar State Policies
  • South Dakota: See S.D. Codified Laws § 13-13-78 (2020).

gold

A sliding-scale weight should be applied to the base amount for each student enrolled in a sparse district, and a flat weight should be applied for students in isolated districts.

Most states contain districts for which sparsity and/or isolation pose significant challenges. In these states, funding should be provided through two separate weights that are applied to the base amount: One for sparsity and one for isolation. First, the state should apply a sliding-scale weight to the base amount for each student enrolled in a sparse district. The weight should be higher in districts with fewer students per square mile and phase out entirely at greater student densities. Second, the state should apply a flat weight to the base amount for students in districts that are isolated—those with a U.S. Census designation of “rural-remote,” as well as districts that the state considers isolated because they are separated from other districts by geographic barriers that make travel challenging.

Similar State Policies
  • Arkansas: Ark. Code Ann. § 6-20-601(a)(5) (2020).
  • New Mexico: See N.M. Stat. Ann. § 22-8-23(E) (2020).
  • South Dakota: See S.D. Codified Laws § 13-13-78 (2020).

moonshot

Because states have very different geographies, states seeking the best funding structure should craft a bespoke policy based on its particular geography and circumstances.

Different states have very different geographies. Some are simply geographically large, with small populations, while others are populous but contain just one or two very dense population centers and a great deal of sparsely occupied territory. Some are mountainous or divided by bodies of water; some face seasonal, weather-related transportation challenges that do not affect districts during other parts of the year. Depending on the division of districts into attendance zones, density issues may affect secondary students more than elementary students. In other words, the ideal funding solution for sparse or isolated districts is likely to be one that is specific to the individual state. As such, states seeking the best funding structure in this area of policy should craft a bespoke policy that considers its particular geography and circumstances.

silver

Districts must levy a tax at a set rate to fund the local share of the formula. Districts may also raise extra dollars, up to a limit that is set at a percentage of the formula amount.

The state should specify a required local share tax rate. Districts must levy this tax rate to fund the local share of the formula. This share is deducted from the total formula amount, and the state provides the balance as state aid. This ensures equity within the formula amount. Beyond the division of responsibility for funding the formula, the state should set an overall cap on district funding, defined as a percentage of the district’s formula amount. For example, the state might choose to set the limit above-formula spending to 15% of the formula amount. Districts may choose to levy taxes beyond the required local share tax rate in order to raise extra dollars up to this limit. This affords districts a modicum of flexibility without allowing high-wealth districts to spend far beyond the means of low-wealth districts.

See EdBuild’s complete recommendations for a more thorough discussion and a visual illustration of this policy.

Similar State Policies
  • Alaska: See Alaska Stat. § 14.17.410(b)(2) and (c)(2) (2020).
  • Arizona: See Ariz. Rev. Stat. Ann. § 15-481(G) (2020).
  • Michigan: See M.I. Const. art. IX, § 6 (2020).

gold

Districts must levy a tax to fund the local share of the formula. Any proceeds above the formula amount must go to the state. Districts may raise limited extra funds if they make matching payments to the state.

The state should specify a required local share tax rate. Districts must levy this tax rate to fund the local share of the formula. This share is deducted from the total formula amount, and the state provides the balance as state aid. If the required tax rate yields more than the formula amount, the excess raised must be remitted to the state and used to support state education aid distributions to other districts. This structure provides for funding equity within the formula amount and also preserves fairness with regard to the return that districts receive on their required tax effort. A district wishing to spend more than its formula amount may levy optional taxes to raise extra dollars, up to an overall funding cap that is set at a percentage of the formula amount. Districts doing this should have to provide matching dollars to the state to support state education aid distributions to other districts: For every above-formula dollar a district raises and spends locally, it must remit a second dollar to the state. This pairing of a spending cap with a matching requirement allows districts some latitude in local spending but ensures that no district can self-finance higher budgets without also supporting the spending of other districts. The requirement to provide matching dollars may also disincentivize too-high spending by high-wealth districts.

See EdBuild’s complete recommendations for a more thorough discussion and a visual illustration of this policy.

Similar State Policies
  • Wyoming: See Wyo. Stat. Ann. § 21-13-102 (2020).
  • Vermont: See Vt. Stat. Ann. tit. 32, § 5401(12-13) (2020).

moonshot

The state should levy a state property tax for education, with no school property taxes raised locally. Districts’ spending decisions determine the state education tax rate paid by their residents.

Rather than splitting the responsibility for funding the formula between state funds and local taxes, the state should levy a state property tax for education. No school property taxes are raised locally. Districts’ spending decisions should determine the state education tax rate paid by their residents. There should be a base education tax rate, and every district spending at their formula amount would see its residents pay the base rate. Districts spending above their formula amounts would see their residents pay a proportionally higher state tax rate. For example, consider two districts with different spending levels when the base education tax rate is set at 2%. District A’s budget calls for spending its formula amount, so residents of District A pay the base 2% property tax into the state education fund, and the district receives its formula amount from the fund. District B’s budget calls for spending 10% more than its formula amount, so residents of District B pay a state education tax rate that is 10% higher (2.2% in this example) and the district receives 110% of its formula amount from the state education fund. This is true regardless of how much revenue the 2.2% tax raises from the district’s residents; thus, low-wealth districts would likely draw more money from the fund than their residents paid in, and high-wealth districts would see the reverse. In all cases, though, tax effort would remain in proportion to spending levels: a true fair share.

To ensure that the state has enough funding to cover the necessary distributions, the base education tax rate should be set annually, taking into account districts’ approved budgets. Additionally, to ensure that districts’ spending levels remain within a reasonable range, the state should set an overall cap on district funding, defined as a percentage of the district’s formula amount.

See EdBuild’s complete recommendations for a more thorough discussion and a visual illustration of this policy.

Similar State Policies
  • Vermont: See Vt. Stat. Ann. tit. 32, § 5402 (2020).

silver

All local revenues that are collected for education should be considered part of the local share of the formula.

Any local revenue sources that are collected for education should be considered part of the local share of the formula. That way, they can be considered in the calculation of how able a district is to self-fund its formula amount and how much state support it needs. Local funds of any kind are reflective of the fortunes of the community, whether these are salary levels (for income taxes), retail centers (for sales taxes), natural resource deposits (for severance taxes), or other local assets. These should no more be determinative of a student’s education experience than the value of their parent’s home. As such, any local taxes that are collected for education should be considered in the local share calculation, not just property taxes. If the state deducts a local share from each district’s formula amount and provides the balance as state aid, it should deduct the amount of these revenues as well, so as to ensure that they do not undermine the equity of the funding calculation.

Similar State Policies
  • Arkansas: See Ark. Code Ann. § 6-20-2305(a)(1)(A) (2020) and 6-20-2303(12) (2020).

gold

States should not allow local school taxes, apart from property taxes. Instead, states should seek to raise education revenue progressively and at the state level.

States should not allow local school taxes, apart from the property taxes discussed under “Local Share and Property Taxes.” Most local taxes fall short of equity on both sides of the funding calculus (the funding distribution and the apportionment of the funding burden). Regarding distribution, districts see greater revenues if they happen to contain certain taxable assets and are unfairly disadvantaged if not. Regarding the funding burden, local taxes tend to demand too much of low-income payers. Other than property, the most common local tax for education is sales. Sales taxes are regressive generally, because lower-income families spend a larger share of their income on sales-taxable goods. Local sales taxes tend to be especially regressive, lacking grocery exemptions and other mechanisms for mitigating regressiveness. Even income taxes are generally flat taxes at the local level. States should not allow districts to rely on these inequitable local taxes. Instead, they should seek to raise education revenue progressively, at the state level.

Similar State Policies
  • States that do not allow other taxes for education include Arizona, Delaware, Idaho, Texas, and West Virginia, among others.

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