This article provides a systematic decomposition of disparities in school funding by race and ethnicity using two new data resources. First, we use a national district level panel of data from the School Finance Indicators Database to evaluate recent (2012 – 2017) disparities in school revenue and spending by race in addition to poverty, across and within all states and within selected states. Next, we use data from the National Education Cost Model (NECM) to evaluate disparities in spending against estimates of “costs” of achieving national average student outcomes to determine racial differences in gaps between current spending and costs of equitable outcomes. As Latinx shares increase, per pupil spending and revenue decrease, respectively by about 4% to 7% for districts that are approximately 100% Latinx compared to those that have few or no Latinx students, controlling for poverty. More striking, when controlling for poverty, a district that is 100% Latinx is nearly 2.5 times as likely as a district that is 0% Latinx to be financially disadvantaged (have revenue 90% of labor market average, and poverty greater than 120%), when controlling for poverty and 28.5 times as likely when not controlling for poverty. Finally, spending is less adequate to achieve national average outcomes, across states, in districts serving larger shares of Latinx students.

In the United States, the vast majority of funding for K–12 education is provided through state and local governments to school districts. Throughout history, school districts have remained highly segregated both by income/wealth and by race, leading to reduced levels of funding available for higher need districts compared to wealthier districts. The purpose of this chapter is to analyze funding disparities within states and to determine differences between states with respect to funding equity. First, the chapter begins with a discussion of the sources of revenue for education at the state and local levels. Second, it explains the purpose and design of state aid formulas to reduce funding disparities between districts. Third, using data from the School Finance Indicators Database, the chapter calculates funding effort and progressivity indices for each state. Fourth, it provides case studies on two states with more progressive and less progressive funding, New Jersey and Illinois. Finally, the chapter concludes with policy recommendations on how states can improve their school finance systems to provide adequate levels of funding for higher need districts.