K-12 Finance & Operations (2012)

Many education decisions—from how many students will be in each class to how long bus routes will be—are driven by one significant factor: money. This Topics section offers materials that explore the myriad decisions that affect how money for K-12 schooling is raised and spent, and how those decisions shape the way the nation’s public schools are run.

K-12 education is an expensive line item in all states’ budgets. In every state, education is one of the top two spending categories—rivaled only by Medicaid, the state-federal health care program for low-income people. In 2011, K-12 education made up 20 percent of state budgets, while Medicaid made up nearly 24 percent, according to the National Association of State Budget Officers. Such a large line item means that in tough budget times, when governors and legislatures must find a lot of money to cut to patch budget holes, K-12 education often cannot be spared.

Schools have taken a financial hit in many states since the severe economic recession that began in 2008. According to an October 2011 report by the Center on Budget and Policy Priorities, 30 states were spending less on K-12 education than they were before the recession started. And in 17 states, those cuts have been deep—at least 10 percent below pre-recession levels.

School Funding

K-12 remains a mostly state responsibility, with state and local revenues contributing nearly 90 percent of the $600 billion spent to run schools nationwide in 2008-09, the latest year for which such data are available. The federal government provided just 9.5  percent of K-12 funding in the 2008-09 school year, according to the U.S. Census Bureau’s May 2011 public school finances report. The two biggest programs the federal government pays for are Title I for disadvantaged students and special education.

However, during the severe economic downturn that began in 2008, the American Recovery and Reinvestment Act passed by Congress in 2009 provided a temporary, one-time infusion of nearly $100 billion of federal money into local schools—boosting the federal contribution to 10 percent as states cut back in tough times. By early 2012, that funding had mostly been spent.

To drive tax dollars to districts, states use widely different and complicated funding formulas based largely on enrollment—and per-pupil spending amounts vary drastically by state. New York spends more than $18,000 per student, while Utah spends less than $7,000, according to U.S. Census Bureau data. These funding formulas have sparked numerous lawsuits over the years—in 45 states, in fact. Those cases typically challenge whether states are spending enough money on K-12 education, and whether they are equitably spreading that money around to districts within the state.

One of the biggest drivers of school spending is class size, because, on average, 78 percent of a school district’s budget is dedicated to paying the salaries and benefits of teachers, administrators and support personnel directly tied to instruction. The rest of a district’s budget pays for things such as transportation and facilities maintenance staff, supplies, and professional development, according to Census Bureau data.

Consider that in 1955, the average student-teacher ratio nationwide was 27-to-1, according to the National Center on Education Statistics. In 2008, that nationwide ratio had declined to 15-to-1—a figure that was predicted to stay there for the next several years, according to federal estimates. Whether reducing class size actually improves academic achievement is an entirely different issue that is hotly debated.


Given that personnel costs are such a significant part of a district’s budget, school districts are often forced to lay off teachers when faced with significant budget shortfalls. Because of the way teacher contracts are structured, the teachers laid off are often the last ones to have been hired, regardless of how effective they might have been. That practice of “last-in first-out” has been shown to have a disproportionate effect in schools that serve mostly poor and minority students, because the newest teachers are often concentrated in those schools, according to a May 2010 report by the Center on Reinventing Public Education at the University of Washington.

When teachers are laid off, their dismissal contributes to another school-related financial problem: underfunded pensions. Fewer teachers and other public employees paying into state retirement systems mean that unfunded liabilities grow. In 2008, the promises made by state pension plans across the country were, collectively, 84 percent funded. A year later, that figure dropped to 78 percent, according to an April 2011 report by the Pew Center on the States. As more baby boomers retire, states will be faced with even greater budget challenges in dealing with those unfunded liabilities. Some experts predict those problems could spill over and affecting general K-12 funding.

Although most money for schools is spent on costs related to instruction, the cost of building and renovating school facilities accounts for about 11 percent of school spending nationwide, according to the Census Bureau data. Collectively, the nation’s schools spent $54 billion on construction in 2008-09 and carried $400 billion in debt attributed mostly to capital projects. Most states and districts have separate funding streams to pay for capital projects, usually paid for through local property tax dollars.

Transportation is another relatively small portion of a district’s overall budget, but it hasn’t escaped scrutiny during tough budget times. In 2007-08, the latest year for which these data are available from the National Center on Education Statistics, schools collectively spent $21.5 billion on busing, or about 4 percent of their overall spending. That amounted to about $438 per child. When the cost of fuel rises, school districts tend to eye busing to cut costs. Districts across the country, from Jefferson County in Colorado to Westford Public Schools in Massachusetts, have started charging transportation fees—which have sparked outrage in some corners from parents. In some states, including Indiana, lawmakers have debated banning such busing fees.

Saving money on transportation is one of the drivers behind districts switching to four-day school weeks, especially in sprawling rural districts with few students but high transportation costs. All states have laws setting a minimum number of days, or in some cases hours, in each school-year calendar, ranging from a low of 160 days in Colorado to a high of 186 days in Kansas. Most require 180 days.  But during the difficult budget times that began in 2008, school districts across the country began experimenting with changing their school calendars to save money. An analysis by the Education Commission of the States found that by mid-2011, at least 120 districts in 17 states were moving to a four-day school week to save money on transportation, utilities and custodial staff. In exchange for three-day weekends, students spend more hours in class each day. But the savings have been minimal, with actual savings ranging from less than 0.5 percent of district budgets to 2.5 percent. Teachers, whose salaries and benefits make up the bulk of district budgets, still worked the same number of hours, only in a compressed time frame, the analysis found. The relevant studies can be found here.

Even as the economy slowly regains momentum, many analysts expect states to continue to experience lean budget times. And that means school districts will keep having to make tough financial decisions even as they face demands to improve student achievement.