Pro Tips: Finance & Funding for K-12 Public Schools

A new year brings the K-12 public school budgeting process into full swing as drafts are written, reviewed, revised, and await approval in the months ahead. And stimulus bills passed to help schools navigate the pandemic and its aftermath make this process even more complex. K-12 school business leaders play a key role in communicating and executing district operations and budgeting. You are the heart of support for other district leaders in understanding public school funding, with a steady pulse on ever-shifting funding sources and related regulations.

While some school business officials come to the business office through education “ranks,” others come from the private sector and still others from the broader non-profit sector. If you are coming into the business office with a background in education, there is no guarantee you will automatically understand the full scope of public school district operations and finance. Similarly, if you are coming into the business office from the private sector, K-12 public school district funding and operations are likely more complex than private sector business. Regardless of your background or experience in business operations and finance, taking a seat in the K-12 public school business office requires an open mind and an ongoing learning mindset.

The multidimensional landscape of K-12 funding makes this terrain challenging at times to traverse, especially from state to state and even district to district. You must keep abreast of continuous changes rolled down from federal, state, and local governments as policy and priorities shift. Despite funding intricacies, you, alongside your fellow school and district leaders, need to remain laser focused on ensuring meaningful, equitable educational opportunities for all students, adding more complexity to the equation for school business leader success.

Let’s briefly review key public school funding categories alongside a few examples. While this overview is broad, it should be noted that approaches to school funding vary by state given that the Constitution grants states the responsibility for public education. The ways in which schools access funding varies from state to state and district to district, creating a system riddled with funding inequities.

Some states have worked to address funding inequities by developing formulas that help equalize the disparities. This also contributes to the state-by-state variances of funding allocations and equity. However, a basic funding principle applies: public school districts nationwide are funded through a combination of federal, state, and local sources, which are foundational, regardless of your business or education background, to recognize, understand, and monitor.

Federal Funding

Federal education funding comes primarily from three sources:

1. 1. The Every Student Succeeds Act (ESSA)
   2. The Individuals with Disabilities Education Act (IDEA)
   3. Stimulus bills passed during the COVID-19 pandemic to provide emergency relief funds for local educational agencies (LEAs)

The Every Student Succeeds Act (ESSA) 2015

ESSA rewrote the Elementary & Secondary Education Act of 1965 and replaced the No Child Left Behind Act of 2001.

Some examples of what may be funded through ESSA:

• Title I – provides money to districts to improve academic performance of students from low-income families and areas
• Title II – provides money to districts to support educator professional learning, instructional coaching, and mentoring

Individuals with Disabilities Education Act (IDEA)

The Individuals with Disabilities Education Act (IDEA), originally enacted in 1975 and amended in 1990 as IDEA, ensures children with disabilities have access to services. IDEA allows these students to receive a quality education in the public school system by providing them with the resources needed to make meaningful and appropriate progress.  IDEA outlines and governs how states provide early intervention, special education, and related services to children and youth.

However, IDEA funding does not fully cover all special education costs to K-12 public school districts. When Congress originally passed IDEA, it promised the federal government would pay 40% of special education costs. As of November 2020, that percentage was at 13%, and the highest it ever reached was 33% as a result of the economic stimulus of 2009.[1] Medicaid helps K-12 districts bridge this funding gap but covers nothing near its entirety.

*Medicaid

Since 1988, states have accessed Medicaid to help pay for health-related special education services. Each state education agency has developed its own method for public school districts to bill Medicaid and receive reimbursement for IDEA services such as speech therapy, occupational therapy, physical therapy, and others.

Typically, the federal government contribution to the public school funding equation is around 10% – sometimes greater, sometimes less, depending on extenuating circumstances such as a global pandemic or a national economic crisis.[2]

Elementary and Secondary Emergency Education Relief (ESSER) Fund

In 2020 and 2021, Congress passed three stimulus bills that provided nearly $190.5 billion to the Elementary and Secondary Emergency Education Relief (ESSER) Fund:

• The Coronavirus Aid, Relief, and Economic Security (CARES) Act
• The Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSA)
• The American Rescue Plan Act (ARP)

These funds will help schools navigate uncharted waters in the wake of the unprecedented disruption to education caused by the global pandemic. School funding allocations for each state depend on the proportion that each receives under the Elementary and Secondary Education Act (ESEA) Title-IA. A full guide on school stimulus funding by state is available here.

ESSER funds are designed to help address local relief, prevention and preparation, and recovery efforts relative to responding to COVID-19, so they are highly flexible. The supplement and not supplant requirements — which dictate that districts can only use federal grants to pay for anything they would not already provide out of their state and local budgets — do not apply to LEA/school district use of ESSER Funds. Lifting this requirement gives districts much more flexibility in how they use their funds.

State Funding 

Education represents the largest categorical expenditure for states. Typically, around 90% of funding for public schools comes from state and local sources.[3]

Education funding (public and private) varies significantly from state to state as there are different ways in which states allocate funding. For example, states rely on different revenue sources to help support public education, some of which include, but are not limited to, income taxes, sales taxes, business franchise taxes, motor vehicle taxes, tobacco and alcohol taxes, lottery proceeds, gasoline taxes, and others.

Typically, state education funding is based on per pupil counts and full-time equivalent personnel counts.

Local Funding

Each state has its own formula for how education funding is collected and allotted. Because most local revenues for education come from property taxes, the wealth of a community is often associated with school district budgets. It is not uncommon for the wealthiest district in a state to spend twice as much (or more) per pupil than the poorest district within the same state.

Inequities in public school funding are pervasive, and the complexity of school funding goes undisputed. The charge for school business leaders to understand funding sources and advocate for funding equity could be a daunting task even for the most experienced school business leader. Keeping up on the ins and outs and the ups and downs of school funding as changes emerge from federal, state, and local levels requires an ongoing learning mindset, efficient and effective business management tools, and a resourceful network!

[1] Arundel, K. (2020). IDEA turns 45: Is Congress Close to Guaranteeing Full Special Ed Funding? Retrieved from https://www.k12dive.com/news/growing-hope-for-special-education-full-funding/589543/

[2] National Center for Education Statistics (NCES). (2020). The Condition of Education: Public School Revenue Sources. Retrieved from https://nces.ed.gov/programs/coe/indicator_cma.asp

[3] Ibid.