Back to School Finance

History and Background: School Finance

Photo credit: Christian Horz/Adobe Stock

Back to School Finance


The history of K-12 funding is closely aligned with the legal definition of children’s right to an equitable and adequate education, and to America’s racist history.

Up until the Civil War, funding for public schools in the few states that had them was cobbled together from taxes on liquor, theater, and state lottery systems. As the demand for an educated workforce grew, lawmakers began looking for more stable and sustainable revenue sources. While a nationally funded education system (similar to the one other Western nations have) was briefly considered in the 1800s, the idea was quickly abandoned after the financial crisis of 1837.

After the Civil War, Black lawmakers demanded that Southern states include in their constitutions a right to a free, equitable and adequate education in order to rejoin the union.

To circumvent straightforward equal funding between white and Black students, efforts emerged to “apportion the school fund according to the real estate or poll taxes paid by Blacks and whites,” according to Camille Walsh, a school finance historian at the University of Washington Bothell and the author of “Racial Taxation.” This form of taxation spread among the states and soon, most public schools were funded by local property tax. This legacy created the foundation for funding disparities between majority Black and majority white schools that continue to exist.

K-12 spending (adjusted for inflation) has more than doubled in the last half century for a variety of reasons, such as new federal and state mandates, increased student needs and colleges’ rising expectations for incoming students’ skills. This has led to a series of constitutional lawsuits, contentious school board meetings, and, according to a growing body of research, stagnated academic outcomes.

Combined federal, state and local spending more than doubled between 1950 and 1980 as schools and districts consolidated, the federal government attempted to incentivize districts with money to racially integrate and colleges raised their expectations for first-year students’ qualifications.

The most consequential shift from the federal government began in 1965, when President Lyndon B. Johnson signed into law the Elementary and Secondary Education Act, part of his so-called War on Poverty agenda. Since that time, the federal government has provided significant funding to school systems nationwide that is targeted to primarily support students from low-income families through the Title I program. Over time, many other federal programs have been adopted as well.

Meanwhile, in 1975, Congress passed and President Gerald Ford signed a federal law focused on protecting and supporting students with disabilities that is now known as the Individuals With Disabilities Education Act. That law provides billions each year for special education, though the annual amount remains well below what was promised and districts’ actual costs.

In the 1980s, low-income, rural, and majority Black and Latino school districts began filing lawsuits against state lawmakers, claiming that states perpetually underfunded their schools, failing to meet their constitutional requirements of providing an adequate and equitable education. The relative success of these lawsuits has resulted in a ballooning of state spending.

But funding today remains inequitable for a variety of reasons, such as outdated funding formulas, public hostility toward tax hikes, and new K-12 mandates.


Public school systems typically receive their funding from a combination of federal, state and local sources. Local property tax revenue is the most stable form of revenue for districts. State dollars, mostly from sales and income tax revenue, can be unstable, especially during a recession, as schools witnessed during the 2008 Great Recession.

Federal funding for K-12 education has grown substantially over time, with most of that coming from the U.S. Department of Education. Federal aid accounts, on average, for about 8% of public education dollars, though the amounts may vary significantly from district to district, depending on their poverty level and other factors.

But the bulk of districts’ money comes from state sales and income tax revenue and local property tax revenue.

Reporters have an important role to play in holding school administrators accountable for how they distribute millions of taxpayers’ dollars and in helping the general public understand how that money is being spent in order to improve academic outcomes.

Teachers have frequently complained about stagnant wages. As data on school spending becomes more readily available, school administrators have come under increasing scrutiny for their spending strategies and have been accused of wasting tax dollars.

Many advocates have accused school administrators of not being fully transparent with how they spend their money. Another concern is that many school systems fail to spend their money equitably, with schools predominantly serving communities of color often receiving fewer resources than those serving mostly white families. Likewise, a spending gap often occurs between schools serving wealthy communities and those serving low-income families.

For some school systems, receiving funding far lower than what their states deem adequate has contributed to decrepit learning environments, an unstable teaching workforce and insufficient curriculum, technology and extracurriculars.

Generally speaking, school districts spend their money on a variety of initiatives, including technology, cleaning, food and transportation services, school renovation and construction, textbooks, professional development and extracurriculars. But the bulk of spending (around 80%), and where most of your reporting will likely focus, goes toward salaries for teachers and other staff, plus health care and pension costs.

School Infrastructure

Districts usually build new schools using money collected from a bond issue, or a low-interest loan paid off over several years.

Bonds usually have to be voted on by the general public and can be highly contentious. The federal government rarely contributes money toward school construction.

More than 80% of school construction projects are funded locally, making school infrastructure one of the most inequitable corners of school finance.

Here’s a breakdown of why America’s school infrastructure is so decrepit.

To learn more about teacher compensation, see this EWA resource from our separate Topics page on teachers.