Funding High-poverty School Districts: Federal Policy Tools and the Limits of Incentives

What can the federal government do to help ensure that the public schools attended by children living in poverty have enough resources to serve their students? In this brief, we describe existing federal efforts to support education spending in high-poverty districts, discuss their limitations, and suggest alternative approaches for federal policy. We focus especially on the Education Finance Incentive Grant (EFIG) formula—a part of the compensatory Title I grant program designed to encourage changes to state school finance policy—and show that the incentives embedded in the formula are in fact negligible; revising the formula to be more effective would be difficult. Further, any attempt to incentivize desirable state policy faces a fundamental trade-off: Such policy can reinforce inequality because districts in states that do not respond to the incentives by adopting desirable policies also do not receive (as much) federal funding. We argue that federal policy should be more attentive to state fiscal capacity because it is an important determinant of district-level school spending, and the federal government is uniquely positioned to address between-state inequality.