School funding is a critically important issue—K-12 education absorbs about half of all the tax dollars spent in Indiana. Surprisingly, it seems that very few Hoosiers, including the vast majority of those involved in education, enjoy even a superficial understanding of school finance. Here are the basics.

There are four sources of revenues for schools; they are grants and fees, property taxes, federal funds and state formulary aid. As is true with most government units, these funds have specific purposes and it is unlawful to use them for unintended purposes.

The grants and fees (for books and athletics) typically comprise small amounts of overall funding. These are useful funding streams because they support activities that other revenues cannot. Still, they are a small portion of total school funding. Similarly, the federal government funds specific types of activities, such as the National School Lunch Program. These dollars mostly target special education or nutrition programs, and again are mostly allocated based on poverty. Federal spending can be large, e.g. $1,600 per student in the poorest districts, but their use is tightly limited.

Property taxes are a significant share of school funding, and can be used only for transportation and school construction. Most schools receive less than $5,000 per student from property taxes. In general, urban school corporations, even very poor ones, receive high per student level of property taxes. Rural areas also receive relatively high per student property tax collections, while suburban school corporations tend to see smaller property tax revenues on a per student basis. Again, these monies cannot lawfully be used for instructional purposes.  

By far the largest share of funding comes from the state aid formula. Like other states, Indiana’s constitution mandates educational support for students, not for school corporations. To do this, the state paid corporations between $5,153 and $7,284 per student in 2017. The difference in funding is based on the share of students whose families receive SNAP (formerly food stamps) or Temporary Assistance for Needy Families (traditional welfare), or are foster children. Thus, school corporations with a higher share of poor families receive more money than schools with fewer poor students.

The putative reason for the aid difference is that poor children require more educational services to achieve the same level of educational attainment as do children who do not live in poverty. Whether this is true or not is a purely empirical question; but, most taxpayers, myself included, are inclined to support this approach to funding schools. Still, it is useful to understand how large the difference actually is.

The difference in per student state aid between the richest and poorest places in Indiana is roughly 41 percent. So, a typical class of 25 kids in a poorest school gets $53,275 more per year than the same class in an affluent area. In this lies the broad misunderstanding of school finance.

Poor places in Indiana, whether they be urban or rural, receive much more money to teach kids, feed kids and transport kids than do the affluent school corporations. In total, a poor place like an East Chicago or Cannelton gets greater than 50 percent more money, on a per student basis, to educate children than does a place like Zionsville or Carmel. They get even more money to help feed their kids.

These facts should counter the oft-repeated untruth that poor places in Indiana—either rural or urban—receive fewer resources, per student, to educate their children than do places that are more affluent. The truth is that the only places in Indiana where school budgets have declined are places with falling student enrollment.