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Education Spending and Changing Revenue Sources

Sonya Hoo, Sheila Murray, Kim Rueben
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Document date: April 10, 2006
Released online: April 10, 2006

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

© TAX ANALYSTS. Reprinted with permission.

Note: This report is available in its entirety in the Portable Document Format (PDF).


Although school districts are the primary supplier of education services, they do not always have independent authority to set spending levels or raise revenues. The ability to set expenditure levels depends in part on the taxing authority of school districts. School districts in 36 states are designated independent, meaning they may generate their own revenues, usually by setting property tax rates. In the other states, some school districts are dependent on a city, town, or county to raise revenues. For example, most school districts in Connecticut, Massachusetts, and Rhode Island are city- or towndependent, while districts in Maryland and North Carolina are primarily dependent on counties. Other states have a mix of both dependent and independent school districts, with dependent school districts generally found in larger cities. Most dependent school districts are on the East Coast.

State aid finances a growing share of school spending, with reliance on property tax — the traditional source of revenues — diminishing. Nationally, state aid increased from 44 percent of education expenditures in 1972 to 56 percent in 2002, with much of the shift to state aid occurring in the 1970s. However, the shift masks differences across school districts. For the 36 states that contain primarily independent school districts, state aid increased from 46 percent in 1972 to 60 percent in 2002, offsetting a decline in property tax revenues from 49 percent to 34 percent (not shown). A similar shift occurred in states with both dependent and independent school districts, although the change has been less dramatic. For county-dependent school districts in Maryland and North Carolina, however, state aid has remained roughly constant at about 60 percent of total funding.

Real per capita school spending increased by about 50 percent between 1972 and 2002. Spending levels fell in the late 1970s and early 1980s, reflecting declines in student populations and funding that grew more slowly than inflation. However, those real declines were reversed by the mid-1980s.

Note: This report is available in its entirety in the Portable Document Format (PDF).


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Topics/Tags: | Economy/Taxes | Education


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