Public Education - Finances

The expenditure of public funds for K–12 education has a long tradition in the United States. While the United States Constitution does not make any federal provisions for public education, every state’s constitution guarantees some level of free public schooling for its citizens. Each state governs its own public education system and decides how to pay for it.

The amount of money spent on schools is certainly a factor in the quality of the education students receive. Of even greater importance is the way funds are spent. To understand school finance, then, it is important to know how much money is available, how it is spent, and who controls those decisions.

Where the money comes from

Although courts were called upon as early as 1819, in Massachusetts, to decide education finance litigations, the modern era of school funding cases began with decisions in California in 1971 and in New Jersey and the U.S. Supreme Court in 1973. An attempt to rely on federal equal protection for funding equity, in Rodriguez v. San Antonio, led to the 1973 Supreme Court decision which concluded that education is not a fundamental right under the federal constitution.

The Rodriguez plaintiffs took their case to the Texas state courts and won. Since Rodriguez, plaintiffs across the country have sought relief primarily in state courts, under state constitutional education clauses or equal protection clauses.

In state courts, equal protection ("equity") claims were common in the 1970s and 1980s, but defendants won about two-thirds of those cases, including suits in Colorado and Georgia. However, significant plaintiff victories were realized during this period in Connecticut, Washington, and West Virginia. Since 1989, plaintiffs have won about two-thirds of the school funding decisions (19 of 29), including landmark cases in Kentucky and Montana. Many of these victories resulted, in part, from a shift in legal strategy away from "equity" claims to claims emphasizing the right to an "adequate" education, which also led courts in several states, such as Idaho and South Carolina, to reverse or distinguish earlier cases in which defendants had prevailed.

As a result, school finance systems today look dramatically different from state to state. The general trend has been toward a larger portion of state funding and control, but the proportions and funding structures vary. Illinois and New Jersey, as well as many other states, depend somewhat on state funds but still rely most heavily on local property taxes. A few states, most notably California and Michigan, have state-controlled school finance systems. Hawaii is unique in that it has one statewide school district.

Although its contribution has been increasing, the federal government provides less than 10% of funding for public education nationwide. Nearly all of it is earmarked to support specific programs or to help certain categories of students, primarily those who are poor or require special education.

How the money is used: Decisions about expenditures

What the money is used for and who decides how to spend it is the other half of the picture. The federal government, state governments, school districts, and schools all have some decision-making role, again with substantial variation from place to place. Policy makers and educators must balance the need for equity and standardization against the need to tailor services and instruction to unique local circumstances.

The largest expense in every school system is salaries and benefits, particularly to pay for teachers. Instructional materials, utility costs, and building maintenance are among the other types of expenditures.

California’s school finance system: The basics

California’s current school finance system evolved through a combination of various court decisions, legislative actions, voter-approved initiatives, and government regulations. The result is a system in which school revenues are controlled at the state level.

Each year, the California Legislature and governor determine how much state and property tax funding will go to public education. The provisions of a 1988 voter-approved constitutional amendment, Proposition 98, set the minimum level of funding. State leaders are free to spend above this amount if they choose. They also can—and do—use their power over the state budget to influence educational change by creating categorical programs that prescribe how school districts spend some of the funds allocated to them. Both the state and federal governments earmark a large portion of school funding for specific purposes or to serve specific groups of students. These programs represent a sizable part of a school district’s budget and can have a major effect on local expenditure decisions.

School districts are responsible for managing the money they receive within both state and federal guidelines. In turn, the policies, employee union agreements, and practices of the local school district determine the amount of financial and operating discretion an individual school has.

This San Francisco Chronicle article explains where property taxes go and their impact financing schools.

The schedule for state budget actions

Early in January each year the state budget process starts with the California's governor presentation of his budget proposal. This includes recommendations for funding ongoing operations and new programs for the upcoming school year. Throughout the spring the governor and Legislature work on refining these and other proposals for education, and developing a specific budget. Few decisions are made, however, until after the "May revise," an annual gubernatorial adjustment of the budget proposal based on the state’s revised economic projections and April income tax returns. A final state budget is due at the end of June. At this point, local school districts get the first official information about how much they will have for running their schools in the fiscal year that starts July 1. After the official budget adoption, the Legislature and governor continue to debate and pass additional laws, some related to implementing the budget, until about mid-October. Some of these laws will not be implemented until the following school year.

Special Education funding

Special Education remains a large portion of the education budget. Federal and state Special Education laws require that all students with disabilities receive a free and appropriate public education in the least restrictive environment. About 11% of California’s public school students qualify for Special Education services. The funding comes from both state and federal government programs and from local school districts. School districts receive funds based, for the most part, on their total student enrollment. They may receive some extra funding to serve the needs of individual students with disabilities that require particularly expensive services. Both the funding and services are administered through Special Education Local Planning Areas (SELPAs), which operate somewhat separately from the regular school district.

For many years, local school district officials have complained that state requirements for Special Education exceeded federal regulations and the funding provided. A lawsuit settled in 2000 agreed with this and called for the state to reimburse districts for these extra "mandated costs." Concurrently, the federal government announced a substantial increase in its support of Special Education. Local school districts should find some easing in their budgets as a result of these actions, although the impact may vary from place to place.

The construction and upkeep of school facilities

School districts throughout California are in need of funds to expand, maintain, and modernize their facilities. The office of Public School Construction estimates that more than 46,000 new classrooms will be needed in the next few years, and the Legislative Analyst's Office estimates that the additional need for renovated or modernized schools could cost $20 billion. The potential sources for this funding include state bond measures, local general obligation bonds, and various other local sources such as parcel taxes and fees on new development.

In recent years, the facilities problem has received substantial attention from state leaders and California citizens. In November 2000, California voters made it easier for school districts to pass local general obligation bonds. The passage of Proposition 39 lowered the required threshold for local voter approval from two-thirds to a 55% super majority (but only if specific accountability provisions were included). This chart shows the effect of Proposition 39 on the passage of local general obligation bonds.

Since 1998, school districts have been allowed to establish School Facility Improvement Districts (SFIDs) in which property taxes for a portion of the district are raised to service debt incurred from the sale of general obligation bonds. A law passed in July 2001 (SB1129, O’Connell) changed the voter approval minimum for SFIDs from two-thirds to 55% (and required Proposition 39’s accountability provisions).

Questions & Issues

The nationwide call for higher standards for school and student performance has fiscal implications. Many argue that there is a need for reciprocal accountability; that is, higher standards must be matched with the resources schools and students need in order to meet these higher expectations. They say it is unjust to hold schools and students accountable for meeting higher standards if they do not have access to the necessary resources. In many states, this realization is leading to a fundamental shift in the way courts, researchers, state policy makers, and educators think about school finance. Currently, the common approach to school funding is to determine how much money is available and then decide how to spend it. Increasingly though, the emphasis is on funding adequacy—that is, defining the educational goals of the system and then determining the level of resources schools need in order to meet those goals. Courts have required many states—including Wyoming, Ohio, New Hampshire and Montana—to completely redesign their school funding systems based on this concept. In Oregon and Maryland, for example, policy makers are redesigning their school finance systems toward adequacy without mandates from their state courts.

The adequacy approach attempts to answer two very complex questions: how much money would be enough and where would it best be spent? As this work progresses, experts are addressing multiple issues:

• What level of achievement is expected from students?
• What are the most important components for an effective education system?
• What is needed to give students equal access to educational opportunity?
• How do local differences affect the level of resources needed and the way resources should be used?
• What can be done to make the system more efficient and more effective?

Funding levels a continuing issue in California

In California the question of funding adequacy consistently underlies other discussions about educational improvement.

From the 1970s to the late 1990s, per-pupil expenditures in California lost ground compared to the national average. That fact, combined with the high cost of living in California, has meant that the state’s public schools have had less money to work with than the majority of their counterparts, particularly in the nation’s other industrial states.

The issue of how much money schools need is also a subject before the courts in California. In 2000, the ACLU filed a court case (Williams et al vs. State of California et al) charging that the state has not met its obligation to provide all students with "basic educational necessities." In response, Gov. Davis and the state filed suit against local school districts named in the ACLU lawsuit charging that it was their responsibility rather than the state’s to make sure that these necessities are provided. These suits could eventually have a substantial impact on how schools are funded in California and how (and by whom) expenditure decisions are made (July 2004 Update).

From 1996 to 2001, California steadily increased its spending on schools. However, the portion of funds earmarked by state leaders for specific programs also increased. Much discussion focused on the extent to which spending decisions should be made at the state versus local level. Some charge that the state’s earmarking and one-size-fits-all approach ties the hands of educators trying to address unique local circumstances. Conversely, others are most concerned about poor local management and the state making sure that taxpayers get specific results for the education funds provided.

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Last modified: January 12, 2004

Disclaimer: This website is the sole responsibility of Mike McMahon. It does not represent any official opinions, statement of facts or positions of the Alameda Unified School District. Its sole purpose is to disseminate information to interested individuals in the Alameda community.