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The Federal Role in Funding Education

Module by: William J. Price. E-mail the author

Summary: As America begins the second decade of the twenty-first century, there is little question that the education of our youth is critical to the continued political and economic health of our nation. To ensure that societal demands for education are met, politicians and other policy makers must make decisions about what kind of educational system should be provided and how such a system will be funded. In addition, they must ensure that equal educational opportunity is available and accessible to all our students, regardless of their socio-economic status or where they may live. This is a tall order, but one that is crucial to the full development of human capital in our state and nation. Expenditures for education are the largest single budgetary expense for state and local governments in the United States. Estimates are that as much as eight per cent of the nation’s gross domestic product is spent for all levels of educational service. With an estimated annual expenditure of over 600 billion dollars to support the education of record levels of K-12 student enrollments, and approximately six million teachers and support staff nation wide, education is indeed big business. As with any business it is important that a continued source of revenue be available to successfully meet increasing demands, while at the same time using existing resources as wisely and efficiently as possible. Since support for public education relies primarily on public tax dollars, positive public perceptions of schools is critical to their continued financial support.

NCPEA Publications



This manuscript/chapter has been peer-reviewed, accepted, and endorsed by the National Council of Professors of Educational Administration (NCPEA) as a significant contribution to the scholarship and practice of education administration. In addition to publication in the Connexions Content Commons, this chapter is part of a complete collection (book) entitled MICHIGAN SCHOOL FINANCE: A Handbook for Understanding State Funding Policy for Michigan Public School Districts , ISBN 978-1-4675-0165-1. Formatted and edited in Connexions by Theodore Creighton and Brad Bizzell, Virginia Tech.


In spite of the fact that paying for Michigan public education requires a huge investment of public tax dollars, few citizens (including educators) have any real understanding of what portion of their tax dollars, and what specific types of taxes, goes to support their schools. In an era of increased competition for scarce public resources, it is incumbent on all citizens to understand public tax policy as it relates to funding Michigan’s public schools.

Federal Role

To understand where funding comes from to support schools, it is necessary to examine the overall role that each level of government plays in the support of education. When comparing each level of government’s role in funding education, it has been said that education is a federal interest, a state responsibility, and a local function. To make sense of that difference, let’s look first at the federal role in the support of education.

The United States Constitution is silent regarding any direct federal role in education. The Tenth Amendment states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” By design, therefore, the U.S. Constitution prohibits the federal government from direct control of education in the United States and by extension any mandatory responsibility for funding education.

Although the U.S. Constitution clearly determined that education is a state responsibility, the Congress of the United States has nevertheless established a long history of various levels of involvement in the funding of American education through other legal authority and through various court rulings. Indeed, the Northwest Ordinance of 1787 began a very early federal interest in education’s role in developing our nation. The Ordinance provided for the survey of lands and for the reservation of the sixteenth section of every township for education. States and territories were expected to use the lands as they saw fit for providing support for schools.

Congress has also used its authority under the Powers of Congress found in Article I of the Constitution. These powers contain several sections that require that Congress provide for a strong national defense, and over the years Congress has provided large sums of money to education under the umbrella of providing for our national defense.

Congress has also used the General Welfare Clause in Section 8, Article I, of the Constitution to address economic and social justice in the United States through the financial support of various educational programs to bring about social reform, particularly among the disadvantaged in our nation.

Through a variety of Congressional Acts too numerous to list in this small handbook, Congress has, therefore, for many years appropriated billions of dollars in support for funding of public education, both higher education and K-12 education. While these amounts annually are substantial, the total annual federal share of the overall costs of funding education nationally peaked in 1980 at 9.8%, and dropped to 6.2% by 1989. Currently the percentage of federal support has ranged from seven to nine percent annually. While this funding is important, it nevertheless places the federal government as a junior partner in the sense that the states and local governments provide the greatest share of funding for K-12 education.

Federal financial support to schools is derived primarily from revenues paid to the federal government in the form of income tax, both personal and corporate. Annually the Congress determines both the amount to be appropriated for education as well as the amounts to be allocated to each state. The allocation to each state is determined by considering, in part, the total number of students in each state as well as the state’s overall wealth and ability to raise revenues on their own. In this way the federal government tries to provide the greater amount of financial aid to those states that have the greatest need. Federal education revenues that are annually allocated to the states by Congress are nearly all provided in the form of categorical aid. Categorical aid is money that is allocated specifically to address specific educational problems or issues in schools that Congress deems important to provide assistance in funding. Monies that are allocated by Congress to the states are restricted in the sense that they may only be used for the specific purpose for which they were intended and not for general discretionary use by local school districts. As we have noted, the amount of federal money given to schools across the country is relatively small when compared to the total costs of American public education, but nonetheless is an additional important source of funding that school districts have come to depend on.

The two federal laws that provide the vast majority of federal dollars to schools are the Elementary and Secondary Education Act (ESEA) of 1965 and the Individuals With Disabilities Act (IDEA) that followed the enactment of P.L. 94-142 in the mid 1970’s. The initial primary purpose of funding through ESEA has been to provide targeted assistance for increasing educational opportunities for economically disadvantaged children. The largest of these programs is embodied in Title 1 of ESEA that has as its purpose improving the academic achievement of the disadvantaged. In 2001 ESEA was reauthorized by Congress as No Child Left Behind (NCLB) and that year Congress allocated approximately $11 billion, nearly $9.9 billion of which was allocated to Title 1 programs. While Title 1 remains the largest program under NCLB, several other Title programs also provide targeted money to schools. Among these are Title 11, Part D, enhancing education through technology; Title 11, preparing, training, and recruiting high quality teachers and principals; Title 1V, Part A, safe and drug free schools and communities; Title 1V, Part A, community service grant program; Title 1V, Part B, 21st century community learning centers; Title V, Part A, promoting informed parental choice and innovative programs; Title V, Part D, prevention and information programs for children and youth neglected or delinquent; Title V1, Part A, grants for state assessments and related activities; and Title X, Part C, education for homeless children and youths. Periodically Congress modifies the various Title programs to emphasize current or emerging issues they wish to address through federal funding. In addition to grants to schools under NCLB, the federal government also provides a large number of other federal grants including such things as the national school lunch program available to all schools.

The other major category of federal funding is through IDEA which was originally intended to pay for up to 40 percent of the added costs incurred by states in educating children with disabilities. Historically, however, federal funding has only covered about eight percent of those costs leaving a large unfunded federal mandate. States and local school districts must pick up the remainder of the added costs for special education programs and services for children with disabilities. The issue of both federal and state unfunded mandates has historically been a source of friction between local school district leaders and federal and state policy makers. Later in this handbook we will look more closely at this issue and its effect on Michigan schools. Federal monies for education received annually by the State of Michigan are deposited in the State School Aid Fund (SSAF). Together with state revenues they are passed through to local school districts based upon eligibility criteria established by the federal government and the Michigan Legislature. Local school districts each receive varying amounts of funding based upon number and categories of students meeting the criteria established in the federal categorical legislation. In fiscal year 2010-2011 Michigan received an estimated $2,178,333,300 in federal education aid.

This amount represents nearly 15 percent of the total gross amount of $13,134,236,200 budgeted in the SSAF for fiscal year 2010-2011 (PA 217 of 2010). Michigan’s federal education aid for fiscal year 2010-2011 includes $500,526,900 in one-time American Recovery and Reinvestment Act (AARA) and Federal Education Jobs Act (EdJobs) revenue, added to $1,677,806,400 in general federal aid. Michigan’s general federal education aid includes $459,700,000 in federal special education reimbursement, $761,973,600 in NCLB funding, $402,506,000 in school lunch program reimbursement, $5,249,300 for math/science centers, $10,067,800 Center for Education Performance (CEPI), $3,250,000 MEAP testing, $2,700,000 Michigan Virtual High School (MVHS) support, and $32,359,700 in other miscellaneous categorical programs. As federal aid to state education systems continues to grow, it comes with additional federal control over nearly every aspect of school district governance. While state and local policy makers are deeply concerned about the loss of state and local control of public education, the only option for states would be to reject federal aid and the federal controls attached to it. No state to date has been willing to do so.


In summary, we have determined that although education is not a direct responsibility under the U.S. Constitution, it nonetheless has a long history of federal involvement for the support of education through a broad interpretation of various constitutional provisions that have to do with national defense and promoting the general welfare of our citizens. As a result of this more narrow focus, the federal government is able to pick and chose among those areas that Congress wishes to support financially.

Finally, federal support for education has raised some fundamental differences over national policy on education. Generally many people believe in a strong federal role in providing funding to enhance American education while many others believe that funding education should be left to the states. Some believe that the federal government should get out of the education business and have called for the abolishment of the U.S. Department of Education that has served as a symbol for a strong federal education presence.

Given the current important role played by the federal government in providing funds for education, there is probably little likelihood of a total withdrawal. Such funding will continue to be debated, however, particularly as education competes with other national needs for federal financial support.

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A lens is a custom view of the content in the repository. You can think of it as a fancy kind of list that will let you see content through the eyes of organizations and people you trust.

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