How School Funding Inequities Impact Student Success

Research suggests that school funding levels directly influence student outcomes, such as academic achievement, graduation rates, and future economic success.

For instance, a study by C. Kirabo Jackson and colleagues found that a 10% increase in per-pupil spending over 12 years leads to 0.31 more years of education, 7% higher wages, and a 3.2 percentage point reduction in adult poverty, particularly for low-income students, according to NBER.

This shows the long-term benefits of adequate funding, especially for disadvantaged students.

Funding disparities also contribute to achievement gaps. For example, a 2019 report by EdBuild revealed that nonwhite school districts receive, on average, $2,226 less per student than white districts, totaling a $23 billion gap nationwide.

This lack of resources can mean larger class sizes, fewer qualified teachers, and limited access to advanced courses, all of which hinder student success.

An unexpected detail is the significant impact of funding increases in California’s Local Control Funding Formula (LCFF).

A study by the Learning Policy Institute found that a $1,000 increase in per-pupil spending for three consecutive years resulted in a full grade-level improvement in both math and reading, an 8.2 percentage-point increase in high school graduation rates, and reduced suspension rates, particularly for Black students.

Case Study: California’s LCFF

California’s LCFF, implemented in 2013, aimed to provide more equitable funding by allocating additional resources to districts with high-needs students, such as those from low-income families, English learners, and foster youth.

The formula has shown positive results, with districts investing in reducing class sizes, increasing teacher salaries, and improving teacher retention.

These changes have led to measurable improvements in student outcomes, demonstrating that targeted funding can narrow achievement gaps.

These improvements grew with years of exposure to increased funding, with district investments in instructional inputs like reduced class sizes and higher teacher salaries playing a significant role.

Background on School Funding in the US

Public school funding in the United States is primarily derived from local property taxes, supplemented by state and federal contributions. This system creates inherent inequities, as schools in wealthier neighborhoods, with higher property values, can generate more revenue.

For instance, the Economic Policy Institute highlights that funding effort varies across states, with high-capacity states like Wyoming spending nearly $21,000 per student, while others lag. This reliance on local taxes means that districts with lower tax bases, often serving poorer and minority students, receive less funding, exacerbating disparities.

Quantifying Funding Disparities

A nonprofit focused on education funding quantified these disparities, finding that school districts where the majority of students are of color receive $23 billion less in funding than predominantly white districts, despite serving the same number of students, based on this Report.

On average, nonwhite districts receive $2,226 less per student, a gap that translates into tangible differences in resources.

The Urban Institute’s analysis further shows that local funding is often regressive, with districts serving nonpoor students having more to spend due to higher property wealth.

Impact on Student Success: Evidence from Research

C. Kirabo Jackson’s research, published in The Quarterly Journal of Economics, analyzed the effects of school finance reforms from the 1970s to 1980s, finding that a 10% increase in per-pupil spending each year for all 12 years of public school leads to 0.31 more completed years of education, about 7% higher wages, and a 3.2 percentage point reduction in the annual incidence of adult poverty, with effects more pronounced for low-income children,

This suggests that funding increases can break the cycle of poverty by improving educational and economic outcomes.

Another study from the Learning Policy Institute examined California’s LCFF, providing specific statistics on student outcomes.

A $1,000 increase in per-pupil spending for three consecutive years led to a full grade-level improvement in both math and reading, a 5 to 5.3 percentage-point reduction in grade repetition by the end of elementary school, and an 8.2 percentage-point increase in high school graduation rates.

Additionally, college readiness improved, with a 9.8 percentage-point increase in meeting math standards and a 14.7 percentage-point increase in reading standards for grades 9–11.

Suspension rates also decreased, with a 5 to 6 percentage-point reduction for high school boys and an 8 percentage-point reduction for Black boys in 10th grade, highlighting the disproportionate benefits for disadvantaged groups.

The Public Policy Institute of California (PPIC) further supports these findings, noting that on average, $1,000 in additional spending for four years improves test scores by 0.035 standard deviations, and closer to 0.05 for low-income students, putting these effect sizes in context with existing achievement gaps.

This research underscores that funding disparities contribute to achievement gaps, with low-income and minority students often attending under-resourced schools, limiting their access to qualified teachers, updated materials, and support services.

Mechanisms of Impact

Funding inequities affect student success through several mechanisms. Schools with lower funding often have larger class sizes, which can reduce individualized attention.

The Learning Policy Institute’s LCFF study found that roughly 84% of the variation in school spending effectiveness is explained by class size reductions, teacher salary increases, and reductions in teacher turnover, indicating these are critical areas for investment.

Raising the Bar for the teaching profession means better professional learning & career expanding opportunities, seeking input from teachers when creating policies, and calling on states & districts to raise teacher salaries. #LoveTeaching pic.twitter.com/Uhcv4wqpYL

— U.S. Department of Education (@usedgov) February 14, 2023

Higher teacher salaries attract and retain experienced educators, while lower turnover provides stability, both of which enhance student learning.

Additionally, underfunded schools may lack access to advanced courses, extracurricular activities, and mental health resources, as noted in the Ballard Brief, which found that funding inequality leads to higher dropout rates and behavioral issues among students in southern US high schools.

Broader Implications and Solutions

The Century Foundation estimates that K-12 public schools are underfunded by nearly $150 billion annually, robbing over 30 million schoolchildren of necessary resources.

To address this, states could reform funding formulas to be more progressive, increasing state contributions to offset local tax disparities.

Weighted funding models, like LCFF, that allocate more to high-need students and ensure accountability for how funds are spent, are crucial.

For example, investing in early childhood education and sustained K–12 spending, as Jackson’s research suggests, can break the cycle of poverty.

Conclusion

School funding inequities, driven by reliance on local property taxes, create significant disparities that impact student success, particularly for low-income and minority students.

Research consistently shows that increased funding can improve educational outcomes, with California’s LCFF providing a model for targeted investments.

In fact, some of the best educational equity initiatives around the world, such as Finland’s education system, focus on reducing disparities through equal access to resources and opportunities.

Policymakers and educators must prioritize equitable funding to ensure all students have the opportunity to thrive, closing achievement gaps and fostering a fair educational system.