The Leading Indicator: State Education Finance Issue Ten

“Federal Funding Déjà Vu The president’s new federal budget proposal for fiscal year (FY) 2027 is out, and it looks familiar. In one of our first issues of this newsletter last year , we unpacked an education funding proposal emerging from the Trump administration to increase “ block grants ” in education. The idea: consolidate dozens of federal funding streams and remove many of the requirements that dictate how states and schools must use those dollars. At the time, the administration proposed cutting and consolidating roughly $12 billion from the U.S. Department of Education’s budget, while eliminating dedicated funding for English learners, migrant students, teacher professional development, and other targeted supports. President Trump and Secretary of Education Linda McMahon also continue to advocate for eliminating the department entirely, though this would require separate legislative action beyond the budget process. Those ideas did not make it through Congress. After nearly a year of budget battles, lawmakers landed at a federal K-12 education budget for the remainder of FY26 that looks largely similar to prior years, maintaining core funding streams, even as the administration changed how funds are administered with a smaller Department of Education workforce and interagency shifts . The recently proposed FY27 “ skinny budget ” (intended as a broad overview of priorities) revisits those same ideas from early FY26 proposals, at a similar scale when focusing on K-12. The proposal would reduce federal K-12 spending by about $6 billion, but would preserve the largest formula grants, including: Maintaining the biggest funding programs: Title I for low-income students would be flat-funded, and IDEA funding for students with disabilities would grow by about $490 million (3.3%), in addition to consolidating several IDEA sub-parts , Seventeen targeted grant programs worth a combined $6.5 billion would be consolidated and shrunk into a $2 billion pot of flexible funding (“Make Education Great Again,” or MEGA, grants), Eliminating funding for English learners, migrant students, and community schools, Slightly increasing funding for charter schools ($60 million), and Doubling down on cuts to the Department of Education workforce, Office of Civil Rights, and federal research functions. This proposal is not law. It’s a starting point for negotiations with Congress. It remains to be seen whether Congress wants to pass these cuts. Lawmakers declined to enact similar cuts just a few months ago in the most recent budget agreement and now face the competing priorities of an ongoing partial government shutdown over the Department of Homeland Security, military actions, and their own re-election campaigns. Cutting education funding on the eve of a midterm election could be unpopular for legislators in tough races: recent polling suggests a majority of voters want more education funding, not less. Even if the skinny budget is unlikely to advance as is, proposals like this indicate where leaders in the executive branch stand. The rhetoric in this proposal echoes consistent themes around “returning education to the states” and reducing federal bureaucracy. One of the strangest passages in the document cites eighth-grade National Assessment of Educational Progress (NAEP) scores and asserts: “These abysmal results demonstrate that Federal control of education is not working.” Eighth-grade NAEP scores are abysmal and should be a wake-up call to anyone who thinks public education is working fine for most young people. However, federal policy exerts relatively little control over public education, especially compared to state policy. That is not new. Fundamentally, this proposal doesn’t “return” much, and the theory of action it espouses — that increased flexibility will compensate for reduced funding and oversight, and result in improved outcomes for students — rings hollow. Increased flexibility in federal funds could be beneficial to students in some cases, especially if federal funds bolster promising or proven state and local approaches. Instead, the federal government is proposing to cut funding for services and protections for students furthest from opportunity, and calling it ‘flexibility’. Even if this largely copy-paste proposal from last year is just a shot across the bow to open the 2027 budget battles, these policy debates shift the conversation about which programs matter most for students and communities, and test the resilience, flexibility, and priorities of state school funding systems. In the past year, we’ve seen some states use federal funding instability to fuel reforms to their own funding systems. However, in other states, progress has stalled when federal actions disrupt state plans and strain fragile political coalitions. State leaders and advocates should continue to seriously consider how they would effectively support and sustain student learning in a future with less federal money, but fewer constraints. —Bonnie O’Keefe and Jennifer O’Neal Schiess State Education Finance Newsletter Sign Up The Big Picture: Trends We’re Watching Facilities funding is one of the most underappreciated dimensions of K-12 school finance. Compared with funding for day-to-day school operations, it receives less research and advocacy attention and fewer state resources, despite the clear importance of school facilities for students and educators. Every student deserves a safe, modern learning environment. Research and common sense both tell us that the physical learning environment can shape student experience and affect student outcomes. A new publication from our colleagues, “ Investing in California’s School Facilities ,” by Bellwether’s Paul Beach and Sophie Zamarripa in partnership with the California School Finance Research Institute, finds strong causal evidence that increased facility spending improved district test scores. Other studies show gains in student performance from attending newly-built schools or even making low-cost improvements like installing filters to improve school air quality . Yet in most states, responsibility for facilities funding falls largely on local communities. Lower-wealth districts often face greater financial barriers to meet basic capital needs, including constraints on bond capacity and higher tax burdens for residents if bonds pass. Charter schools also face distinct challenges: they can’t levy taxes or issue bonds to pay for facilities, and typically rent facilities or take out loans to build their own, both of which can divert a greater share of funding from classrooms. These challenges are growing more acute. Construction costs and interest rates are increasing . Some communities are hesitant to invest in facilities amid enrollment declines and fiscal uncertainty, even as aging infrastructure demands attention. Facilities funding may become a more prominent part of school finance policy debates. Arizona and California are both states with active funding lawsuits focused on school facilities. We expect to see increased policy activity in this area, and our team will continue to explore not only how states can structure more equitable and sustainable approaches to school facilities funding, but also the broader set of challenges shaping local facilities decisions, such as enrollment declines, school closures, and the constraints of relying on local funding. State Spotlights: Notable News From Statehouses Arizona: Lawmakers are grappling with an 8 month court-imposed deadline to fix their underfunded capital funding system for schools, recent expiration of a $300 million pot of funding authorized by a 2016 ballot initiative, and state audit findings that a growing number of districts are at high financial risk, especially in the area of capital budgets. Meanwhile, enrollment in the state’s “Empowerment Scholarship Account” program topped 100,000 students, and gross costs reached approximately $1 billion. Alabama: As of April 10, Gov. Kay Ivey signed a budget into law that will increase funding for the RAISE Act by an additional $25 million and continue increasing student-based weights introduced for the first time last year. Kansas: Lawmakers narrowly passed a property tax reform that would make it easier for taxpayers to stop or challenge certain taxation increases, with an exception for the statewide school levy . Gov. Laura Kelley vetoed the bill, in part because “multiple school districts and local governments have been notified that their bonds that were within days of closing have been terminated by the underwriters, due to the financial uncertainty that this piece of legislation creates.” The legislature returned for a veto session this week. New York: Budget negotiations are ongoing around the K-12 budget, with competing proposals both totaling nearly $40 billion. Gov. Kathy Hochul’s budget proposed a 4.3% overall increase to foundation aid and +1% funding boost guarantee for all of the state’s over 600 school districts. The state assembly is advancing a slightly larger proposal, with a +2% guarantee. The current proposal also introduces dedicated funding weights for students experiencing homelessness. North Carolina : The state supreme court overturned its 2022 ruling in the Leandro school funding lawsuit and vacated lower courts’ orders since 2017. The court also shut the door to further litigation in the case. In a series of prior decisions spanning decades, courts repeatedly found that the state failed to meet its constitutional responsibilities to provide a “sound, basic education.” This ruling does not change the state’s constitutional responsibilities to fund education. NC ranks last among states for K-12 education funding as a proportion of state GDP. Texas : New data released by the state comptroller showed that 274,000 students applied for Texas’s new “Education Freedom Account” program. Not all applicants will receive funding. The comptroller’s report estimates that available funding will be distributed to 90,000-100,000 students within the first two tiers : students with disabilities from low- to middle-income families and then low-income students more broadly. About four in five applicants indicated they intended to spend funds on private school costs rather than on homeschooling or other educational purposes. Follow the Money: What We’re Reading We’re listening to Bellwether’s Carrie Hahnel on the “ Education on the Line ” podcast discussing school district budget pressures nationally and locally, including in her role as a board member for Alameda Unified School District in California. Zahava Stadler and the team at New America released a follow-up to their work mapping segregated cross-district borders featuring local case studies and first-person stories . A new analysis by the University of Pennsylvania examines the distribution of federal funding by age group , finding that children and young people under age 26 receive less than 10% of applicable federal funding. The post The Leading Indicator: State Education Finance Issue Ten appeared first on Bellwether .

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