OLR Research Report


By: Marybeth Sullivan, Associate Analyst

Explain the funding formulas for public education used by other states, and provide several examples.


This report uses research from the Education Commission of the States (“the Commission”), a nonpartisan organization created by states to track state policy trends, translate academic research, and provide unbiased evidence about education topics.

According to the Commission, there are three primary types of public education funding formulas: (1) foundation programs, (2) resource allocation systems, and (3) a hybrid of the two.

Foundation programs use pupil counts with weighted adjustments for student needs to arrive at a per-pupil cost for public education. States then determine how to split this cost with towns using different town wealth measures (e.g., property value, personal income, or a mix of the two).

Resource allocation systems cost-out various service components in the average school district (e.g., teachers, administrators, services). The total cost of these services equals the amount of resources each district should receive. States then determine how to split the cost of the resources with towns.

The Commission recently highlighted both Massachusetts' and Maryland's funding formulas as “promising practices.” Massachusetts uses a hybrid of the foundation and resource allocation models, while Maryland uses a foundation model.


The Commission reports that nearly three-quarters of the states use foundation formulas to fund their public education systems. Foundation formulas give state money to local governments on a per-pupil basis. To design a foundation formula, states typically follow the steps described below in Figure 1.

Figure 1: Steps for Designing a Foundation Formula

Source: Education Commission of the States

The Commission explains that foundation formulas can be adjusted to meet a state's or districts' educational needs and economic circumstances. Under this formula model, districts have greater autonomy to allocate state funding to educational resources in comparison to the resource allocation models, in which the state has more control.


According to its most recent available research, the Commission reports that seven states use resource allocation formulas to fund their public education systems. Resource allocation formulas give state money to local governments based on the cost of providing educational resources to school districts. To design a resource allocation formula, states typically follow the steps described below in Figure 2.

Figure 2: Steps for Designing a Resource Allocation Formula

Source: Education Commission of the States

Resource allocation system formulas clarify the amount of resources a school district receives from the state, according to the Commission. States can use it to exert more authority over the number of teachers and other resources that should be in a school. The process of calculating the cost of each education resource can be time consuming for both the state and the districts, the Commission points out.


In both the foundation and resource allocation models, one formula component determines the share of education funding that the state will provide in comparison to the local government. The Commission explains that states use different measures of wealth in their funding formulas. Figure 3 below, designed by the Commission, provides examples of how states design their component that measures town wealth.

Figure 3: State Formula Components to Measure Town Wealth

Source: Education Commission of the States


The Commission found several states that use a hybrid model, which takes elements from both foundation and resource allocation models. There is no standard model for the hybrid formula. Massachusetts is one example of a state with a hybrid funding formula (see below).


According to a recent presentation by the Commission to the Illinois House Committee on School Finance, both Massachusetts and Maryland use public education funding formulas that are “promising practices.”


Massachusetts adopted its school funding formula in 1993, the same year that it adopted its MCAS (Massachusetts Comprehensive Assessment System) standardized test that measures student achievement. The Commission considers the formula to be a hybrid because it uses a system of costs per student, which is similar to a foundation formula, but the cost is determined using a resource allocation approach.

The Commission provides an example of how Massachusetts' funding formula calculates the cost of educational resources for a general education elementary school student in Figure 4 below.

Figure 4


The Commission also commends Maryland's funding formula as a “promising practice.” Adopted in 2002, the formula uses a “two-tiered foundation approach.”

The Maryland Equity Project, a nonpartisan policy research project housed at the College of Education at the University of Maryland, explains the two tiers. Under the first tier, the state allocates to public school districts a per-student foundation amount, plus additional funds based on their populations of students who (1) receive special education, (2) have limited English proficiency, or (3) are low-income. This tier also has a wealth-equalizing mechanism built in, which “required that distribution of per pupil state aid be inversely related to a district's per pupil wealth.”

Under the second tier of the funding formula, the Geographic Cost of Education Index (GCEI) provides supplemental funding to districts where the cost of educating students is high. The GCEI accounts for (1) the level of wages that must be offered to attract comparable personnel to each locality and (2) differences in costs of non-personnel supplies (e.g., paper products and energy, but not capital expenditures). According to the Maryland Equity Project, 13 of Maryland's 24 school districts are “high cost” and receive GCEI funds. These high cost districts educate around 80% of the state's public school students.


Checovich, Laura. Maryland Equity Project. “Policy Brief: Financing Public Education in Maryland: A Brief History.” September 2016.

Education Commission of the States. “Understanding State School Funding.” The Progress of Education Reform. Vol. 13, No.3. June 2012.

Education Commission of the States. “Who Pays the Tab for K-12 Education?” The Progress of Education Reform. Vol. 14, No. 4. August 2013.

Griffith, Michael. Education Commission of the States. “House Committee Meeting on School Finance; Springfield, Illinois.” PowerPoint presentation. April 2015.