Education funding formulas are among the most contentious policy areas that often go unaddressed. They typically require years of expertise to fully understand.
The Big Picture
Education is fundamentally the purview of the states. The federal government has been involved since the 19th century, although it later established a more formal role. After World War II, the Department of Health, Education, and Welfare (HEW) was established at the cabinet level. Under the Carter Administration, the Education Department was established when HEW was split into the Department of Health and Human Services and the Education Department.
While dismantling the Education Department has been a conservative dream since its inception, the department was firmly established by the end of the Reagan administration. It was not until the second Trump administration that its dissolution gained any real traction, although its dissolution would still require an act of Congress, as it had been created by one.
The federal role, up until the Second Trump Administration, has typically involved funding, civil rights enforcement, and data gathering. Under the Trump Administration, it is unclear what the continued role will be for the smallest of the cabinet departments.
In Part 1, we discussed school choice. In Part 2, let's dive into the nuts and bolts of school funding.
Zooming In
Education funding formulas are among the most contentious policy areas that often go unaddressed. They are specialized and incredibly complex, typically requiring years of expertise to fully understand.
Funding typically originates from three primary sources: federal funding, state funding, and funding from local education authorities (LEAs, which are usually school districts with independent taxing authority from the municipalities they are situated in). Federal funding can be categorized into five main streams. Title I of the Elementary and Secondary Education Act provides funding specifically aimed at helping school districts support low-income families. The second stream of funding comes through the Individuals with Disabilities Education Act. The third is through the Department of Agriculture to support school nutrition programs. The fourth comes from the Department of Health and Human Services for Head Start programs. Finally, the fifth source is through the Department of Labor to fund youth employment and training programs.
States finance education using their general revenues. Many states also maintain dedicated funding sources for specific initiatives. Lotteries are commonly used to support higher education or universal pre-k.
Local education authorities, or school districts, often depend on property taxes for funding. Property taxes typically generate predictable revenue for programs. This is significantly easier in larger or more prosperous districts. In contrast, smaller, more rural, or economically disadvantaged districts often rely more heavily on state funding. One notable tax innovation in Georgia enables local districts to benefit from the special-purpose local option sales tax. This taxing authority requires a referendum, but it can augment the local sales tax to raise funds for dedicated infrastructure, programs, technology, or improvements to existing investments.
Formula funding is often the subject of heated debate when discussing education funding, as it determines the amount a school or school system receives per pupil, typically referred to as a full-time equivalent student (FTE). Formulas frequently operate in two directions. One establishes requirements for staff based on the number of students, such as nurses or counselors, while the other assigns specific amounts per FTE for different categories. If the formula states that there needs to be one counselor for every 600 students, then a school with 601 students will have two funded counselors. In contrast, a school with 599 students will have only one funded counselor, according to the formula. Below is an example of per FTE earnings from FY2022 in Georgia.
- Kindergarten $4,664.04 per FTE
- Kindergarten Early Intervention $5,766.14 per FTE
- Primary Grades 1-3 $3,611.30 per FTE
- Primary Grades 1-3 Early Intervention $5,069.96 per FTE
- Upper Elementary Grades 4-5 $2,898.21 per FTE
- Upper Elementary Grades 4-5 Early Intervention $5,054.48 per FTE
- Middle School $3,174.09 per FTE
- Grade 9-12 $2,789.66 per FTE
- Career Technical Agricultural Education $3,300.75 per FTE
- Special Education Category I $6,726.08 per FTE
- Special Education Category II $7,919.86 per FTE
- Special Education Category III $10,090.94 per FTE
- Special Education Category IV $16,370.71 per FTE
- Special Education Category V $6,899.54 per FTE
- Gifted $4,683.79 per FTE
- Remedial Education $3,786.29 per FTE
- Alternative Education $4,150.25 per FTE
- English For Speakers of Other Language (ESOL) $7,219.76 per FTE
The funding formula described above is typical of traditional public schools. Each state determines the cost of educating a "normal" or base student, while other students in different categories may be more or less expensive to educate. This is where the ratios used for the formulas come into play. The base student might be assigned a ratio of 1.0, whereas the gifted student might be 1.7, and the elementary-age student might be 1.3.
Charter schools, magnet schools, and private schools possess distinct characteristics. Charter and magnet schools, as public institutions, generally qualify for the same funding formulas as their traditional counterparts. However, some states may provide supplemental funding or allocate funds at a lower rate based on the authorizer for charter schools or the type of student the school serves. For example, a virtual-only charter school might receive less funding than one operating in a physical building due to the absence of facility costs. Private schools primarily depend on tuition from their students, community and alumni donations, and any grant funding they can obtain. In the case of faith-based private schools, the affiliated religious community may also contribute to the school's financial needs.
In addition to the details of ratios, the second complex issue surrounding funding is vouchers. Vouchers, as commonly utilized, permit families to use a portion or all of the funds that would typically be allocated for a student in a public school towards private school tuition, homeschool resources, or other educational expenses for students not receiving education in the public system. Occasionally, this funding is restricted to students who meet specific criteria, such as those with special education needs. In such instances, it often benefits public schools to no longer incur the costs of educating the more expensive student. It also enables parents to create a more customized education tailored to their child's needs.
Depending on how they are implemented, this can be advantageous for both the local school and the parents. In states with a universal voucher program, however, this may adversely impact local schools' funding structures. Although the goal is for schools to engage in friendly competition to attract students, funding for facilities and infrastructure is often determined by formulas, and the requirements of these facilities do not always correspond with the number of students enrolled. A new roof, for instance, costs the same regardless of student enrollment. Some states have tackled this issue by ensuring that only the state formula funding follows the student. Since property taxes serve as the primary revenue source for local districts, property tax collections remain unchanged; only the state formula FTE funding is affected.
Some states have opted for the scholarship route instead of the traditional voucher approach. In such cases, the state may create a new department or an entirely separate entity that facilitates tax-deductible donations. Consequently, students who meet the qualifying criteria can apply for the scholarship, which will match some or all of the formula funding that the student can use towards a non-public education.
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