A neighbor’s school and your own can sit a few miles apart and spend noticeably different amounts per student. The reasons usually come back to the way American public education is financed: a mix of local, state and federal money, with property taxes as the main local source. Understanding the mix explains a lot about school budgets, tax bills and some of the longest-running arguments in education policy.
Three streams of school money
Public schools are funded through three streams:
- Local sources, mostly property taxes levied by school districts or by the cities and counties that serve them.
- State sources, drawn from income, sales and other state taxes and distributed through formulas.
- Federal sources, which are generally the smallest share and are often targeted at particular purposes, such as supporting students from low-income families or students with disabilities.
The balance varies a great deal. In some states the state government provides the larger share, in others local taxes do, and the mix has shifted over time in response to court decisions and legislation. National figures are published by the National Center for Education Statistics and the Census Bureau’s annual survey of school system finances, which allow comparisons by state and district.
How a property tax is calculated
A local government estimates the value of each property, applies an assessment ratio set by state law, and multiplies the result by a tax rate. The rate is often expressed in “mills,” where one mill is one dollar per thousand dollars of assessed value. A district that needs a certain amount of revenue sets a rate that, applied across all its property, raises the money, within the limits and approval requirements set by the state.
Two things can change a bill: the assessed value, which depends on how the local assessor values the property, and the rate, which depends on budget decisions and sometimes on voter approval. Many states also have rules that limit how fast assessments or tax revenue can grow, and some give relief to specific groups such as older homeowners or veterans. These rules vary widely, so the same house could produce very different bills in two states.
Why do neighboring districts spend different amounts?
Property taxes depend on local wealth. A district with high-value homes or a large commercial base can raise more money at a given tax rate than one with a smaller base, even if residents tax themselves just as heavily. That difference is the root of many funding disparities.
States respond in different ways. Many use formulas to send extra aid to districts with less local capacity or higher needs, and some limit how much money districts can raise locally. These “equalization” formulas have been the subject of litigation in a number of states, with plaintiffs arguing that unequal funding violates state constitutional guarantees of education. Outcomes have varied, and the Supreme Court held in 1973 that the U.S. Constitution does not guarantee equal school funding, which is why most of these fights play out in state courts.
Other things that move a district’s budget
- Enrollment. Many state formulas fund districts per student, so rising or falling enrollment changes revenue.
- Student needs. Districts serving more students with disabilities or English learners can face higher costs, and funding formulas often include extra weights for them.
- Fixed costs. Salaries, benefits, transportation and building upkeep make up most spending and can be hard to cut.
- Debt and bond measures. Construction and major repairs are often financed by bonds repaid through property taxes, typically after voters approve them.
- Federal and state mandates. Rules that come with funding can add compliance costs.
Population data also feeds into these formulas, which is one reason census counts matter to school budgets as well as to representation.
What happens when disaster or recession hits?
Because property values and local tax bases can fall in a downturn, schools that rely heavily on property taxes can feel the squeeze, although property tax revenue is usually steadier than income or sales tax revenue because assessments tend to lag the market. After a major disaster, local governments may need federal help, which is part of the picture of how disaster declarations work. Federal money can ease a shortfall, but it is only a small piece of school funding overall, and it follows its own appropriation process, a subject explored in how federal funding and shutdowns work.
Reading your own situation
Local school districts and county governments post budgets and tax rates online. A tax bill typically lists each taxing authority separately, so a homeowner can see how much goes to the school district compared with the county, the city and other districts. Many districts hold public hearings on proposed budgets and tax rates before they are adopted, and these hearings are required in many states.
Looking at three things gives a clear picture: the district’s total budget and per-student spending, the share that comes from local taxes versus state aid, and the tax rate compared with nearby districts.
Sources: National Center for Education Statistics; U.S. Census Bureau; U.S. Department of Education; Lincoln Institute of Land Policy
