School funding is a blend of federal, state, and local dollars. Local funding largely comes from property taxes. Federal money, which accounts for just 10 percent of all education funding, tends to target low-income students or other distinct groups. State funding is where things get complicated.
In all but five states, statewide formulas control most school funding. State education funding formulas have been the subject of controversy, confusion, and even lawsuits. Designed to ensure adequate funding across schools—and occasionally to promote equity—funding formulas distribute revenue to districts based on a variety of factors.
These formulas often attempt to account for state and district revenue and anticipated differences among districts. What they cannot always account for, however, is how districts might respond to different incentives. In these often complex funding models, states aim to strike a balance between giving localities some control while maintaining enough control at the state level to ensure all students can access a quality education.
Here, we explore the most common funding models states use and how districts might respond to those models. No one model is best—they create different incentives for districts that can bring distinct advantages and disadvantages.