How to Design a State Education Aid Formula That Is Equitable, Adequate, and Politically Feasible: The Case of Connecticut - No. 21 -1

Oct 15, 2026

Uploaded by Connor

After being sued for inequity and inadequacy in school funding, many states reform their education aid policies. Using Connecticut as the case, the paper builds an education cost–revenue capacity gap from district characteristics beyond local officials’ control, then evaluates how current aid distribution performs on that gap. Results show persistent inequity and inadequacy under existing formulas. A gap-based proposal is offered, including minimum and maximum aid levels to support political feasibility and transferability to other states.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages53

Reading Time2 h 14 min

AccessFree to download

Introduction

Equity and adequacy concerns in public school finance

State-level litigation history and evolving legal arguments

Connecticut case study and funding reliance on property taxes

No. 21-1 How to Design a State Education Aid Formula That Is Equitable, Adequate, and Politically Feasible: The Case of Connecticut Bo Zhao Abstract: After being sued for inequity and inadequacy in school funding, many states have reformed their education aid policies. Using Connecticut as an example, this paper shows how to design a state education aid formula that can effectively address funding inequity and inadequacy while taking political feasibility into account. It first develops a measure of the gap between education cost and revenue capacity, both of which are estimated using school district characteristics that are outside the direct control of local officials at any given point in time. It then uses each district’s cost-capacity gap to evaluate the state’s existing education aid distribution. This paper shows that while larger-gap districts, on average, receive greater amounts of state aid per pupil under Connecticut’s existing distributions, significant inequity and inadequacy remain. This paper proposes, as a potential solution, a gap-based formula that allocates state aid to close the cost-capacity gaps. The formula includes tools such as minimum and maximum levels of aid to increase its political appeal. The research method and the formula design that this paper presents are sufficiently general and flexible to be adapted easily and applied to other states. JEL Classifications: H75, I21, I22, I28 Keywords: education cost, revenue capacity, state education aid, aid formula Bo Zhao is a senior economist in the Federal Reserve Bank of Boston Research Department. His email is [Bo.Zhao@bos.frb.org](Bo.Zhao@bos.frb.org). The author thanks Jeff Thompson and participants at the Federal Reserve Bank of Boston Research Department’s Brown Bag Seminar for helpful comments. Lan Ha provided excellent research assistance. This paper presents preliminary analysis and results intended to stimulate discussion and critical comment. The views expressed herein are those of the author and do not indicate concurrence by the Federal Reserve Bank of Boston, the principals of the Board of Governors, or the Federal Reserve System. This paper, which may be revised, is available on the website of the Federal Reserve Bank of Boston at [http://www.bostonfed.org/economic/wp/index.htm](http://www.bostonfed.org/economic/wp/index.htm). This version: September 2020 [https://doi.org/10.29412/res.wp.2021.01](https://doi.org/10.29412/res.wp.2021.01) I. Introduction Concerns about the equity and the adequacy in public school finance are deep seated and long running in the United States. These concerns stem from the combination of school funding’s traditionally heavy reliance on local property taxes and a significant variance in per-pupil property wealth across school districts. Low-income students and other students with greater learning needs often live in property-poor districts due to income and racial segregation. As a result, propertypoor districts not only have fewer of their own resources, they also have greater student need compared with their wealthier counterparts. Almost every state in the country has been sued over school funding in the past half century.1 Between 1973 and 2019,2 lawsuits were filed in 47 states;3 Hawaii,4 Nevada, and Utah were the exceptions. In the earlier lawsuits, plaintiffs often argued that equal protection clauses in their state constitutions guarantee equal per-pupil school funding across the state, regardless of school districts’ property wealth. In the later lawsuits, however, plaintiffs often resorted to provisions in state constitutions that guarantee all students an “adequate,” “sound basic,” or“thorough and efficient” education. Many plaintiffs interpreted an “adequate education” to mean providing every school district with sufficient resources to meet a student test performance target and/or high school graduation standards that states implemented as part of school accountability

FAQs

How does the paper measure inequity and inadequacy in education funding?

It develops a gap between education cost and revenue capacity, estimating both from school district characteristics that are outside local officials’ direct control. The gap is then used to evaluate the state’s existing education aid distribution.

What does the paper find about Connecticut’s current aid distribution?

On average, districts with larger cost-capacity gaps receive more state aid per pupil. However, significant inequity and inadequacy remain under existing distributions.

What solution does the paper propose and why does it aim to be politically feasible?

It proposes a gap-based formula that allocates state aid to close cost-capacity gaps. The formula includes minimum and maximum aid levels to improve political appeal.

Oct 15, 2026

Uploaded by Connor