Education Finance Research Library
The field of education finance has entered a new era. Where research once focused on whether money matters, a robust body of evidence now decisively shows that it does. The critical question today is how states design, target, and align funding through policy to meet student and community needs. In this new era, the impact of research depends on its translation into policy.
EdFund’s Education Finance Research Library is built for this moment. Here we synthesize rigorous research to inform three central decisions in state funding policy: how funds are structured, how they are targeted, and how they are raised. We also provide useful notes on what the research does and does not say in order to inform universal funding policies. With state legislatures driving how evidence is embedded in finance systems, research must be actionable.
Funding Structures
In designing school funding systems, states determine how much each school district needs to operate under their ideal model and how student populations are counted and weighted. The following section provides research-based assessments of these design choices.
School Funding Formulas
States typically distribute funds to districts through student-based, resource-based, or hybrid models.
Counting Students
States count students to determine how funding is allocated in most funding formulas.
School Funding Formulas
While most deploy a hybrid approach, states typically distribute annual funding for local school districts through either student-based or resource-based models. Research consistently supports funding based on student needs, such as Weighted Student Funding (WSF), as an effective approach to aligning resources with student learning and driving increased outcomes. Through allocating a uniform base amount per student plus additional "weights" for specific learning needs, WSF models have been shown to empower local leaders with flexibility and support budgetary transparency. Conversely, research suggests that resource-based models show inconsistent links to student achievement, as rigid staffing and salary assumptions constrain the flexibility associated with improved outcomes. Additional research is needed on the more detailed effects of funding formula designs in specific state contexts, and especially on new formula changes.
Research Consensus
Research consistently demonstrates that when funding is matched to student needs and combined with local flexibility (the main attributes of Weighted Student Funding), academic outcomes improve.
Policy Notes
- Many states have recently moved from formulas that distribute funds based on staffing models and classroom resources to WSF models that allocate state funds to districts based on the needs of their students.
- Recent changes in research methodology and state formulas have made it possible to isolate the effects of these state funding policies.
- Research now confirms that WSFs lead to higher achievement, particularly for low-income students.
- There is some evidence that the flexibility provided to local decisionmakers through WSFs could be a factor in student achievement gains.
- Additional research is needed on the more detailed effects of new formula changes. EdFund awarded two grants in 2024 to study these effects in Tennessee and Nevada, where WSFs were recently instituted.
Main takeaway
California’s weighted Local Control Funding Formula (LCFF) redirected a higher share of state funding to districts with high concentrations of poverty. After ten years of implementation, achievement rose statewide and especially in the highest-need districts, whose share of students meeting or exceeding state standards went up 13 percentage points, compared to predicted outcomes without the funding. This study demonstrates that sustained, targeted funding for specific learner needs such as economic disadvantage, English Learners, and foster youth can lead to academic gains.
Useful notes
- Long-term Investments: Lafortune and colleagues (2023) note that academic improvements were not immediate, finding that significant gains only began to emerge after five to nine years of sustained funding. Students who had been exposed to the new funding model for the vast majority of their K–12 careers showed the larger gains, suggesting that one-time or short-term funding shifts may not yield the same sized results.
- Site-Level Spending: Student achievement gains were found most substantially in districts with very high shares of low-income students, English Learners, and/or foster youth. However, resources were not fully targeted within districts to the schools serving higher shares of those students generating higher district level funding. Because districts do not always account for centralized costs down to the school level, school-level spending data provide only a partial understanding of the impacts of centralized and site-level expenditures.
Lafortune, J., Herrera, J., & Gao, N. (2023). Examining the reach of targeted school funding. Public Policy Institute of California. https://www.ppic.org/wp-content/uploads/policy-brief-examining-the-reach-of-targeted-school-funding.pdf
Main takeaway
This study provides causal evidence that a large Southeastern urban district’s transition to a Student-Based Budgeting (SBB) model, a pairing of Weighted Student Funding (WSF) with site-based budgeting, resulted in significant academic gains and increased principal autonomy. By comparing schools that received significant additional weighted funding to schools that maintained previous resource-based funding levels, the research found that students in SBB schools experienced larger gains in achievement relative to their counterparts. Within the first few years of implementation, elementary school student scores increased in both math and reading, representing about 16% to 33% of an extra year of learning, most notably among economically disadvantaged students and English Learners. This research also shows that principals in SBB schools were granted more budgetary flexibility, allowing them to strategically align resources like specialized staffing and interventions with the needs of their unique student populations.
Useful notes
- District to State Level Implications: The SBB model implemented at the district level in this study mirrors how Weighted Student Funding (WSF) operates at the state level, both in how the resources are allocated and the flexibility provided to districts. This suggests that WSF at the state level may lead to similar achievement gains as this large district-level study.
- Elementary-Specific Scope: The researchers note that findings related to academic achievement are restricted to elementary school students, specifically third and fourth grade test scores. The academic impact of SBB (or WSF at the state level) may produce different outcomes for students at the middle or high school level.
- Limits of Special Education Sample: Although the study shows gains for economically disadvantaged students and English Learners, it found no significant impact for students in special education, possibly due to the study’s focus on elementary grades since identification often occurs later.
- Academic vs. Behavioral Outcomes: While the study demonstrates clear success in boosting test scores, it found no statistically significant impact on non-test outcomes, such as student attendance or disciplinary incidents. The study’s sample size may have been too small to detect changes in non-test outcomes.
Candelaria, C. A., Crutchfield, A. N., & McGill, D. G. (2024). The impact of additional funding on student outcomes: Evidence from an urban district using weighted student funding and site-based budgeting. (EdWorkingPaper No. 24-1006). Annenberg Institute for School Reform at Brown University. https://files.eric.ed.gov/fulltext/ED660104.pdf
Counting Students
States allocate school funding to districts based on student counts, but how they count students is important. States generally rely on one of two approaches: attendance (Average Daily Attendance, ADA) or enrollment (Average Daily Membership, ADM). By providing funding based on average attendance, ADA-based systems are often mismatched with how districts budget for school resources, especially fixed costs designed to serve all kids regardless of daily presence. Although still used in about twenty-one states, ADA-based funding disproportionately penalizes high-poverty districts, where absences are more frequent and often driven by factors outside schools’ control. Most states have shifted to enrollment-based measures that fund districts based on all students they are responsible for educating. Further research is needed to examine how different student-counting methods affect resource allocation.
Research Consensus
Research shows that funding models using enrollment promote greater fiscal stability and equity than attendance-based models.
Policy Notes
- Funding based on average daily attendance rates, rather than the number of students enrolled, results in less funding—and therefore fewer resources—for districts that have lower attendance rates.
- Most of the factors that lead to higher absenteeism are outside districts’ control. Attendance-based funding policies effectively punish districts with high absenteeism that frequently serve higher-needs students.
- These policies allocate less funding to schools where more is usually required to create programs with holistic supports for students in order to boost attendance.
- States with attendance-based funding models may disincentivize innovation in instructional delivery, such as competency-based instructional models that do not require daily in-person attendance.
Main takeaway
Childs and Lofton (2021) argue that commonly used attendance metrics, particularly Average Daily Attendance (ADA), can obscure the true scale of chronic absenteeism by presenting high overall attendance rates while masking persistent student absence. They find that relying on ADA for school funding treats attendance as a simple metric of school quality while ignoring that absences are driven by interconnected systemic factors including poverty, health, housing, and neighborhood conditions, often beyond a school’s control. The review suggests that improving how attendance is measured and interpreted is important for designing policies that more accurately target student need and support consistent school participation.
Useful notes
- Synthesis of Existing Research: This study is a literature review of sixty-three peer-reviewed articles from 2000 to 2020, meaning it provides a conceptual framework based on a synthesis of research, rather than a new empirical analysis of specific state funding models.
- Conceptual vs. Causal: The authors focus on conceptualizing the root causes of attendance problems, rather than showing what policy intervention may work to support student attendance.
Childs, J., & Lofton, R. (2021). Masking attendance: How education policy distracts from the wicked problem(s) of chronic absenteeism. Educational Policy, 35(2), 213–234.
Main takeaway
Hahnel and Baumgardner (2022) find that the method states use to count students for funding shapes both resource distribution and district behavior. In California, the ADA-based system tends to reduce funding for districts serving the highest concentrations of low-income students, English learners, and foster youth, due to lower attendance rates.
They show that by adopting an enrollment-based count, the state could more equitably distribute resources according to the total population districts are responsible for educating, while granting schools the instructional flexibility to implement innovative, personalized learning. However, the study emphasizes that no single count method can achieve all policy goals by highlighting trade-offs between the equity and stability that enrollment counts offer versus the student attendance incentives of ADA.
Useful notes
- Model Choice: Due to a lack of accessible statewide data, the study’s fiscal projections are based on a “Single Count Day” (Census Day) enrollment model rather than multiple count days or an average daily membership model.
- Revenue Sources: Moving from ADA to enrollment will increase costs to the education budget in the vast majority of states. California’s unique revenue structure may allow for this change to occur without increasing the overall investment in education. States that don’t have a guaranteed revenue source for schools would have to find new revenue or make cuts to other services in their state budget to cover this cost.
- Attendance Incentives: The current ADA system provides a direct, albeit relatively weak, financial incentive to boost attendance. States transitioning to enrollment may consider strengthening other policy levers, such as accountability dashboards and tiered supports, to support student engagement.
Hahnel, C., & Baumgardner, C. (2022). Student count options for school funding: Trade-offs and policy alternatives for California. Policy Analysis for California Education. https://edpolicyinca.org/publications/student-count-options-school-funding
Main takeaway
Using statewide data from Texas, Knight and Olofson (2018) find that school districts have very limited influence over student attendance, with district-level factors explaining only a small share of variation once student background characteristics are accounted for. This study suggests that funding models based on ADA are misaligned with district control and may not effectively incentivize improvements in attendance. In Texas, this structure disproportionately reduces funding for districts serving the highest concentrations of low-income students and students of color, raising broader concerns about equity in attendance-based school finance systems.
Useful notes
- Impact of Weighted ADA: Weighted student formulas like in Texas are intended to send more money to districts serving high needs and low-income students. For example, when a low-income student is absent from school more often, the school district loses a proportionately larger amount of funding because the state provides that additional funding for the low-income student.
- Scope of District Influence: While the research demonstrates that districts have very little influence over the differences in attendance rates between schools, this does not mean districts do not contribute to student attendance at all. Rather, it shows that current district strategies in Texas do not close the large attendance gaps associated with socioeconomic characteristics.
- Focus on Base Allocation: This evidence is limited to testing the use of ADA to determine a district’s base resource allocation. The study does not empirically test the effectiveness of other policy levers for improving attendance, such as state accountability plans, minimum attendance requirements for course credit, or specific community-based interventions.
Knight, D. S., & Olofson, M. (2018). Funding school districts based on student attendance: How use of average daily attendance harms school finance equity in Texas. Center for Education Research and Policy Studies. University of Texas at El Paso.
https://www.utep.edu/education/cerps/_files/docs/briefs/cerps_policybrief5_attendance.pdf
Targeted Investments
After selecting a funding model, policymakers must decide how to direct resources to students with specific needs. Evidence shows that the gains linked to weighted student funding are driven in large part by its focus on investing more in students who face additional barriers, including those experiencing poverty, learning English, receiving special education services, or living in rural areas. The following sections illustrate the available research evaluating spending in these targeted areas.
Low-Income Students
Most states provide additional funding to school districts serving low-income students.
Special Education Students
All states provide special education funding to help schools deliver the individualized learning supports for students.
English Learners
Students learning English often require additional educational supports.
Rural Students
Rural, remote, and sparsely populated districts face unique geographic challenges that increase costs.
Capital Investments
Funding for school buildings and renovation projects is largely raised by local districts.
Low-Income Students
Most states provide additional funding for students from low-income households, typically based on family income or concentration of poverty in the district. Eligibility is often tied to participation in federal safety net programs. States distribute these funds through several approaches, including flat per-student supplements, a percentage above the base, or targeted staffing and programs. Some also provide grants outside the main formula for specific initiatives like summer learning. Almost all states use at least one of these approaches to address resource disparities associated with student poverty, though the generosity of these benefits varies dramatically. Studies show that additional funding for low-income students has a greater impact on outcomes, including test scores, graduation rates, and college attendance, than the equivalent increase in funding for their higher-income peers.
Research Consensus
Rigorous causal research shows that increasing and targeting school funding toward low-income communities improves student outcomes, with increased investments having greater impact in higher-need areas.
Policy Notes
- Meaningful increases in per-pupil funding leads to test score gains in low-income districts.
- While many states provide more funding to low-income students and/or higher-poverty districts, the amount of funding varies dramatically from state to state.
- Even in states that fund for low-income students, disparities in local revenue can undermine those efforts by narrowing the actual funding differences between high- and low-poverty districts.
- Funding policies that prioritize low-income students and communities yield higher academic gains than across-the-board funding increases for schools, suggesting that states should target additional funding to districts that serve low-income students.
Main takeaway
Over the past two decades, advances in causal research methods and the growing use of rigorous quasi-experimental designs have produced a strong body of evidence showing that increased school funding can improve student outcomes. Two recent large-scale reviews by Jackson & Mackevičius and Handel & Hanushek synthesize these results, confirming that most high-quality studies find consistently positive effects across diverse years, states, and geographies. Both papers agree that economically disadvantaged students experience the largest marginal benefits from increased funding; specifically, Jackson & Mackevičius find that the impact on educational attainment is more than 3 times higher for low-income students than for their more affluent peers. Handel & Hanushek further conclude that the institutional environment and how funds are used are decisive factors, finding that over half of the variation in academic gains across research settings is driven by these differing local contexts and decision-making qualities.
Useful notes
- Synthesis of Existing Research: These reviews are meta-analyses, meaning the researchers use statistical methods to synthesize the results of a large set of high-quality, previously published studies.
- Different Interpretative Lenses: While the studies find similar positive effects of funding increases, the authors interpret these findings differently. Jackson & Mackevičius focus their discussion on the positive average effects whereas Handel & Hanushek point to the wide range (from small to large) of academic benefits found in this large body of research.
Handel, D. V., & Hanushek, E. A. (2024). Contexts of convenience: Generalizing from published evaluations of school finance policies. Evaluation Review, 48(3), 461–494.
Jackson, C. K., & Mackevičius, C. L. (2024). What impacts can we expect from school spending policy? Evidence from evaluations in the United States. American Economic Journal: Applied Economics, 16(1), 412–446.
Main takeaway
Between 1990 and 2011, state school finance reforms triggered increases in funding for low-income districts without reducing local contributions. These targeted investments led to significant academic improvements, closing approximately one-fifth of the test score gap between high- and low-income districts within ten years of the reform. The authors contend that these increased test scores could lead to long-term increases in adult earnings, thereby proving a positive cost-benefit to the state.
Useful notes
- Sustained Increases: The study demonstrated that once major finance reforms occurred there did not appear to be a leveling down of resources that followed.
- Earnings Gains Linked to Improved Test Scores: Ten years after school finance reforms, students in low-income districts showed higher test scores. Based on estimates in other studies, the authors suggest these gains are associated with increased lifetime earnings, though earnings are not directly measured in the study.
- Limited Impact on Individual Student Gaps: While these reforms successfully reduced funding differences between districts, they did not significantly narrow overall statewide metrics by race or income. This is because many economically disadvantaged students and students of color do not live in the lowest-income districts.
Lafortune, J., Rothstein, J., & Schanzenbach, D. W. (2018). School finance reform and the distribution of student achievement. American Economic Journal: Applied Economics, 10(2), 1–26.
Main takeaway
Using a decade of national county-level data, this study finds that the academic returns to school spending vary substantially based on prior community investment. Specifically, the research demonstrates that increases in state funding in a single school year raise math test scores in counties characterized by higher child poverty rates, lower infant birth weights, or lower initial K–12 spending. In counties with these markers of low previous investment, increases in per-pupil funding are associated with academic gains over 20 times greater than those in more advantaged areas. These findings suggest that directing additional resources to under-resourced districts is a highly efficient use of public funds, as it produces the largest measurable improvements in outcomes.
Useful notes
- County vs. Individual Level: Because this study analyzes outcomes at the county level, its findings reflect how investments shape broader systems (not just individual students or school districts).
- Focus on Short-Term Achievement: While the study provides robust evidence for math scores, it focuses primarily on short-term achievement rather than longer-term outcomes.
- Identification of Mechanisms: While the research confirms that increased investments lead to significant gains in low-resource areas, it provides limited information on the specific mechanisms that districts should prioritize to achieve these benefits.
Rauscher, E., & Shen, Y. (2022). Variation in the relationship between school spending and achievement: Progressive spending is efficient. American Journal of Sociology, 128(1), 189–223.
Special Education Students
States use a range of approaches to fund special education, often combining multiple models to reflect the wide variation in student needs and services. The most common approach is weighted funding where states either provide a single weight or differentiate additional funds by disability type or severity. Other approaches include census-based funding, which assumes similar identification rates across districts; reimbursement models that cover a share of actual costs; resource-based models that fund staff positions; and supplemental high-cost funds to offset the expenses of students with the most intensive needs. More research is needed on how different funding models support the accurate identification of individual special education needs and allocates adequate resources to support them.
English Learners
Multilingual students classified as English Learners (ELs) are one of the fastest-growing student populations in the United States. The share of EL students varies widely across states, ranging from less than 1% in some states to more than 20% in others, making state context especially important for policy design. Students learning English often require specialized supports such as bilingual instruction, trained language specialists, and targeted instructional materials to support both language development and academic achievement. Although nearly every state provides some form of supplemental funding for EL students, through formula weights, categorical grants, reimbursement systems, or other mechanisms, relatively little is known about how these funding approaches influence student identification, district resource allocation, or student outcomes. More research is needed to assist policymakers in crafting the best resourcing strategies.
Rural Students
Rurality is typically defined by distance from urban areas (isolation) or students per square mile (sparsity). To address the higher costs of serving isolated or sparse communities, states often provide supplemental funding through their formulas. A majority of states include adjustments for rurality, including weighted student counts, targeted grants (such as for transportation), or resource-based allocations that ensure minimum staffing regardless of enrollment. Eligibility is generally based on state thresholds for enrollment, density, or distance, and is intended to offset higher per-pupil costs and the need to maintain core services despite limited scale. Further research is needed to understand how state funding formulas best identify and target aid to support students in small, sparse, and isolated contexts.
Research Consensus
Research shows that increased, targeted investments help districts meet costs associated with size, sparsity, and isolation and have a positive effect on educational attainment, while reduced funding is associated with declines in achievement.
Policy Notes
- Research shows that schools with low enrollment and districts in low population density areas independently increase the cost of delivering education, requiring additional per-pupil funding relative to their urban counterparts to achieve comparable outcomes.
- Remote and rural districts face higher costs, particularly for transportation, facilities, and infrastructure, and may not benefit equally from broad funding reforms, especially when local revenue is unstable.
- Due to lower property tax yields, rural districts usually have more limited reserve funding, making them more vulnerable to reductions in state funding. In these instances, some studies have observed achievement declines.
Main takeaway
Contrary to conventional wisdom, this California study finds that rural and nonrural districts generally allocate their operating funds similarly. The most distinct spending patterns occur in remote rural districts that dedicated substantially more resources to facilities, transportation, and debt service. These findings suggest that because geographic labels alone provide limited insight into district spending needs, policymakers may consider prioritizing flexible, unrestricted funding over categorical grants when designing scarcity or sparsity aid for rural schools. Furthermore, around four years after the Local Control Funding Formula was implemented, low-poverty rural districts were able to raise more in local revenue than higher-poverty rural districts. The volatility of local revenues particularly in rural districts likely contribute fluctuations that make equalizing funding on an annual basis difficult.
Useful notes
- Variety of Rural Districts: The research cautions against treating “rural” as a single, uniform category, finding that rural districts located closer to cities or towns often spend more similarly to suburban and urban districts than to more isolated rural communities.
- Rural Funding Trends: The study notes that recent declines in funding progressivity for rural districts should be interpreted carefully. Because rural districts are fewer in number and often much smaller, year-to-year spending patterns can fluctuate more dramatically than in other settings. The authors advise that additional years of data are needed to determine whether these changes reflect a sustained trend or short-term variation.
- Volatility: This study gives some indication that, given the volatility in local revenue raised by rural districts, state formulas may need more timely adjustments to their state aid calculations to maintain equity between high- and low- poverty rural districts.
Dhaliwal, T. K., & Bruno, P. (2021). The rural/nonrural divide? K–12 district spending and implications of equity-based school funding. AERA Open, 7(1), 1–21. https://doi.org/10.1177/2332858420982549
Main takeaway
School size and sparsity are distinct, rather than interchangeable, factors that contribute to the costs of operating rural schools and should be treated separately in state funding formulas. Schools with smaller enrollments often cannot achieve the cost savings that come with operating at a larger scale. Separately, schools in sparsely populated areas may face higher costs for transportation, staffing, and other goods and services because resources are harder to access and more expensive to deliver.
Useful notes
- Education Cost Modeling: The authors use a cost function approach known as education cost modeling to examine how educational spending relates to student outcomes as aligned with state policy goals, while accounting for differences in school-level cost factors.
- State Context: The analysis focuses on Vermont, where more than half of students attend small or rural schools, but the authors also outline a framework that other states could use to conduct similar analyses.
- Student Performance: The study notes that these estimates are based on historical relationships between school spending and student performance and may not fully capture future changes in policy or educational practice. As a result, the authors recommend periodically updating the analysis. They also note that each state’s student performance measure is typically specific to the state’s achievement tests.
Kolbe, T., Baker, B. D., Atchison, D., Levin, J., & Harris, P. (2021). The additional cost of operating rural schools: Evidence from Vermont. AERA Open, 7(1), 1–16. https://doi.org/10.1177/2332858420988868
Main takeaway
Analysis of Kansas’s shift to block grant school funding in 2015 finds that reductions in school funding were associated with larger declines in student achievement in rural districts than in nonrural districts. Although rural and nonrural districts experienced similar dollar reductions in revenue and spending, the cuts represented a much larger share of rural district budgets because rural districts tend to operate with smaller budgets and fewer economies of scale. The findings suggest that flat state funding reductions may have especially harmful consequences for rural communities, where districts often have less fiscal flexibility to absorb funding shocks.
Useful notes
- Contextual and Policy Limitations: Because this study examines Kansas’s block grant system that froze revenue despite enrollment growth and where districts had limited ability to offset state funding cuts with local revenue, the findings may be most relevant for states considering funding freezes or operating under similarly constrained local funding systems.
- Subject-Specific Inconsistency: The researcher notes that while the study found strong evidence for achievement declines in math, the results for English Language Arts (ELA) were mixed. Specifically, in the between-state analysis, the funding cuts did not yield a statistically significant negative impact on ELA scores for rural districts compared to other states, suggesting that different academic subjects may respond differently to budget constraints.
- Flat vs. Progressive Funding Cuts: When making education funding cuts, states could consider cutting less funding from rural and high-poverty districts due to their limited capacity to offset these reductions with local revenue.
Rauscher, E. (2020). Does money matter more in the country? Education funding reductions and achievement in Kansas, 2010–2018. AERA Open, 6(4), 1–38. https://doi.org/10.1177/2332858420963685
Capital Investments
Public school construction and renovation in the United States are funded primarily at the local level, with school districts covering the vast majority of costs through voter-approved bonds backed by property taxes. This reliance on local wealth creates significant disparities, as low-income communities often struggle to pass bonds and raise sufficient revenue, while wealthier districts can generate substantially more funding per pupil. State support varies considerably, with some states providing matching grants, wealth-based aid, or direct appropriations that sometimes incorporate equity provisions to prioritize low-wealth districts, while others offer limited or no support. Expanding state investment can help mitigate these disparities, and research suggests such investments yield strong returns demonstrating that improved school facilities are associated with higher student achievement.
Raising Resources
Raising Resources description goes here.