Who Pays for Public Schools?

Understanding the dollars behind education

Ask just about anyone who funds public schools, and you’re likely to hear the same answer: “Taxpayers.”  

That’s true—but not the whole story. Which taxpayers? Through which government? And how does that money actually reach classrooms? The truth is, school funding is not as straightforward as one might think.      

If we are going to talk about educational choice, we also need to understand how public schools are funded. It’s not just about where kids go to get their education, it’s also about who pays, how much, and who’s getting left with the short end of the stick.   

School funding is often determined by complex formulas that piece together local, state, and federal resources. They are regularly influenced by legislative decisions and political incentives, and are often shaped by property taxes. As school choice becomes more accessible across the country, it not only gives families more freedom and flexibility, but it also reshapes how these dollars are divided.     

School funding formulas take into account state and local income levels while also anticipating differences between districts within the state. They are designed to provide sufficient funding for school districts while also attempting to ensure equity across districts. Formulas vary from state to state, but all have the same common goal of providing the proper amount of funding to public school districts.   

Most states use foundation funding, where a formula determines a district’s “need,” assigning each student a base amount plus any additional add-ons for certain characteristics. These can include special needs, English language learners, or students from a low-income family. For example, a district might receive $8,000 per student in base funding, with additional weighted amounts such as $2,000 for special education needs or $1,500 for low-income status. These are illustrative figures. 

After determining this “need,” the state calculates how much a district can raise in local revenue (usually via local property tax), and the state fills in the rest with state aid.     

School funding doesn’t just come from one source. You can think about how districts get their funding, much like how freelance artists get paid. Just like a freelancer relies on multiple clients to support their income, a public school district also relies on multiple sources.   

Typically, school districts receive the majority of their funding from state and local sources. In the 2023 fiscal year, 45.1% of district funding came from the state, 42.0% from local sources, and just 12.9% from the federal government. Federal funding is supplemental and targeted towards populations with low-income students (Title I) and students with disabilities (Individuals with Disabilities Education Act). 

So, what does this have to do with school choice? Well, in most states, when a student participates in a private school choice program such as an ESA program, not all money “follows the student.” Typically, the state’s share of funding goes to the parents allowing them to redirect that money as they see fit. At the same time, the local and part of the federal funds often stay with the public schools.  

Many states also have hold harmless provisions which include declining enrollment protections (meant to help districts deal with enrollment losses by using previous years’ student counts for funding needs) and funding guarantees (assure that districts will receive a specified level of funding) that allow districts to keep some or all of a student’s funding for a limited time or in perpetuity. These policies are designed to help districts cushion the effects of sudden funding losses and provide time for them to make the necessary adjustments.  

While critics worry that school choice drains funds from public schools, studies and policy protections like hold-harmless provisions suggest otherwise. Public funding for choice programs represents just one percent of all taxpayer funding for public K–12 education. Additionally, educational choice programs have generated estimated net fiscal benefits for state and local taxpayers worth between $19.4 billion and $45.6 billion through the 2022 fiscal year. Not only are choice programs not draining school funds from public school districts but saving taxpayers billions at the same time.   

Understanding how public schools are funded gives us essential context for evaluating school choice programs. It’s not just about where students go; it’s about how dollars follow them, how public school systems adapt, and how policies ensure that all kids have access to the education that best fits them. While concerns about defunding public schools are valid, evidence from fiscal studies and hold-harmless policies shows that school choice programs can and have provided significant fiscal benefits for taxpayers without gutting public school budgets. With better understanding, we can ask smarter questions and build a system that works better for families and students alike.  

To learn more about how school choice programs are funded click here.  

For a more comprehensive breakdown of the fiscal effects of school choice programs, check out the Fiscal Factbook.