How Public Schools Are Funded and Why ZIP Codes Decide So Much

In the late 1960s, in the Edgewood district on the west side of San Antonio, parents met to talk about a school that had run out of patience. Edgewood's families were mostly Mexican American and working class. The district taxed its homeowners at a higher rate than its wealthier neighbor across town, Alamo Heights, and still raised far less money per child, because the homes and businesses in Edgewood were worth so much less. Teachers were fewer and less experienced; buildings were crumbling. One of the parents, a sheet-metal worker named Demetrio Rodriguez, agreed to put his name on a lawsuit. It argued that a child's education should not depend on the property wealth of the neighborhood where she happened to live. A federal court in Texas agreed. Then, on March 21, 1973, the Supreme Court of the United States decided San Antonio Independent School District v. Rodriguez, five votes to four, and said the federal Constitution had nothing to say about it. More than half a century later, that ruling is the quiet reason your ZIP code still says so much about your child's school.

In short: Public schools are paid for by a mix of local property taxes, state aid and a small federal share. Because property wealth varies so much, states try to even things out with funding formulas, with uneven success. Rodriguez closed the federal courts to the fairness question, so the fight moved to state courts and statehouses, where it still is.

Three buckets of money

Nearly every public school dollar in the United States comes from one of three places. Local governments, mostly through property taxes, supply a large share. State governments supply a similar share, through income taxes, sales taxes and other revenue sent to districts under a formula. The federal government supplies the rest, usually less than a tenth of the total, mostly through programs targeted at specific students, such as children from low-income families and students with disabilities. The federal share rose for a few years with pandemic relief money, then fell back as that money ran out.

The balance between local and state money varies a great deal from state to state. In a handful of states, the state pays most of the bill. In others, local property taxes carry much of the load. The more a state relies on local property taxes, the more the wealth of each town shows up in its schools.

How property taxes create the gap

Here is the arithmetic that Demetrio Rodriguez's lawyers put before the courts. Suppose two school districts each set a property tax rate of one percent. In the first, the total assessed value of homes and businesses works out to a million dollars per student. In the second, it is a hundred thousand dollars per student. The same tax rate raises ten times as much per child in the first district. To raise the same amount, the second district would have to tax its residents at ten times the rate, which neither the law nor the residents would allow.

That is the basic trap. Poorer districts often tax themselves at higher rates and still raise less. Wealthier districts can tax at lower rates and raise more. And the gap compounds. Districts with more money can pay higher salaries, attract more experienced teachers, offer more courses and maintain better buildings, which in turn raises home values and the tax base. A commercial district, a power plant or an office park inside the lines can make a district rich even if its families are not.

Property tax limits make things more complicated. California's Proposition 13, passed by voters in 1978, capped property tax rates and limited increases in assessments, which over time shifted much of the burden of school funding to the state. Other states have their own caps and assessment rules. These limits can protect homeowners, especially older ones on fixed incomes, from soaring bills, which is a real concern, but they also constrain what local districts can raise.

How state formulas try to fix it

States know about this problem, and almost all of them try to correct for it. The most common approach is called a foundation formula. The state sets a minimum amount it believes each student needs, the foundation. It assumes each district will raise a certain amount locally at a set tax rate. Then it fills the gap between what the district can raise and the foundation. Poor districts get more state money; wealthy ones get less.

Most formulas also add weights for students who cost more to educate: students from low-income families, English learners and students with disabilities. A district with many such students gets more money per pupil. Some states add adjustments for small rural districts, which have high fixed costs, or for regions with higher living costs.

The trouble is in the details. A formula is only as good as the foundation amount, and when budgets are tight, legislatures often set it too low or freeze it. Wealthy districts are usually allowed to raise far more than the foundation on their own, so the formula raises the floor without lowering the ceiling. Hold-harmless rules keep districts from losing money when their enrollment falls, which is understandable but can lock in old inequities. And many formulas are so complex that few people outside a state's education department can explain them, which makes it hard for parents to know whether their schools are getting a fair share.

Where the federal dollars fit

The federal share may be small, but where it goes says a lot about national priorities. The largest piece is Title I, the program created in 1965 to send extra money to schools serving children from low-income families. Next is special education funding under the Individuals with Disabilities Education Act. When Congress passed the original version of that law in 1975, it promised to pay a large share of the extra cost of educating students with disabilities. It has never come close to meeting that promise, and local districts and states make up the difference, which is one reason special education costs strain budgets everywhere, rich and poor alike.

Federal money also pays for school meals through the Department of Agriculture, for programs serving English learners, for rural schools, and for school districts that lose property tax revenue because of federal land or military bases within their borders. That last program, called Impact Aid, is a useful reminder that the federal government has long accepted some responsibility when its own decisions shrink a local tax base.

None of this is enough to close the gaps created by local wealth. Even after Title I, high-poverty districts in many states receive less total funding per student than low-poverty ones, or only slightly more, despite having students who need more. Researchers who study school finance have consistently found that the federal dollars soften the inequality rather than erase it. That is why the real fights happen in state capitols.

Why the Supreme Court stepped aside

The Rodriguez plaintiffs made two arguments under the Equal Protection Clause. First, that education is a fundamental right, so a funding system that rationed it by wealth deserved the strictest kind of judicial scrutiny. Second, that wealth-based discrimination against poor children should be suspect in the same way race-based discrimination is.

Justice Lewis Powell, writing for the five-justice majority, rejected both. Education, he wrote, is enormously important, but it is not among the rights explicitly or implicitly guaranteed by the federal Constitution. And the Texas system did not single out a definable class of poor people; poor families lived in some rich districts and wealthier families in some poor ones. Under the relaxed standard that applies to ordinary economic legislation, Texas only had to show a rational reason for its system, and local control of schools was reason enough. The Court also warned that it lacked the expertise to redesign a state's tax system and that the remedy should come from legislatures.

Justice Thurgood Marshall wrote a long, sharp dissent. He argued that the majority's ruling retreated from the Court's promise of equal educational opportunity and that the link between education and the rights to speak and vote made it a fundamental interest. He warned that the decision would let states ration opportunity by the accident of where children lived. Justice William Brennan, Justice Byron White and Justice William O. Douglas also dissented.

Powell's concerns about courts running school finance were not frivolous. Judges are not budget writers, and court-ordered school finance cases in states have sometimes dragged on for decades. But the effect of the ruling was clear. After Rodriguez, there would be no national floor for school funding fairness. Every state would decide for itself.

The fight moves to the states

What the federal courts would not do, many state courts did. State constitutions, unlike the federal one, nearly all contain an education clause, often requiring a "thorough and efficient" or "general and uniform" system of public schools. Even before Rodriguez, the California Supreme Court had ruled in Serrano v. Priest that the state's funding system violated the state constitution. Afterward, lawsuits were filed in almost every state.

The results have been mixed. Some state courts ordered major changes; others found the issue was for legislatures alone. In Texas, Edgewood itself went back to court, this time under the Texas Constitution. In 1989 the Texas Supreme Court ruled the state's system unconstitutional, starting years of litigation and legislation that produced a system in which some money from property-wealthy districts is redistributed to poorer ones, a mechanism critics nicknamed Robin Hood. In New Jersey, a decades-long case led to large increases for poor urban districts. In Pennsylvania, a state court ruled in 2023 that the funding system violated the state constitution, and the legislature has since added money aimed at the most underfunded districts.

Courts can push. They cannot vote for taxes. In most states that have narrowed funding gaps, it took a court ruling and then a legislature willing to act, often under a governor who made it a priority.

The fair objections, and why money still matters

People who resist sending more money to poor districts often make an argument worth taking seriously: money alone does not guarantee results. They point to districts that spend a great deal and still struggle, and to the long debate among researchers about whether spending affects test scores. They also defend local control as a real value. Parents who pay higher taxes for their schools, the argument goes, should be able to see the benefit in their own children's classrooms.

Recent research has largely settled the first question in one direction. Studies that follow students over many years have found that sustained increases in school spending, especially for children from low-income families, lead to more years of schooling, higher adult earnings and lower rates of adult poverty. How the money is spent matters, and wasteful spending does exist. But the claim that money does not matter for poor kids has not held up.

The local-control argument is a values question, and I think the answer is about whose locality counts. A wealthy town that walls off its tax base is exercising local control. So is a poor town that taxes itself heavily and still cannot pay its teachers enough. Fairness asks the state, which draws the district lines in the first place, to make sure both kinds of local control produce a decent education. And progressives should be candid about one thing that makes school funding harder: when restrictive zoning keeps housing scarce and expensive in high-opportunity districts, it locks working families out of those schools as surely as any funding formula.

What became of Edgewood

Demetrio Rodriguez lived to see the Texas courts take up the cause the Supreme Court had turned away. His children had grown up long before any of it helped them. Families in Edgewood and districts like it, in the Rio Grande Valley, in Appalachia, in old industrial cities and on tribal lands, keep making the same case he made: that a child's chances should not be set by the value of the houses on her street. Rural and urban districts often find themselves on the same side of these fights, and some of the strongest school finance coalitions have joined small-town Republicans and big-city Democrats who both represent districts without a wealthy tax base.

What you can do

School funding is decided mostly in your state capitol, which means your state legislators matter more than almost anyone else on this issue.

• Learn your state's formula. Most state education departments publish per-pupil funding by district. Compare your district with its neighbors.
• Call your state legislators. Use the representative lookup to find them, and ask whether they support fully funding the state formula and adding weights for students in poverty.
• See the bigger picture of wealth and opportunity. The inequality page tracks wealth shares, real wages and the minimum wage, the economic backdrop to the gaps between districts.
• Join or start a local coalition. Education equity and parent groups are listed by state in the organizations directory.
• Follow the debate. Our page on inequality and taxing the rich covers the tax policy fights that decide what states can afford.