Trends in Educational Funding - Public Schools: Where Does The Money Come From?

The chart shows the three major sources of general revenue for the nation's more than 14,000 public elementary and secondary school districts: Federal, state, and local governments. According to the National Center for Education Statistics, expenditures for education rose from $213.4 billion in 1985-86 to $311.6 billion in 1998-99, a 46% increase (constant 1999-2000 dollars).

The share of revenue that comes from the federal government, practically non-existent before the 1970s, hovered near 7% throughout the 1990s. Title I is the largest federal program for elementary/secondary education; it helps disadvantaged children. Federal spending on education between 1965-2000 approached $200 billion.³

State and local funds account for 93% of education expenditures. These governments spend more money on public education than on any other item. According to Public Administration Review, the trend has been for states to assume more control of education funding (from an average of 41% in 1960 to 50% in 1992). The major sources of state funds are sales and income taxes (personal and corporate). At the local level, property taxes are the revenue source of choice.

There are regional differences in the way revenue is generated (whether more comes from state or local sources), as the table below shows. The only significant increases in local funding were in the West between 1991-92 and 1994-95, largely because the California state budget permanently transferred $3.6 billion of local property tax revenues to schools from other local entities. The only significant decreases in local funding occurred in the Midwest between 1993-94 and 1994-95. This was largely due to events in Michigan, a subject we shall discuss later in this chapter (see "Litigating School Funding").

Percentage Distribution of Education Revenues by Region: 1991-92 to 1996-97

Region	1991-92	1992-93	1993-94	1994-95	1995-96	1996-97
			Local sources
Northeast	55.4	55.8	56.3	56.3	56.3	56.5
Midwest	56.2	55.5	55.0	48.3	47.6	47.4
South	43.8	43.7	43.5	43.9	43.4	43.4
West	32.0	33.4	36.1	36.6	35.6	33.9
			State sources
Northeast	39.5	38.8	38.4	39.0	38.7	38.6
Midwest	37.9	38.5	39.0	45.8	46.7	46.8
South	48.5	48.0	48.0	48.1	49.0	48.9
West	60.7	59.0	55.7	54.9	56.3	58.4

States' ability to fund education varies. Richer states can provide more funding. At least 45 states rely heavily on sales taxes to fund education. When sales tax revenues go down, school funding can suffer. This reality is behind the current trend to push for collection of sales taxes from online purchases of merchandise. The National Education Association estimates the revenue losses to states from online purchases could be as much as $45.2 billion by 2006.

Historically, local property taxes have been the major source of education revenue. Declining cities with less wealth and a smaller tax base now tend to rely on high income taxes to fund education. Wealthy communities raise more money from property taxes. Only state legislatures can fix the inequity, and they have usually done so only after being ordered to by state courts. (See "Litigating School Funding Equity," later in this chapter.)

Other sources of revenue are PTAs, booster clubs, state lotteries, school-business partnerships (businesses supply the vending machines that make our children obese), tobacco settlement money,⁴ and one of the hottest trends, Local Education Foundations. LEFs are non-profit groups that raise funds from private sources to benefit local public schools. They took off in the late 1980s in California. In 1992, California LEFs raised $28.9 million, compared to PTAs at $27.7 million and booster clubs at $19.3 million.

Sources: Chart: U.S. Bureau of the Census. Statistical Abstract of the United States: 2001, Table 241. Online. Available: http://www.census.gov/govs/www/school.html. Table: NCES, The Condition of Education 2000, Table 63-1, Online. Available: http://nces.ed.gov. May 2, 2002. National Education Association, "Public Education Embroiled in a Taxing Situation," Online. Available: www.nea.org/neatoday. May 1, 2002. "Study Results on Local Education Foundations," Online. Available: www.rand.org/publications/MR/MR1429/MR1429.appd.pdf. May 6, 2002. Johnston, Jocelyn M. and William Duncombe, "Balancing Conflicting Policy Objectives: the Case of School Finance Reform. Public Administration Review (March/April 1998) v58. n2. p145, page 1.