Category: Education

Executive Summary

Education is one of the most important spheres of human life. Also, in conditions of globalization and global economic competition, education, when properly and effectively maintained, can become a significant competitive advantage. Indeed, the recent Global Competitiveness Report (GCR) shows that global competitiveness is increasingly driven by education. Schwab explains that elementary education enhances the efficiency of each individual worker. Thus, the GCR demonstrates that Asian Tigers (Singapore, Hong Kong, China, and the South Korea) and Japan increasingly become globally competitive. This trend to a certain extent is attributable to their efforts in education policies.  Therefore, one should not underestimate the role of education in the country’s sustainable development. Currently, many commentators point out that the United States gradually looses its competitive age against many European and Asian countries, as far as education is concerned.

One of the factors that contribute to effective education, e.g. education that satisfies modern economic, social and cultural demands, is sufficient and fair funding. Here, under fair funding I mean a fair distribution of finances to districts. To specify, fair funding is an allocation of educational expenditure based on public criteria and students’ needs. The reliance of public school on money raised through property taxation hinders fair funding. Indeed, some districts are inhabited by high-income individuals, who pay a greater amount of taxes on their expensive properties. Therefore, in these districts public schools enjoy much better financing than in less fortunate ones. By contrast, in poor districts public schools experience serious problems with finances because the property tax money is insignificant. However, in both cases, we are talking about public schools. The word “public” suggests that there should be an equal treatment. Indeed, when it comes to public serves every taxpayer can expect that he or she will be treated in the same way as other taxpayers.

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To establish the fairness of public school funding, the first step, which is necessary, is eliminating the reliance on property taxes. The termination or, at least, reduction of property tax funding should be compensated by increased state or federal funding. It is true that such switch may complicate the administration process: it up to Congress to appropriate funds for public education and it is up to the Department of Education to supply the funds. At the local level, there is a greater flexibility, as far as the fund appropriation and allocation is concerned. At the same time, the cost of administration of funds can be compensated by future benefits of fair funding which are a better education and thus, more competitive economy and overall welfare.

Education Funding

Education funding is maintained at all governmental levels: federal, state and local. However, the degree, to which these governmental levels contribute to education, differs dramatically. For instance, for the fiscal year of 2009 the share of federal funding constituted only 10 per cent of the overall elementary and secondary education funding (Federal Education Budget Project). State governments make more significant contributions: in 2009 it amounted to 47 per cent of the overall elementary and secondary education funding (Federal Education Budget Project). Finally, the contribution made by local governments equaled to 44 percent of the overall elementary and secondary education funding in 2009 (Federal Education Budget Project). Thus, one may observe that federal participation in school funding can be described as extremely modest.

To a large extent, federal funding has a discretionary character. In other words, every year Congress decides on the appropriation of funds for educational needs (Federal Education Budget Project). As a rule, funds are supplied through the Department of Education (Federal Education Budget Project). However, some other federal agencies, such as the Department of Labor, the Department of Defense, the Department of Agriculture, the Department of Health and Human Services, may administer funding of education-related matters.

State funding mainly relies on sales and income tax money. The rules and procedures of distribution vary from state to state. In general, the funds are distributed on the formulas that are based on number of pupils in the district (Federal Education Budget Project). Some formulas take into account such factors as the number of students with disabilities, the number of students, for whom English is not a first language, and the number of students living in poverty (Federal Education Budget Project). The share of state funding of elementary and secondary education also varies from state to state. For instance, in some states the share of funding reaches 86 percent of the overall funding, while in the other the share constitutes only 31 percent (Federal Education Budget Project).

The main source of local funding is property tax money. Local governments correct property taxes and transfer the money to local school districts. Naturally, property-rich and wealthier districts provide greater amounts of property taxes, and thus, schools in such districts enjoy a good-level funding. The poorer districts have problems with financing public schools from the property tax money because the cost of property in such communities is much lower, and thus, taxes are also lower. However, even raise in taxes is not able to solve the problem of insufficient funding of public schools in poorer communities. At the end of the day, this means that children living in poorer communities are significantly disadvantaged: they often have less qualified teachers and should use substandard facilities (Federal Education Budget Project). Therefore, one may observe that heavy reliance on property taxes causes unfair funding. It is true that in some districts cost of living is higher than in others, and thus, property taxes a higher. High cost of living suggests that children in such district do not necessarily obtain better education in terms of quality. When one refers to fairness and equality, he or she should not imply an absolute equality of funding. The fairness and equality of funding should correlate with such factors as cost of living and number of students in a school district.  

Unfair funding can be described as disproportionate unequal funding of schools. Many commentators agree that disproportion and unequal funding are unfair. For instance, Kelly (397-398) points out: “The inadequate education that poor students receive perpetuates and exacerbates their disadvantaged status”. Some politicians also acknowledge the problem. For instance, Tom Bakk, one of the key state lawmakers in Minnesota, referring to the property tax use, said: “It's an unfair way to fund schools” (Pugmire).

The unfairness of school funding is confirmed by empirical studies. Thus, a National Card Report, recently issued by the EducationLawCenter reveals that school funding practices are unfair in all states. For instance, there is a huge gap between the funding received by a Wyoming student and by a Tennessee student. To specify, in 2009 aWyoming student received approximately $19,520 of funding, while a Tennessee one could enjoy only $7,306 of funding (Baker et al). The report also demonstrates that distribution of funding is also unfair. In particular, it finds that in 2009 the majority of states did not adequately address changes in the student poverty rates in funding. In other words, many states did not sufficiently adjust funding so as to reflect changes in poverty rates. Some states, such as North Dakota, North Carolina, New Hampshire, Illinois and Nevada, failed to do so (Baker et al).

In a word, one may observe that one of the problems of the U.S. education system is unfair funding. One of the factors contributing to unfair funding is the heavy reliance of district schools on money raised via property taxes. The property tax revenue may differ dramatically from district to district. In the result, schools in wealthier districts enjoy better funding, while schools in disadvantaged communities suffer from underfunding. Clearly, that for the sake of equal opportunities, which the United States are often praised for, the situation with unfair funding of public schools should be changed.


It is clear that reliance on property taxes creates unfair funding. Therefore, in order to achieve fairer funding, it is necessary if not to eliminate but at least reduce the reliance. Reduction of the reliance would inevitably create a huge gap in funding. This gap would need to be fulfilled. Here we come with two major options. As it has been stated earlier, there are three main sources of financing: federal government, state government and local government. Diminishing the reliance on property taxes implies that funding provided by local governments would be reduced. Thus, the gap can be fulfilled from finances taken whether from federal government or state government. Let us consider these two options.

As it has been pointed out earlier, the federal government is a minor contributor to the public school funding. Modest contributions of the federal government can be explained by the fact that the U.S. Constitution, which sets forth fundamental principles of governance in this country, does not recognize that public education is a federal matter. For this reason, public education is largely left to states. The philosophy is following: since states are responsible for maintenance of public education, they should bear respective costs.

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However, in recent years there were certain shifts in the understanding of a principle that public education is not a federal matter. Such shift can be seen in various legislative initiatives. For example, in 2011 Congress enacted the No Child Left Behind Act which sets forth a standard-based education policy.  This law requires states to implement standard-based assessment in reading, math and sciences. Also, the states are required to develop adequate yearly progress standards to measure the progress or regress of pupils. One may observe that to a certain extent the Act harmonizes educational policies across the states. Moreover, because the law requires the nationwide standardization, it can be seen a step towards establishing more or less common educational standards. The fact that this law has been passed by Congress demonstrates that the federal government has its interest in public education.

Also, while the Constitution does not explicitly grants federal government with the authority to maintain public education, it still has a fundamental interest in providing equal protection and equal opportunity to all children. Therefore, in order to ensure equal opportunities in education, the federal government may intervene in matters of public education. This claim, together with evident trend of growing federal intervention in the public education matters, can serve as a philosophy for beginning of the extended federal funding of public schools. In a word, there is strong and valid justification for increased federal funding.

It is reasonable to assume that the opponents of increased federal funding of public schools will invoke a range of arguments. For instance, it is quite predictable that they will say that federal budget suffers from a huge deficit and increase expenses would be simply unwise. In response to such arguments, one may answer that federal funds are always scarce. It is a matter of priorities which programs are should be funded first. Education should be one of the top priorities, as far as funding is concerned, because without effective education the United States will soon lose its leading position in the world economy. In simple terms, increased federal funding for public education should be seen as a long-term investment, which will bring appreciable benefits in the future.

At the same time, it is true that increase of federal funding may appear complicated as far as administration of funds is concerned. This assumption is logical because the increase of federal funding implies that public school financing will be more centralized. Centralization is almost always associated with an increased bureaucracy because decisions are made in the center. The center in its turn is often slower in decision-making compared to state and local institutions. This is so because the center is bound by numerous regulations and the decisions taken should comply with them. It takes time to check the validity of a decision against existing rules and regulations. All this slows down the process of administration. However, in the era of amazing technologies even bureaucratic decision-making becomes easier. Decision-making often involves communication. Due to the Internet and the variety of mobile devices prompt and constant communication became a reality. Another organizational moment connected with funding involves a fund transfer. Again, existing systems of money transfers allow faster movement of funds. In simple terms, it should not be a problem for the Department of Education to transfer funds to numerous districts. In a word, one may observe that even concerns about bureaucracy, when addressed with efficiency-based approach, may not become a big problem. There are also arguments that federal funding requires significant administrative expenditures. Again, it is a matter of efficient management to make administration of funds less costly.

In addition, one may argue that increased federal funding is not necessarily capable of ending the unfair funding because it may happen that in the end of the day schools in wealthier districts with high cost of living will obtain the same amount of money as schools in poorer ones. Indeed, this would also an unfair situation since higher cost of living implies higher expenditures. In other words, expenditures in wealthier districts are greater than in poorer ones. Therefore, by definition, wealthier district require greater funding per pupil. At the same time, it is possible to build federal funding in a manner, which addresses the issue of different cost of living. In particular, federal funding system could take into account the cost of living factor in calculating per student financing.

Another option to fill the gap created by the reduction of reliance on property taxes is the increase in state funding. On the one hand such an approach would be more justifiable by existing traditions of governance. Indeed, as it has been mentioned earlier, historically, public education is regarded as a state matter rather than a federal one. Therefore, one may argue that it is more logical if states would increase funding of public education. However, there are two strong counterarguments to this position. First, states have already borne significant expenses on public education. To recall, in general, across the country states contribute 47 per cent of the overall the overall elementary and secondary education funding. To increase this figure would mean overburden states. Moreover, increase of state funding would likely result in rise of sales and income taxes, which constitute the main source of state public education funding. Of course, one may argue that an increase of federal funding may also result in the raising of federal taxes. It may be true. However, one should remember that the impact of such raise would be different. It is so because not all Americans have to pay federal taxes. The more or less universal federal tax is a payroll tax: in 2009 approximately 83 percent of American households paid payroll taxes (Ungar). At the same time, increase in state sales and income taxes will affect every American. In a word, raise in state taxes would affect Americans more than raise in federal taxes.

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The second counterargument is that increased state funding is less effective in addressing unfair funding. The economic positions of states differ dramatically. Thus, as far as median household income is concerned, Maryland is the richest state, while Mississippi is the poorest one (US Census Bureau). Therefore, one may reasonably assume that a Maryland pupil would enjoy much greater funding than a Mississippi one. Potentially, a Maryland pupil will have better teachers and better facilities for education. Overall, a Maryland pupil will have more opportunities than a Mississippi one. In a word, one may observe that increase in state funding does not eliminate the problem of unfair funding.


The presented discussion demonstrates that a more effective solution to fill the gap which will emerge after the reduction of reliance on property taxes is an increase in federal funding of public education. This policy can be justified by the fact that the federal government has an interest in public education. Otherwise, it would not pass laws requiring standardization of education in all states. Also, the federal government has an interest in public education because it is a matter of U.S. competitiveness on a global scale. As it is well-established, all foreign affairs belong to federal domain. Finally, the federal government has an interest in public education because it is authorized to provide equal opportunities for all children residing in the United States. Another justification for increased federal funding is that it is more effective in establishing equal opportunities for education. State funding relies on income and sales taxes. Therefore, it heavily depends on state incomes of households. At the end of the day it means that children in wealthier states will have an advantage before children in poorer states. Moreover, states have been already overburdened by funding public education. Considering all this, it seems that the increase in federal funding would be a better option.

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