Many school districts’ biggest budget concerns this year have centered on the federal government: The Trump administration has moved aggressively—generally without warning or congressional approval—to withhold formula dollars, terminate in-progress grants, and change funding rules.
But in a number of states, political debates and administrative turmoil are piling distinct and varied challenges on school districts at the start of a new school year.
Lawmakers in Michigan, North Carolina, and Pennsylvania blew past their deadlines for finalizing their respective state budgets, jeopardizing tens of millions of dollars for public schools.
Courts have recently issued rulings that education funding systems in Arizona, New Hampshire, and Wyoming violate state constitutions—setting up what will likely be yearslong battles over ensuring all students have equal access to schooling.
Independent of those fights, state-level school funding debates are already raging widely, over private school choice investments in Arizona and Texas; property tax reforms in Indiana, Ohio, and Wyoming; and outdated funding formulas in Delaware, Kansas, and Kentucky.
And nearly every state is just beginning to grapple with new financial burdens tied to cutbacks coming to federally funded programs like Medicaid and SNAP as a result of the One, Big Beautiful Bill Act, a sprawling legislative package signed by President Donald Trump in July. An Oklahoma lawmaker told Stateline this month that a single provision of the 331-page law appears poised to raise his state’s expenses by $200 million a year.
All of these developments have tangible consequences for school districts, which collectively draw roughly 45 percent of their annual revenue from state sources. Districts in property-poor areas that lack the capacity to fully fund their programming with local tax collections tend to be disproportionately vulnerable to state volatility.
Here’s a guide to what’s happening with state funding for schools.
Budgets are late
Most of the more than 40 states with budget deadlines earlier this year completed their spending blueprints months ago, according to a National Association of State Budget Officers tracker. Seventeen wrapped up before June, and another 20 finished by June 30. Wisconsin and Massachusetts crossed the finish line in the first week of July.
But as of Aug. 29, lawmakers in Michigan, Pennsylvania, and North Carolina are still wrangling over appropriations.
The overall spending levels, affecting many types of programs, are at stake, but education disputes are among the key holdups.
Michigan lawmakers are still debating whether to divert school funding to fund road repairs. Pennsylvania’s Democrat-controlled House and Republican-majority Senate haven’t agreed on an amount for private school choice investments.
In North Carolina, Senate and House Republicans disagree on whether to roll back tax cuts approved in 2023. Democrats and Republicans, meanwhile, are haggling over several of Democratic Gov. Josh Stein’s vetoes of Republican-approved budget legislation, including for expanding private school choice.
Pennsylvania schools are collectively short $1.75 billion already, according to an analysis by the state teachers’ union. Some district leaders are pondering taking out loans to help them maintain payroll obligations—incurring hundreds of thousands of dollars in interest charges that could instead pay for other school priorities.
School districts in Michigan have a little more time—their first school-year payment from the state is due to flow Oct. 20. But the uncertainty poses its own challenges: the state’s universal free school meals program could have to shut down if funding doesn’t flow in the next month.
North Carolina’s previous fiscal year budget will remain in effect until lawmakers pass a new one. But teacher pay increases approved by lawmakers and the governor earlier this year won’t take effect until lawmakers resolve their broader budget differences.
Budget negotiations aren’t the only arena for debating fiscal priorities. Legal disputes challenging decisions to divert education funding to other priorities have cropped up recently in at least three states:
- San Mateo County in California is suing the state over allegedly depriving schools and other local services of $38 million in revenue from a state-mandated vehicle adjustment fee.
- In Alabama, the city of Tuscaloosa and its school district are among the plaintiffs in a lawsuit claiming the state tax commissioner has unlawfully given tax breaks to major corporations like Amazon and Walmart, effectively shortchanging public services in the process.
- Wisconsin state officials have raised the possibility of a legal challenge to a budget provision that annually directs $2.2 million designated for schools to instead fund a dozen county prosecutors’ salaries.
Courts are weighing in
In the 52 years since the U.S. Supreme Court ruled that the U.S. Constitution doesn’t contain a federal right to education, lawsuits challenging school funding systems have arisen in almost every state.
In the last eight months, verdicts came down from state courts in three such cases. One consistent message rang out across the varied decisions: States are falling well short of their school funding obligations.
New Hampshire’s current base allocation of $4,100 for each public school student fails to satisfy state constitutional requirements for an adequate education, putting the onus on local taxpayers to make up the difference, Judge David W. Ruoff of the New Hampshire Superior Court ruled Aug. 18.
The same is true, he wrote in the 57-page decision, for the state’s $2,100 supplement for each K-12 student with disabilities, which falls thousands of dollars short of the cost of merely evaluating whether a student qualifies for disability services.
The ruling in a comparable case in Wyoming, brought by the state teachers’ union, goes even further. In a 186-page decision, Laramie County District Court Judge Peter Froelicher said the state’s education investments have failed for decades to account for surging inflation; ensure adequate staff salaries; supply an adequate number of counselors and security officers; and keep up with essential school maintenance.
And in Arizona, lawmakers allocated less than one-quarter of legally mandated funding for school building improvements between 1998 and 2013—at which point they created a new, competitive grant program for school building improvements that has left hundreds of projects without needed funding for years.
Those shortfalls violate the state constitution, Maricopa County Superior Court Judge Dewain D. Fox ruled on Aug. 12.
The cases are far from over—officials in all three states have announced plans to appeal to their state supreme courts. But lawmakers are already debating their responses, as with a Wyoming proposal to boost teacher pay.
Property tax reforms are spreading
Property tax reform has been a hot topic in states nationwide in recent years, as both home values and inflation-driven consumer costs have surged.
Several states have floated ballot initiatives or pondered legislation that would eliminate property taxes altogether. But lawmakers and voters have rejected all of those proposals so far.
Voters in five more states could next weigh in on the question.
Citizen-led advocacy groups in Michigan, Nebraska, and Ohio are currently collecting signatures for property tax abolition measures that would appear on their respective state ballots in November 2026. If they succeed, they would wipe out $11 billion for public schools in Michigan, $13 billion for schools in Ohio, and $3 billion in Nebraska.
Florida Gov. Ron DeSantis, a Republican, has also teased a proposal for a 2026 ballot measure to repeal all property taxes. He’s framed the effort as a necessary extension of Florida DOGE, his state’s riff on the federal Department of Government Efficiency spearheaded by Elon Musk earlier this year.
And in Pennsylvania, two state senators introduced a bill that would amend the state constitution to replace property taxes by 2029 with a system of alternate taxes that make up the difference.
A replacement effort along those lines may not be easy, no matter the state. An Ohio legislative working group has spent months debating the merits of various options for providing property tax relief without hampering local investments that taxpayers wouldn’t want to live without. Republican Gov. Mike DeWine has set a due date of Sept. 30 for the group’s recommendations.
Meanwhile, property tax cuts of various shapes and sizes are already in motion elsewhere.
Indiana passed a complex tax reform bill earlier this year that could cost the state’s schools tens of millions of dollars a year, according to a legislative fiscal note. Among other changes, school districts will now be required to share property tax revenue for the first time with local charter schools in their borders.
Wyoming in March—just weeks after the court ruled the state’s school funding system unconstitutional—slashed property taxes by 25% for homes worth less than $1 million.
Missouri slipped a provision into a budget law approved in June that will require dozens of county school districts in the next year to give voters the option to approve a freeze or cap on property tax rate increases—potentially preventing districts from raising millions of dollars.
At least one lawsuit is already challenging the Missouri law, and five school boards have voted to file an in-the-works lawsuit of their own, St. Louis Today reported.
Meanwhile in Delaware, lawmakers earlier this year approved a law that requires reassessments for all properties in the state every five years. The most recent prior reassessment took place in the early 1980s.
But homeowners objected after the reassessment led to massive increases in their tax bills. In response, state lawmakers organized a special session and approved a suite of laws aiming to offset the squeeze on homeowners. Democratic lawmakers also this week announced four hearings this fall that will examine the fallout from reassessment and chart a path forward.
Even when politicians agree that property tax reform is necessary for improving school funding, they aren’t always able to get legislation over the finish line. In Nevada, real estate industry lobbyists this summer helped kill a bill that would have reformed property tax collections and generated as much as $500 million in new annual revenue for schools.
Private school choice is growing
State subsidies for parents to send their children to private school are on the rise nationwide. And they’re putting a squeeze on budgets with ripple effects for public schools.
In June, Arizona schools got an expected payment from the state weeks late because of what Tom Horne, the state’s education chief, called a $200 million state budget shortfall. Ballooning enrollment in the state’s universal education savings account program accounted for about 20 percent of the shortfall, Horne said.
Separately, state education agency employees failed for much of the year to show up for legally mandated meetings with the state’s auditor, raising questions from lawmakers of both parties about how ESA recipients are spending state funds.
Transparency about private school choice expenses is becoming a bigger focus elsewhere, too. Wisconsin advocates for public schools are pushing for counties to include line items on homeowners’ tax bills detailing the extent to which their bills are subsidizing school vouchers. Idaho educators want lawmakers to push for similar transparency before investing more than the current $50 million allocation for a new direct tax credit for private school families.
At the core of these concerns is a debate over whether private school choice investments cut into funding for public schools. In Tennessee, new state-level data show that per-pupil funding for the average public school student is $272 below the current $7,295 ESA level all of the state’s K-12 students are eligible to receive for private educational expenses.
As district leaders nationwide track the fallout from these new investments, many are keeping a close eye on enrollment trends. The number of students attending public school has been dropping nationwide every year since 2023, and many states and local districts have seen sharper drops. Fewer students mean fewer per-pupil state dollars to spend on public school staff, instructional materials, and buildings.
Adequacy concerns continue to arise
Perennial debates over whether states are spending enough on public education, and whether schools with the biggest needs and highest costs are getting the most state support, show no signs of slowing down.
In Kentucky, a coalition of K-12 students filed a lawsuit earlier this year alleging that the state’s education system is unconstitutional. A report this month by the Kentucky Center for Economic Policy showed that the state’s overall investment in K-12 schools, adjusted for inflation, is 24% below 2008 levels, and state funding for school transportation is currently 18% short of the legally required amount.
More lawsuits challenging state funding for schools could be on the horizon. Kansas superintendents this summer told lawmakers they would have to consider a lawsuit if the state’s school funding formula task force advanced a proposal to shutter school districts with fewer than 100 students. Discussions are ongoing, and a report is due to Democratic Gov. Laura Kelly by early next year.
Education advocates in Alaska threatened legal action this summer after Republican Gov. Mike Dunleavy vetoed the legislature’s approved $700 increase to per-pupil aid for public schools, and changed the line item to $500 per pupil. Lawmakers launched a special session this month and voted 45-14 to override the veto. Fights between lawmakers and Dunleavy over school funding appear poised to continue.
Closing small schools and streamlining school district bureaucracies are a pressing matter across the country, particularly in rural states and in states with large numbers of small school districts with low enrollment.
A new law in Vermont, for instance, has established a redistricting task force that aims to streamline school funding by reducing the number of separate districts in the state from 118 to as few as five.
The effort, like others across the country, is likely to be contentious—especially given that academic research largely dismisses the prospect of major cost savings from enacting school closures, and foreshadows deeper challenges later in life for students whose schools close.
