What’s the recipe for funding school districts?

Most school districts receive funding from three primary sources:

1. Local Property Taxes – The largest revenue source for many districts, but one that creates disparities. Wealthier communities generate more funding, leading to inequities between districts.
2. State Aid – Intended to equalize funding across districts, often through formulas based on student enrollment, local tax capacity, or student needs.
3. Federal Aid – A smaller portion, typically targeted at specific programs like Title I (for low-income students) or IDEA (special education). Federal aid can also pass through the state level, in which case a district will likely report those funds as state aid. 

Beyond these core revenue sources, school districts may receive additional funding from sources like:

• Grants (federal, state, or private foundations)
• School lunch programs, athletic events, and fees
• Private donations and fundraising
• Revenue from investments or endowments (less common, but relevant for some larger districts).

The composition of these funding sources varies not just by district, but by state-level governance and policies, which play a major role in determining how dollars flow to schools.

Different Models for Disbursing Education Funds

While most states rely on local school districts to administer education funding, some have nontraditional models where state, county, or municipal governments play a more direct role. States approach school funding in different ways—not just in how they raise revenue, but in how they allocate it. Some states use unique funding models, while others have nontraditional governance structures that shape how funds are distributed.

     Group 1; unique funding model states

• Oregon: Uses a mix of school districts, education service districts (ESDs), and community college districts, each with distinct funding structures.
• Texas: Uses the “Robin Hood” recapture system, requiring wealthy districts to share property tax revenue with poorer districts to balance resources.
• Vermont: Redistributes property tax revenue at the state level to reduce disparities.
  Group 2; unique organization of government units states
  
• Hawaii: The only state with a single, statewide school district funded entirely by the state government. This model eliminates local property tax disparities but creates different challenges in centralized decision-making.
• Tennessee: Recently shifted to the TISA funding model, a weighted, student-based formula that allocates additional funding to students with higher needs.
• North Carolina: North Carolina’s school districts are uniquely structured as administrative units of county governments, meaning funding and governance are closely integrated with county budgets rather than operating as independent entities.

This variation across states demonstrates that understanding school district funding isn’t just about revenue sources—it’s also about the mechanisms that allocate and disperse funds.

This contrast between North Carolina and South Carolina provides a clear example of how different governance structures shape education funding. In North Carolina, school boards function as administrative units within county governments, meaning that a significant portion of county budgets—often more than half—is dedicated to K-12 funding, covering both operations and capital projects. In contrast, South Carolina relies on traditional independent school districts, where education funding flows separately from county budgets, leading to a much smaller share of county expenditures going toward K-12 schools. The two charts below illustrate these differences, showing how county budget structures in NC are heavily weighted toward education, while SC counties allocate their resources differently, with school funding largely handled at the district level.

Where are we breaking down the data next?

Understanding school district funding requires examining not just the revenue sources but also the mechanisms that drive allocation decisions. The interaction between local, state, and federal funding streams introduces layers of complexity, often influenced by political decisions, economic conditions, and historical policy choices.

For instance, states that rely heavily on local property taxes tend to see significant disparities in per-student funding, requiring equalization formulas that vary in effectiveness. Conversely, states with more centralized funding, such as Hawaii or Vermont, often have different challenges related to state budget volatility and administrative control.

Beyond K-12 funding, many states have adopted tuition-free college initiatives, often known as Promise programs. These programs aim to increase access to higher education and workforce training by covering tuition at community colleges or state universities.

The funding models for these programs vary just as much as K-12 systems. Some rely on state general funds, others tap into lottery revenues, and some blend local, state, and federal contributions. The eligibility rules, funding stability, and long-term impacts of these programs remain areas of active policy debate.

In our next post, we’ll take a deeper dive into how states are financing these initiatives, which models appear to be the most sustainable, and what lessons K-12 education funding can take from these evolving higher education policies.