America has a proud tradition of providing a free education to its citizens, but the amount of money spent on public education varies widely from state to state, as it does from school district to school district. These differences affect quality, making it hard to provide an equal educational opportunity for all.

How Are Public Schools Funded? You don't need a Ph.D. in school finance to understand our public education funding system, but it does take a little effort.

The state and local role Historically, public schools in America have been funded largely by local property taxes. Local revenues, however, have not kept up with the needs of the schools and have actually decreased in many states. This has been especially true in those states that have had "taxpayer revolts," such as California, where voters passed Proposition 13 in the late 70s, which led to a dramatic change in the funding structure for public education. To compensate for this change, the states have entered into the picture and backfilled these losses.

"We know what that battle looks like in California," says Mary Perry, deputy director of EdSource, a California resource center with a mission "to clarify complex education issues." According to Perry, "We're now in a situation where the state general fund is volatile and where state lawmakers have a lot of other pulls on that money."

The federal role Despite all the media attention to federal programs like No Child Left Behind, the federal government does not contribute a large amount to running America's schools. And the federal money that is given to schools often comes with strings attached.

How it all breaks down On average, schools receive:

• About eight percent of their funding from the federal government
• Almost 50 percent from the state budget
• The rest, about 42 percent, comes from local taxes.

However, keep in mind that no two states have the same funding systems.

Inequity and Under-funding In the past few decades, school financing systems have been scrutinized, revised and adjusted as the nation tries to address problems of inequity. Paying for schools with local property taxes has been one of the main causes of unequal funding.

An affluent community can raise much more money through property taxes than a poor community can, and consequently can attract better qualified teachers, build and maintain more attractive buildings, and pay for more programs and better instructional materials. The poorer communities, precisely the ones that need more resources to educate their children, must make due with smaller pots of money.

State Per-Pupil Expenditures Perry explains that trying to understand calculations for per-pupil funding in California is not for the faint of heart. "The calculation is very complicated because it's built on historical funding levels. It's ABC Unified gets this amount because 25 years ago they got that amount. And since then there's been a formula calculation and other stuff that's happened and 32 pages of calculations, frankly, that get from what they got before to what they get today. So every single school district has to do a calculation. And they've tried over and over to adjust it and fix it, and every time it seems like it just gets more complicated."

Differences from State to State Donna Kaufman, a mother of two children, and a transplant from California to New York, has had the opportunity to experience first hand the differences in per-pupil funding. The state of New York spends $13,703 a year per student, whereas California spends only $7,127 a year per student (according to 2004 data from the National Center for Education Statistics).

"There is a big difference between schools in California and schools in Long Island," she says. "I volunteered twice a week in the children's classrooms in California and when I was in there I was teaching children—pulling out the higher students and enriching them and pulling out the slower students and helping them. So I really was involved in teaching and that was the way the volunteering went. I participated in the classroom curriculum. In Long Island, there aren't parent volunteers in the classroom. There are teachers' aides and reading teachers coming in. So they supplement the classroom with professionals. I didn't see that in California."

Class size is generally lower in Long Island as well. "In elementary school it's 17 to 1," she says. "That's not what we experienced in fourth grade in California where it went up to 30-something kids in a class. So the class size is smaller here and the lunch programs are more varied."

The Adequacy Argument Most state constitutions guarantee an adequate education for their citizens. But what is an adequate education? This question is finally being asked, and litigated, in many states. In 2002, an appeals court ruled that New York state would be providing an adequate education if most of its citizens learned what is needed to pass the eighth or ninth grades. In North Carolina, progress is being made in linking adequacy to passing grade-level standardized tests. In 2004, the Williams case, filed on behalf of public school students who claimed California did not provide them with access to basic minimum standards of education, was fought and successfully settled based on adequacy arguments.

How Much Does an Adequate Education Cost? In addition to the task of determining what an adequate education means, is the equally challenging task of determining how much an adequate education costs.

Dr. Carol Peck is president of the Rodel Charitable Foundation of Arizona, which recently commissioned a report to find out what particular programs would make economic sense in making a significant difference for Arizona schools. "So when money becomes available," she says, "it will be invested in strategies that have a proven track record, rather than back into the system where it can disappear or be used ineffectively. Our report found that there were five strategies that have proven to be effective in raising student achievement. One is full-day kindergarten for all students. Number two is preparing and recognizing teachers for high performance. The third is reducing class size. Evidence shows that it is more effective to target a specific classroom to get them to a ratio of 15 to 1 rather than to lower all classes just a little. The fourth is creating smaller schools or implementing a "school within a school" for schools with large enrollments. Number five is providing one-on-one tutoring and extra help for struggling students."

Spending on Education The ways states and districts choose to spend funds depends upon decisions made by state legislatures, school boards, and increasingly, the federal government. Educational expenditure is even more varied across the nation than funding is.

The best way for parents to understand how their school and district spends money is to participate in the decision making process by attending:

• PTA or PTO meetings
• school site council meetings
• school board meetings
• and, for the truly ambitious, the state government budgeting sessions.

These are the main places where public education spending decisions are made.

Return on Investment A recent trend in school finance is the effort to link spending to test results. This is called return on investment, or ROI. For example, the Florida Department of Education Web site has a section that allows visitors to examine taxpayers' return on investment in Florida schools.

Perry explains, "Along with the question of how much money schools get, there is a question of how much money schools need. Part of evaluating that question is knowing what efficient spending looks like, and how to spend funds in a way that supports and improves student achievement."

School Finance Terms to Know The world of school finance is a complex, ever-shifting landscape. Knowing a few basic terms can be a big advantage to parents choosing a school and making their way through the public school system.

• Categorical funds: restricted school district funds given to schools that can only be spent on specified programs.
• Charter schools: public schools that have flexibility in structuring academic programs, hiring teachers and carrying out other functions. The degree of freedom that charter schools have differs by state. These are generally funded by a combination of public and private funds.
• Free/reduced-price lunch program: a federal program for poor students. The number of students at a school that qualify for this program is frequently used as a measure of the school's socioeconomic demographic makeup.
• General fund: unrestricted money in school district budgets given to schools for general educational purposes.
• NCLB: the No Child Left Behind Act of 2002(NCLB) is a re-authorization of the Elementary and Secondary Education Act. This controversial program increases the federal government's role in assessing student achievement and further restricts the allocation of federal funds accordingly.
• Parcel taxes: voter-approved assessments on parcels of property that are used for general education purposes (as opposed to school facilities, which is what bonds pay for).
• Parent association fundraising: parent groups often fill in the gaps in school budgets with fundraising. Generally this means that affluent communities raise more funds for their schools than poor communities.
• Property taxes: taxes on local properties— this makes up a large part of a school district's budget.
• School bonds: voter-approved loans that are used to pay for school facilities.
• School district foundations: private nonprofit groups that administer grants to school districts to help pay for "extras," and, in some cases, more substantial programs, such as music and libraries, that school districts would otherwise have to cut.
• State lotteries: many states use these revenues to supplement public education funding; often this source of funding represents only a small percentage of lottery profits and is not a stable source of funding for schools.
• Titles I—X: ten sections of NCLB. Perhaps the most well known is Title 1 which provides funds for poor students.

Updated January 2008