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Journal Issue: Financing Schools Volume 7 Number 3 Winter 1997

Sources of Funding for Schools
Penny L. Howell Barbara B. Miller


Public school finance mechanisms differ from state to state, and they are often extremely complex. Most commonly, the federal government contributes about 7% of the total school budget, and the remainder is split fairly evenly between local contributions (primarily raised through local property taxes) and state contributions (primarily raised through state income taxes and sales taxes). The average amount of money provided per pupil varies greatly from one state to another.

The method of distributing the state contribution to school districts is equally complex, often involving some combination of basic funding (which guarantees a minimum level of general purpose support per student), power equalization (which guarantees that a certain level of local taxation will yield a given level of per-pupil funding), local option (higher levels of taxation approved in some school districts, not equalized by the state), and categorical funding (supplemental state and federal funds, earmarked for specific needs such as special education or compensatory services to schools with a concentration of poverty, or to meet state-dictated priorities, such as reducing class size or purchasing state-approved textbooks). This complexity often leads to significant variation from district to district in the percentage of funding received from federal, state, and local sources and wide disparities in the level of support for the educational program. Typically, wealthier districts provide more of their funding from local taxes, while lower-income districts are more heavily dependent on state and federal sources.