Many public schools face funding pressure right now. Contributing factors include a predicted 30-year trend of declining population of school-age children, completion of ESSER fund spending in spring of 2026, increasing competition from school options funded through vouchers, state tax credit scholarships, career scholarship accounts, ESA, and other mechanisms to allow funding to directly go to a student (rather than funding going to a school who spends it on the student). The launch of the federal Education Freedom Tax Credit (EFTC) program in 2027 will increase pressure in those states that opt into the program. The advent of generative technology (AI) introduces a wild card of emerging educational tools and schools that may impact enrollment. Conversely, AI may increase efficiencies in the administrative functions of school systems (such as procurement and staffing), reducing costs. Rethinking school finance during times of transition is an important practice for school and district leadership.
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Traditional Revenue Sources
As a quick primer, public schools (whether charter or district or a number of other variations) are primarily funded by local property tax dollars (called mill levies) and are allocated based on enrollment counts of pupils. Most localities keep their tax revenues local, which causes differential per-pupil funding from location to location. Some states (NH, WY, VT, TX) redistribute based on cost-of-living, meaning the tax dollars go to the state which then redistributes to all districts based on need. Most states allow local property tax revenue to stay in the local district through foundation formulas, including a base amount per pupil, adjustments for student need and local capacity, then balanced with state funding (from state income tax or sales tax). On average, about 10% of funding comes through the federal government, typically through formulas (Title 1, IDEA, Perkins V, etc.) and competitive grants. Smaller amounts might come from local school foundations and private foundations.
Models for budgeting vary depending on local and state regulations. Dominant choices include:
Weighted Student Funding is a school finance model where funding follows the student. Most states use this approach. On top of a base weight per student, additional percentages of the base are added for students who require more resources to succeed. Many districts include a combination of individual student risks and school-wide environmental risks. Specific weights may include socioeconomic status, ELL, SPED, mobility, gifted and talented, and small schools allocations.
Site-Based Budgeting shifts (at least some) decision-making power from the central district office to the individual school “site” (the principal, teachers, and local community). It primarily serves as a budgeting approach at the local level as opposed to a state level policy. The central office sends the school a pot of money based on its specific student population, and the school leadership decides how to spend it. This often occurs in large urban districts (NYC, Chicago, Boston, Houston). Site-based budgeting often is considered in combination with weighted models.
Performance-Based Budgeting in public education is a financial strategy where funding is allocated based on measurable outcomes and results rather than simply repeating the previous year’s spending levels. A variety of efforts in this approach emerged over the last few decades, but only a few have lasted (NM, TX).
Other more unique funding models include, but not limited to:
- Vendor models. OpenED (formerly My Tech High) and Rock, Tree, Sky contract with districts to take responsibility for student learning. Districts may attract more home school students into their systems with these approaches and retain partial student per-pupil funding in the process.
- Lab school models. The Virginia legislature approved lab schools and associated funding in 2023 where funding flows from the state through public universities to open schools. Lab school models are present in a number of states.
- Micro-school/Online Charter Partnership. Many private micro-schools have emerged over the last five years. Financial sustainability can be challenging for these small learning organizations. Some, like Black Mother’s Forum in Phoenix, AZ, have found partnerships with existing online charter schools (in this case with Sequoia). This provides per-pupil revenue to support the microschool operation.
- Town tuitioning – One of the oldest innovative funding models in the United States can still be found in NH, VT, and ME where public dollars are spent to send local students to private schools when those grade levels are not available in the town.
In addition, Bureau of Indian Affairs schools and military base schools have funding structures different from typical districts, yet still are public dollars (federal tax revenue).
Alternate Revenue Sources
Even with these funding models locked tightly to enrollment, some districts have found unique revenue models to stave off challenging finances.
- Online Provider – Jennison Innovation Academy embedded in Jennison School District (Michigan) serves students from around the world via a virtual program (a number of districts around the country provide these types of services beyond their local geography).
- Business Owner – Opportunity Central in Forney ISD (TX) provides locations for business owners who pay rent to the district; Dexter Community Schools (MI) purchased and now runs Dexter Wellness Center and Dexter Senior Center.
- Microschool Coordinator – Indiana Microschool Collaborative (a microschool network launched out of Eastern Hancock School District (IN) sponsored charter school network) and Berrien Springs (MI) runs a network of small high schools with a focus on those at risk for not graduating
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- Student Run Enterprise – Cardinal Manufacturing at Eleva-Strum School District (WI), Edu-Vet in Roscoe ISD (TX), and Little Lions Learning Lab at Louisa County Public Schools (VA) are all enterprises run by public school districts to support real-world learning—and some revenue generation.
- Service Provider – In some states, especially those facing increasing private school voucher pressure, districts offer a la carte services to students who have opted out of the public system. Orange County Public Schools (FL) charges a fee for single-course participation by students using Parent Choice Scholarship funding.
- Home School Learning Center – St. Vrain Valley Schools (CO) recovers some per pupil funding by offering an APEX Homeschool Program to service home schooled students.
- School Foundations – A school foundation makes it easier for local and regional stakeholders to provide philanthropic funding to the school or district.
- Facilities Rental – This common approach, if allowed (as some districts provide free of charge), can provide a community with needed space that is not available elsewhere. This might include facility rental to a private school option (such as La Luz in Colorado which rents space in a Denver Public School elementary building).
Action Steps
School and district leadership can think creatively about funding. Considerations include:
- Build long-term enrollment models for the district or school to understand real consequences of population changes. This is already a typical process for many districts. Controlling enrollment may not be possible, but better predicting the future is.
- Engage all stakeholders and redesign systems to best serve the community vision. Better outcomes, higher engagement, and higher feelings of belonging building long-term support that increase the likelihood of bond passage, levy changes and other community voted initiatives.
- Link budgets and financial allocations directly to strategic direction. While recognizing that funds are limited to particular areas in many systems, where possible, aligning strategy and budget will increase probability of long-term success – and thus enrollment.
- Evaluate alternative funding models. Creative use of facilities, community partnerships, unbundled offerings, and student enterprise may provide alternative revenue streams beyond normal per-pupil funding.