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Strengthening U.S Schools Through Fiscal Reform

October 23, 2017

Since the inception of The Elementary and Secondary Education Act (ESEA) in 1965 there have been a variety of measures instituted to address disparities in the quality of education such as changing fund allocation mechanisms, providing incentives for schools, altering tax distribution (local, state, and federal), and enforcing accountability measures. Despite these measures, there are still significant differences in the quality of education across different demographics. In order to close these gaps, the U.S. government needs to reassess the funding mechanism for public schools in order to minimize the disparities between the resources available to school districts in wealthy and poor neighborhoods.

Education is one of the key pillars for a thriving country given its expansive impact on various socio-economic outcomes. From an economic standpoint, increases in either the quality of education or the years of schooling completed have been shown to improve incomes, reduce unemployment rates [1], and increase economic growth [2], while from a social standpoint, they have been associated with improvement in crime rates [3], health outcomes [4], and civic engagement [5].

However, despite the importance of education, funding disparities within the United States remain, as districts with poorer populations often have less money at their disposal than richer ones. While increases in funding do not necessarily mean a better education, a lack of funding is a factor that can inhibit improvements in quality of education, and can be particularly limiting for schools that are dealing with issues such as scarcity of teachers, lack of school resources, or large class sizes [6]. A large reason behind these problems is the design of the current funding mechanism for schools at federal, state, and local levels.

The Role of the Federal Government in Education Funding

Since its inception in 1965, Title I has been the largest and most expansive federal education funding program in the US - albeit one that has also been widely criticized. The program allocates funds to specific states based on the number of children living poverty in each district within the state. However, there are possible flaws in this system. Firstly, the Federal Government gives districts the autonomy of distributing those funds. While giving districts autonomy on their spending is not always bad, in this case, the use of these funds by local authorities and even school principals on initiatives such as teacher development programs, and technology purchases is largely criticized, as they are often ineffective and lack focus [7]. Secondly, some consider Title I funding per student as far too low to have a meaningful impact in education. As of 2015, under Title I, children received between $500 and $600 on average per year, while the funding needed is estimated to be is 5 to 8 times more [7].

Public School Funding

One view of federal public school funding is that it is merely a supplement to local and state funding. The typical share of federal funding relative to total school funding amounts to about 8% on average [8], and as of 2007, was 9.1% [9]. In that year, 43.9% of funding came from local sources and 47% from state sources. Breaking this down further, property taxes constitute about 65.4% of local funds, and 28.7% of overall school funding. The local, state and federal shares of funding have remained relatively constant over the last 40 years [10], thus the role of federal funding as a supplement, and property taxes as one of the key components of total funding has also been relatively unchanged.

hile 9% does not seem to be very significant, some analysts have argued federal funding has a very important corrective function [11]. Due to various factors, affluent districts often have significantly more funding than poorer ones, as shown in Figure 1 below. Negative percentages indicate that the state’s poorest district is getting less funding than the richest, while positive percentages indicate the opposite. Removing federal funds from the equation, the disparity between funding for US’ poorest district compared to the richest one was -15.6% in 2011. Adding them back into the equation, the disparity is reduced to -1.7% [11].

(Image: Percent Difference in Per Pupil Funding between High- and Low-poverty Districts Before Federal Money, 2011-2012Source: Huffington Post)

(Image: Percent Difference in Per Pupil Funding between High- and Low-poverty Districts Before Federal Money, 2011-2012
Source: Huffington Post

(Image: Percent Difference in Per Pupil Funding between High- and Low-poverty Districts After Federal Money, 2011-2012 Source: Huffington Post)

(Image: Percent Difference in Per Pupil Funding between High- and Low-poverty Districts After Federal Money, 2011-2012
Source: Huffington Post

However, this measurement of inequality, highlighted by those who claim federal funding satisfactorily addresses inequality, doesn’t actually provide a great deal of information about funding. It only compares the wealthiest and poorest districts, while all other districts between the two extremes are disregarded. This means that we cannot judge the distribution of school funding in each state – we don’t know how many districts receive similar amounts of funding to the poorest versus the richest district. A measure of inequality in funding modelled on the GINI co-efficient would address the described issue as it would take into account the funding provided to every district in a state. A second issue is that the measurements have not been made on a PPP-adjusted basis, meaning that the differing costs of living and operation between poor and rich areas aren’t taken into account when calculating the inequalities in funding. This may overstate the inequality since districts in wealthy neighborhoods often have higher costs (for example salaries and maintenance costs) due to their location, so funding needs to be higher in order to account for this [12]. Therefore, comparing the best and worst funded districts in each state is not a comprehensive measure of the overall disparity in funding for schools in each state.

Analyzing the distribution of per student expenditure in each district in the US adjusted for cost of living shown below allows us to see a more comprehensive picture of how public school budgets vary across the country. While the figure below includes non-governmental funding while the ones above don’t, it may still be useful to make the comparison between the two. Noticeable features of the figure below include the large right skew, and the spike in the number of districts in the >$40,000 bracket. It is important to note that this measures spending after the inclusion of federal funds. The previous figure suggested that federal funds in some sense evened the playing field, but this illustrates the large differences in spending across the US.

(Image: What Districts Spend Across the U.S. Source: NPR)

(Image: What Districts Spend Across the U.S. Source: NPR)

With this in mind, we can infer that adjusting for the number of students and cost of living exposes the true differences in the resources available to the poorer communities as opposed to the richer ones. It is likely that the inequalities are higher than estimated in the first figure, and that federal funds may not have as significant an effect in equalizing disparities between poor and rich districts. This may undermine the significance of federal funding within the broader context of financial disparities between districts.

Policy Reform

Consequently, in order to solve the funding dilemma, various possible steps can be taken, focusing on either increasing the scale of federal funding, or re-directing sources of finance that primarily benefit the wealthy.

Scaling federal funding is a difficult approach. As mentioned earlier, per child spending under Title I needs to increase by an estimated 5 to 8 times [7] in order to have a significant effect on the quality of education provided to students. However, such a policy is relatively unrealistic as it would require either a considerable increase in debt, an increase in federal taxation, or a significant decrease in expenditure on other initiatives. Simply increasing Title I spending without increasing revenues is difficult to justify, since the CBO is already projecting the deficit will grow to 5% of GDP over the next 10 years. That said, a tax hike to support increased education spending isn’t likely in the near future either, since conservatives in Congress rarely support tax increases of any kind, and believe education should be the purview of state governments. Reallocating spending from other initiatives is the most promising method of increasing Title I spending, but liberals and conservatives agreeing on which programs should be defunded is highly unlikely in the current political climate.

(Image: How School Principals Report Spending Title I Funds, By School Poverty and Location Sourc...

(Image: How School Principals Report Spending Title I Funds, By School Poverty and Location Source: Brookings Institute)

An alternative to increasing expenditure is to increase the quality of expenditure. As outlined earlier, a significant portion of Title I spending is on initiatives that don’t necessarily yield better educational outcomes For example, principals from 92% of schools in the high-poverty >75% bracket have stated that they spend federal funds on professional development, which the Brookings Institute has found to often prove ineffective [7]. Schools could instead provide expenditure outlines that are analyzed and authorized at a local or state level in order to ensure that funds are not wasted on ineffective initiatives. By doing so, the amount of federal funding would not necessarily have to increase as significantly since the impact of spending on the quality of education would be higher.

However, even if federal funding increases, financing inequities would not change drastically, as the majority of variability in finances arises from non-federal sources. A commonly cited source of inequality is local taxes, and specifically, property taxes. In most states in the US, local property taxes are collected and allocated to public schools based on how much each district contributed [10]. As a result, wealthy areas with high property prices have better-funded public schools. This seems to be counterintuitive since the poorer districts often need the money to improve facilities and cater to more students. One study suggests that property taxes contribute to about 80% of the variability in local funding, and by extension, much of the inequality between districts in funding from local sources [13].

A possible solution is to implement a progressive funding system in which property value and school funding vary inversely. The property taxes of richer districts can fund the poorer ones and vice versa, thereby equalizing disparities. However, property tax revenue accounts for approximately 30% of a school’s budget, and schools in wealthier districts may have, as aforementioned, higher operating costs, which may not be manageable if their budgets decreased significantly. Additionally, it would be difficult to garner support for such a law. Effective policy solutions should increase the available funds to poorer districts without bringing the funds of wealthier districts down to an unmanageable level.

A compromise could be to apportion a percentage of property taxes in richer communities to poorer ones. For example, 10-15% of property tax revenues from richer communities could be designated to poorer districts. The taxes can be collected at a state rather than local level, and allocated depending on poverty rates, similar to how Title I funds are distributed. This would mean that rich localities are not the only beneficiaries of the property taxes, and funding would be more evenly spread. Additionally, the tax rate would not necessarily have to increase if the stated percentage does not infringe on the basic ability of schools with higher costs to function. However, a drawback and possible source of backlash with this method is that property taxes currently directly fund schools in each locality. By pushing property taxes to a state level, it is much harder to determine where exactly the taxes are going, and people may feel like their money is not contributing to their children’s education.


What is clear in this discussion is that the role of the federal government in regulating and funding public schools needs to change as the current system of leaving regulation and funding primarily to local and state governments appears to be susceptible to inequality. An improvement on the current system may be to grant the federal government more oversight over education regulation and the local and state taxation system, while allowing local and state governments to dictate details and implementation of regulations to better suit local needs. For example, the federal government could impose changes to state tax distribution laws in order to account for factors such as ‘student need’ and ‘revenue-raising capacity’, which could potentially equalize the distribution of funds [13]. Alternatively, the federal government could target increasing the effectiveness of school initiatives. For example, state education boards can be put under heavier scrutiny to ensure that standards are being met in terms of servicing schools and assessing their planned fund usage. Nationally aggregated data on the effectiveness on various uses can consolidate and guide schools in their spending decisions. 

That being said, while there is a plethora of possible solutions that, in theory, can solve the problem, it is very difficult to predict whether they will get political support, equalize funding or uniformly improve the quality of education. Regardless, steps must be taken to address these financing inequities and strengthen a system that is arguably the most important in enabling the American Dream’s philosophy of social mobility.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


  [1] Riddle, W. Craig, and Xueda Song. “The Impact of Education on Unemployment Incidence and Re-employment Success: Evidence from the U.S. Labour Market.” Canadian Labour Market and Skills Researcher Network, Working Paper No. 80, July 2011. http://www.clsrn.econ.ubc.ca/workingpapers/CLSRN%20Working%20Paper%20no.%2080%20-%20Riddell%20and%20Song.pdf

  [2] Barro, Robert J. “Education and Economic Growth.” OECD. http://www.oecd.org/innovation/research/1825455.pdf

  [3] Lochner, Lance, and Enrico Moretti. “The Effect of Education on Crime: Evidence from Prison Inmates, Arrests, and Self-Reports.” Econometric Laboratory, UC Berkeley, October 2003. http://eml.berkeley.edu/~moretti/lm46.pdf 

  [4] Anderson, Tashweka M, et al. “What are the effects of education on health?” OECD, 2006. https://www1.oecd.org/edu/innovation-education/37425753.pdf

  [5] Desjardins, Richard, et al. “Measuring the Effects of Education on Health and Civic Engagement.” OCED, 2006. https://www.oecd.org/edu/innovation-education/37437718.pdf  

  [6] Baker, Bruce D. “Does Money Matter in Education?” Albert Shanker Institute, 2016. http://www.shankerinstitute.org/resource/does-money-matter-second-edition

  [7] Dynarski, Mark, and Kristen Kainz. “Why federal spending on disadvantaged students (Title I) doesn’t work.” Brookings Institute, 20 November 2015. https://www.brookings.edu/research/why-federal-spending-on-disadvantaged-students-title-i-doesnt-work/

  [8] “The Federal Role in Education.” U.S. Department of Education, 25 May 2017. https://www2.ed.gov/about/overview/fed/role.html

  [9] Kenyon, Daphne A. “The Property Tax School Funding Dilemma.” Lincoln Institute of Land Policy, 2007. https://www.lincolninst.edu/sites/default/files/pubfiles/the-property-tax-school-funding-dilemma-full_0.pdf

  [10] McCann, Claire. “School Finance.” New America Ed Central. http://www.edcentral.org/edcyclopedia/school-finance/

  [11] Brown, Emma. “In 23 states, richer school districts get more local funding than poorer districts.” Washington Post: Washington D.C., 12 March 2015. https://www.washingtonpost.com/news/local/wp/2015/03/12/in-23-states-richer-school-districts-get-more-local-funding-than-poorer-districts/?utm_term=.c9347a909a42

  [12] Watson, Krista. “Why Schools in Rich Areas Get More Funding Than Poor Areas.” Global Citizen, 3 August 2016. https://www.globalcitizen.org/en/content/cost-of-education-in-us/

  [13] Corcoran, Sean P., and Bruce D. Baker. “The Stealth Inequities of School Funding.” Center for American Progress, September 2012. https://www.americanprogress.org/wp-content/uploads/2012/09/StealthInequities.pdf


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