The Fine Print: What K-12 Funding Trends Really Tell Us

If higher-poverty schools spend more on average than other schools, does that mean K-12 funding disparities have been solved?

A new Brookings Institution report has reignited debate over resource gaps for schools serving more students in poverty or students of color, challenging “popular narratives” that these districts spend fewer dollars. Examining district-level spending data since 1976, the authors find that higher-poverty and predominantly nonwhite districts have consistently spent more per pupil than other districts, with a U-shaped pattern where the highest- and lowest-poverty districts outspend those in the middle. After adjusting for regional labor-cost differences, which are a major driver of school spending, much of that gap disappears. The authors attribute the differences between their findings and recent past analyses (e.g., EdBuild, EdTrust, Urban Institute) to differing methodological choices and research goals rather than conflicting facts, a debate authors will hash out at an EdFund virtual event on Aug. 26.

The Brookings report findings aren’t especially surprising: higher-poverty districts may be spending more on average, and that’s by design, thanks to decades of research and advocacy to support students with greater educational needs. The U-shaped pattern also makes sense when you consider that lower-poverty districts often have access to more local tax revenues, and higher-poverty districts often receive more state dollars and federal funds. States and districts with higher labor costs also tend to spend more, which explains much of the variation. New York City, the nation’s largest school district, which is also high-poverty, high-cost, and high-spending, is an illustrative outlier. Comparing its spending to a lower-poverty district elsewhere in the country in a lower-cost state can only get us so far. 

As the authors themselves note, national spending averages can’t tell us whether funding systems are adequate, equitable, or effective for the students they serve. Our own work, including published resources and advisory support, wrestles with the same methodological choices that differentiate the Brookings team’s results from other analyses. And our choices differ depending on what we’re aiming to analyze, for whom, and why.

Federal, state, or local funds?

The Brookings report looks at all sources of spending in public schools; we typically focus on state and local funds. State and local funds make up about 90% of education funding, and are the levers state policymakers can control. Federal formulas are highly restrictive and come with “supplement, not supplant” rules, so folding federal funds into a state-focused analysis is both less actionable and legally fraught. Even with the flexibilities granted in federal law and through additional waiver authority to states such as Iowa, states still control a small fraction of the federal funding that goes to schools. 

Revenues or expenditures?

Brookings looks at expenditures; we tend to focus on revenues. The numbers can look similar, but they tell us different things. Revenue shows what’s available to schools from different funding sources; expenditure shows what’s spent. Expenditure data is noisier: factors such as funding reserves, multiyear contracts, time-limited grants, and philanthropic funds can shift results. In most cases, state policy should focus on distributing revenue fairly, leaving spending decisions to local leaders closest to students and community needs.

Within-state or cross-state?

Brookings finds more variation among states than within them — unsurprising, and not especially useful for state policymakers, who are bound by their own constitutions, statutes, and revenue. Cross-state comparisons can be more useful regionally, especially among neighboring states that may share more economic similarities and compete for the same educator labor pool across state lines.

The Takeaway?

When it comes to reforming state policy, state leaders most need to understand K-12 funding and spending patterns within their own state, with regional peer benchmarks and national research for insight and context. A national view might call for more cross-state comparisons with wage- and cost-adjustments, as Brookings does in its Appendix. It’s all accurate, but it all depends on the questions about school funding you’re trying to answer, and how you want to put that information to use to improve student learning.

—Bonnie O’Keefe and Jennifer O’Neal Schiess

Don’t miss these new and upcoming resources from Bellwether’s education finance experts:

• “How Student Enrollment Declines Are Affecting Education Budgets, Explained in 10 Figures” — now updated with timely data and visualizations — and “The Hidden Geography of School Enrollment Decline,” a new analysis of regional trends, which finds that exurbs are booming, while urban, suburban, and rural schools experience declining public school enrollment. 📉
• Bellwether’s R package of tidy school finance data, edfinr, is one year old! To celebrate this milestone, we’ve updated the tool with new data from school year 2022-23 and expanded the range of variables available for researchers to analyze. 🎂🎉

The Big Picture: Trends We’re Watching

One of the biggest looming questions in the world of education finance and education choice is how the implementation of the Federal Scholarship Tax Credit, or FSTC (AKA the Education Freedom Tax Credit) will affect the education landscape for students in both public and private schools. 

With credit to our colleague Juliet Squire for her helpful overview, the FSTC was created as part of the One Big Beautiful Bill Act passed in 2025. Beginning in 2027, individual taxpayers can donate to the scholarship granting organization (SGO) of their choice and claim a federal tax credit of up to $1,700 annually in return. Those SGOs then distribute donations as educational scholarships for eligible expenses, such as private school tuition, after-school programs, school supplies, or tutoring. 

This program is likely to be big: the Urban Institute estimates 2.7-3.6 million filers will use the credit, with a total program value of $2.7-6.1 billion annually. The American Federation for Children estimates 30.9 million students are income-eligible for scholarships in the states that have opted in so far. 

That’s the national picture, but what do we know right now about how this program might affect K-12 state education finance?

• It will vary by state: States can opt in or out of participation; 30 states have opted in so far, and at least four governors have said they will opt out.
• Money won’t come from state coffers, but it may shape state choices: Because this tax credit is purely federal, it wouldn’t affect state revenues directly. But with new money available, state lawmakers might make different choices for their own school funding formulas or state-created education savings accounts and/or voucher programs. This tax credit will also reduce federal revenue, which might reshape the federal education funding landscape.
• Enrollment decline may accelerate: If available scholarships lead more families to choose options other than public schools, enrollment decline trends may accelerate, with fewer students, in turn, reducing available state funding at the district level. 
• Students in public schools might also benefit: Scholarships could support out-of-school-time programs, tutoring, school supplies, or other services. Public school districts might even be able to provide those services themselves and generate additional revenue. But that would depend (again) on the setup of SGOs in each state. Critics contend that disaggregating public school services and funding them in this complex way will be a net negative for students and schools.

Implementation needs to move quickly; many SGOs are already in startup mode, and both public and private schools are gearing up for the effects of this new policy, while long-expected federal regulations are still in process.

Bottom line: the short- and long-term effects of FSTC remain complex and unclear, but it has the potential to be far-reaching and significant.

Spotlight on States: Notable News From Statehouses

• North Carolina’s Blue Ribbon Commission on Public Education focused a recent session on teacher pay, which has not kept pace with neighboring states or with the cost of living. North Carolina’s school funding formula is also one of a handful that are highly structured around the state’s teacher pay scale.
• Missouri voters rejected a proposal to phase out the state’s income tax. Missouri is one of many states putting income tax and property tax reductions on the ballot in recent years, both of which are key sources of education revenues in most states.
• Texas is facing a new lawsuit from a school district challenging its recapture system for property taxes in excess of the school funding formula. This is one of several policy levers that Texas uses to level the playing field for districts with smaller tax bases.
• New Jersey Gov. Mikie Sherrill announced the launch of a statewide effort to overhaul its school funding policy. The effort begins with broad stakeholder engagement effort to gather input to inform potential policy reform. A steering committee led by the state’s education commissioner Lily Laux will meet throughout the fall to identify specific policy goals, guiding principles, and possible improvements.

Follow the Money: What We’re Reading

• The Education Commission of the States has an updated policy guide on funding for special education services, featuring counts of states with different policy approaches.
• A new working paper from researchers at University of California San Diego and the American Enterprise Institute finds that in lower-poverty school districts receiving federal COVID-19 relief funds, parallel cuts in property taxes meant that school expenditures did not rise even with an infusion of new federal dollars.
• The Fordham Institute looks at the effects of a recent policy to level charter-district funding in Missouri and finds that while charter schools’ per-pupil funding gap vs. school districts has shrunk substantially, state costs have also spiraled upward due to intricacies in the policy’s design and the state’s funding formula.