Below is an analysis of school finance inequity as calculated by the federal government for 2007 for the 50 states and how it interacts with other important education indicators such as funding, demographics, and achievement.

School finance inequity plays an important role in evaluating education spending.

Variation in per pupil spending across districts within a state is an important indicator of educational equity. In fact, the federal government calculates school finance inequity for each state as part of the Education Finance Incentive Grant formula. This calculation provides each state with an "equity factor," the indicator used in this national ranking. The Education Finance Incentive Grant formula distributes more than $3 billion in Title I Part A funding each year. 1

The Title I school finance inequity measure (also called the equity factor) is used to determine how evenly (or unevenly) funding is distributed across school districts in a state. It is calculated by using a weighted coefficient of variation in total district per-pupil expenditures. The Title I program’s weighted coefficient of variation is basically a measure of how much per-pupil expenditures vary in districts across a state in comparison to the average per-pupil expenditure in that state. In other words, it is the average difference in per pupil spending from the overall state average per pupil expenditure level. The lower the coefficient of variation is in a state, the more equitably education funding is distributed across districts. For more detailed information see Federal Standard for School Finance Equity.

School finance inequity is regional in nature.

In addition to the impact of state funding formulas, within state, inter-district finance equity varies according to the size and number of school districts in a state. Southern and Western states tend to have a smaller number of large school districts. This translates into more equitable funding structures, as funding is aggregated in larger pools and distributed in a more uniform fashion. In the Northeast and the Midwest, states generally have large numbers of small school districts. This magnifies the influence of local property taxes and increases funding disparities between districts. 2

The South is the most equitable region, with finance inequity between districts averaging 10.5 percent, or $885. In the Northeast, average inter-district inequities are the starkest—14.0 percent, or $1,815. Of states that rank in the top half of the country in terms of school finance equity, only four are in the Northeast and only two are in the Midwest. The other 19 most equitable states are located in the South or West.

School finance inequity is roughly correlated with statewide per-pupil expenditure.

States that spend more on education (federal, state, and local funding combined) tend to have more inequitable funding structures. While certainly not always true, in general the states with the highest per-pupil expenditure have greater inter-district finance inequity. This could be because a state’s average spending level can be heavily influenced by spending in a top tier of very wealthy districts. This group of wealthy districts both pulls up the average per-pupil expenditure and increases the average per-pupil dollar difference from the mean per-pupil expenditure, which translates to more inequity.

Inter-district finance inequity measures do not take account of intra-district (within district) inequities.

Equity data presented here are inter-district in nature, but it is important to note that inequities reach a more micro, frequently hidden, level. Districts often do not distribute funding equitably among individual schools within their districts. These intra-district inequities are largely driven by the uneven distribution of teachers and teacher salaries. For more on this issue, see School Finance Comparability.

1. 1. For each state, there are three numbers used here relating to the federal equity factor: 1. The average school finance inequity among districts in percentage terms. This number represents the average difference in per-pupil expenditure from the average state per-pupil expenditure expressed as a percentage. 2. The average school finance inequity among districts in per-pupil dollars. This number is the average per-pupil dollar difference from the mean per-pupil expenditure. It is basically the number described above in (1) multiplied by the per-pupil dollars for a particular state. 3. The school finance equity rank of 50 states. This number represents how a particular state ranks in comparison to other states on the equitable distribution of funding across districts. The state ranked first has the least variance in funding across districts (i.e. is the most equitable) while the state ranked 50th has the most variance in funding distribution (i.e. is the least equitable).
2. 2. Regions. Northeast: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont. Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin. South: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia. West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, New Mexico, Nevada, Oregon, Utah, Washington, Wyoming