Incentivizing Equity - A New Way to Distribute Federal Aid and Spur Adequate Funding for All

Oct 15, 2026

Current federal aid allocation targets neediest school districts but uses an “effort neutral” approach that ignores states’ effort levels and revenue-raising capacities. This misallocates foundation aid by failing to direct support to smaller economies with higher costs while rewarding states that do not adequately fund all students despite being able to. The proposal integrates federal funds into a national foundation formula based on student need plus state and district effort, with full funding and compliance to enable average national outcomes.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages5

Reading Time13 min

AccessFree to download

Current federal aid allocation policies

How “effort neutral” allocation creates weaknesses

Proposed effort-based foundation aid formula

Integrating federal government into the foundation formula

How school finance systems should work vs. how they work

Current school finance systems overview

Incentivizing Equity A New Way to Distribute Federal Aid and Spur Adequate Funding for All ILLUSTRAT IONS BY PAUL ZWOLAK By Bruce D. Baker, Matthew Di Carlo, and Mark Weber C urrent federal aid allocation policies do an admirable job of targeting aid to school districts serving the neediest students. This is not only because they distribute funds through states to local public school districts based largely on proxies for needs and costs such as Census poverty rates (which are fairly effective predictors of K–12 costs) but also because higher-poverty districts are more likely than their affluent counterparts to be underfunded. But these policies have one significant, underlying weakness: they fail to consider states’ effort levels (and their capacities to raise revenue) . This “effort neutral” approach fails to target crucial aid at states with smaller economies and higher costs. These states, despite strong effort levels, cannot possibly meet students’ needs. Conversely, it effectively rewards states that fail to provide adequate funding for all students despite having the capacity to do so. Bruce D. Bakeris a professor in and the chair of the Department of Teaching and Learning at the University of Miami and the author of Educational Inequality and School Finance: Why Money Matters for America’s Students. Matthew Di Carlo is a senior fellow at the Albert Shanker Institute and the author of numerous reports on school funding and equity. Mark Weber is the special analystfor education policy at New Jersey Policy Perspective and a lecturer in education policy at Rutgers University. He is also a music teacher in Warren Township, N.J. This article was adapted from Ensuring Adequate Education Funding for All: ANew Federal Foundation Aid Formula with permission from the Albert Shanker Institute. Our proposal, put simply, is for federal aid tobe allocated based not only on student need (as is currently the case), but also on how much states and districts are able and willing to contribute—in other words, based on their effort. With full funding and compliance, this proposal would provide every school district with the estimated revenues necessary to reach the goal of average national outcomes in mathematics and reading. Some form of this“foundation funding” system is how state and local K–12 funds are distributed in almost all states, at least in theory. States determine how much each district requires to meet the needs of its students—i.e., a “foundation”funding amount. Districts are then expected to contribute a reasonable amount of local revenue toward these costs, given their capacity to raise those funds (e.g., at the same tax rate, a wealthy suburban district will raise far more revenue than a low-income city district) . Finally, state aid makes up the difference between this local fair share contribution and the minimum foundation funding level. Our proposal integrates the federal government asthe toplayer in a national foundation formula, in which the federal government fills the gaps that state and local governments cannot reasonably fill themselves. In order to understand the conceptual basis for this proposal, it is useful to begin with a brief discussion of, first, how school finance systems should work and, second, how they actually do work. Current School Finance Systems On average, about 90 percent of school funding comes from a combination of local and state revenues. Local revenues, mostly from property taxes, are collected and distributed at the school district 26 AMERICAN EDUCATOR | SPRING 2023 level, with states exerting substantial control over local revenue by defining the bounded geographic spaces of local districts, determining how properties are valued and taxed, and deciding how those taxes are incorporated into the broader school finance system. State revenues, usually derived mostly from sales and income taxes, are“pooled” and distributed to districts via a statewide funding f

FAQs

What is the foundation funding approach described in the article?

A foundation funding amount is set for districts’ student needs; districts contribute a local fair share based on capacity, and state aid covers the remaining gap within the foundation level.

Oct 15, 2026

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