December 6, 2022

Balancing Act: How States Can Address Local Wealth Inequity in Education Finance

By Indira Dammu | Bonnie O’Keefe | Jennifer O’Neal Schiess

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Over 90% of funds for K-12 public schools in the United States come from state and local funding sources, including property taxes. But this funding isn’t distributed equitably: wealthy communities are usually able to generate more revenue for their schools than less wealthy communities, because of this reliance on property taxes. As a result, students can’t access the same educational opportunities and resources from district to district, undermining the fundamental promise of public education.

But even within the constraints of an inequitable, property tax-centric system, there are state policy solutions that can help close school funding gaps between wealthy and less wealthy communities.

Balancing Act: How States Can Address Local Wealth Inequity in Education Finance outlines three broad approaches that states can use to allocate state and local revenue, as well as examples from states that have enacted these policies:

  • Accurately calculating and incorporating measures of local wealth into funding formulas
    • Strategy: Local fiscal capacity measure
  • Allocating additional funding to less wealthy districts
    • Strategies: Equalization funds or compensatory funds; Sharing excess local revenue with less wealthy districts
  • Exerting state control over property tax policy
    • Strategies: Statewide property tax; Cap on local property taxes

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