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Chapter 10 - School Funding and Budgeting



One of the most important tasks for a local board in the control and management of schools is adopting the budget.  The budget authorizes the targeted expenditure of revenue available to the school district and serves as a vehicle to control spending.  The budget clarifies the goals and priorities of the district.  As elected officials, board members sometimes face harsh political consequences for budgetary decisions.  Boards must balance the needs of the students, the desires of the community, and the revenue available.  This chapter presents an overview of one of the most complex areas of school governance.  Georgia School Boards Association offers in-depth training on school finance each year.


Public education in Georgia is funded from three primary sources:  local ad valorem (property) taxes, state funds, and federal funds.  Across the state the mix of revenues varies widely. 


  • In some districts, local taxes provide less than 10% of the revenue while other districts obtain over 60% of their revenue from this source. 
  • State funding for systems ranges from 22% to over 80%. 
  • Federal funding ranges from less than 3% to over 25%. 


Why is there such a difference?  Much of the difference comes from the way we fund public schools. Following is a simplified explanation of this process.



School Funding Made Simple


ÏThe provision of an adequate public education for the citizens shall be a primary obligation of the State of Georgia. Public education for the citizens prior to the college or postsecondary level shall be free and shall be provided for by taxation.Ó (Georgia Constitution 8-1-1)


Each student in GeorgiaÌs public schools is entitled under the Georgia Constitution to a free and adequate education.  ÏAdequateÓ is not defined in law and has been at the heart of lawsuits across the country.  Local boards are constrained in what education programs and services they can offer students when Congress fails to fund its mandated programs, the state is forced to reduce funding during economic recessions, the state or federal government redirects funding to a specific purpose, and when the constitutional limit on local taxation is reached. 


Public schools in Georgia receive a combination of federal, state and local funds to pay for the education of public school students.


Federal Funds are tied to specific programs for historically at-risk students:

  • IDEA                           Special Education
  • ESEA (Title I)               Poverty
  • ESOL                           Students with Limited English Proficiency


Federal funds for certain programs like special education and ESOL are based on the number of students who meet the eligibility criteria of the specific program.  Funding for Title I is based upon census data.


The majority of state funds provided to operate public schools are calculated using the following Quality Basic Education (QBE) formula:


(1) QBE "Earnings" + (2) Categorical Grants + (3) Equalization

(1) QBE "Earnings" = (Direct & Indirect Instructional Costs) - (5 Mill Share)


Direct Instructional Costs reflect the cost of putting a teacher in every classroom based upon the grade of the student (K, 1-3, 4-5 6-8, or 9-12), any special program in which the student is enrolled (EIP, special education, gifted, remedial, alternative, middle school, ESOL, or vocational lab), and the teacher: pupil ratio.


The teacher cost used in the formula is based on the state salary scale, including benefits (but not Social Security). This weighted formula counts each individual student for each segment of the day. The benchmark weight of 1.00 is assigned to a student in grades 9-12 who attends regular classes and receives no special services the least expensive student to educate. All other students receive a higher weight.  The resulting weight for each student is known as the "Full Time Equivalent" (FTE) count.  Published enrollment counts are actually FTE counts, not the number of students enrolled.  It is vital that the district has at least one person who fully understands FTE counts including how to submit them accurately and how the count relates to the funding.  The FTE count drives state funding.  If the count is done or submitted incorrectly, the funding will be incorrect. 


Indirect Instructional Costs include funding for central administration and school administration, facilities maintenance and operations (M&O), media centers and 20 additional days of instruction.  These costs are calculated based on system size, school size or student population. 


The system allotment sheet, prepared by the Department of Education for each school system, shows the amounts earned.  They can be accessed online at under the "Data Reporting" tab.


Note:  Referring to Direct and Indirect Instructional Costs as QBE Ïearnings,Ó leads local systems to erroneously believe that this is the amount of money they have earned and are entitled to receive. It is more accurate to think of QBE formula earnings as ÏgrossÓ earnings, because, just like income, one does not receive the gross amount, only the net amount.  Thus, the ÏnetÓ earnings a local school system receives deducts the local 5-mill share and, when required, additional state cuts

(austerity reductions).



Local Funding


"Authority is granted to county and area boards of education to establish and maintain public schools within their limits." (Georgia Constitution 8-5-1)


Local systems are permitted to levy property taxes for the purpose of funding public schools. "Millage" refers to the rate of the property tax levied.  The millage rate is defined as "local tax revenues divided by the assessed valuation divided by 1000."  School systems may not levy more than 20 Mills (with a few exceptions) without voter approval.  In addition to levying property taxes for the operation of their schools, local systems may also use bonds and SPLOSTS (sales tax) to finance school construction if approved by the voters.


The "5 Mill share" in the QBE formula refers to the portion of the Direct and Indirect Instructional Costs that the state expects local systems to pay with locally raised funds.  Currently, the state requires local systems to pay an amount equal to 5 mills of property tax generated within their taxing authority.  By law, the amount of money represented by the 5 mills statewide cannot exceed 20 percent of the total QBE formula earnings (Direct and Indirect Instructional Costs). 


Funds that are raised locally through locally levied property taxes, including the 5 Mill share, do not leave the school system and are not sent to the state or to other school systems. (Bonds and SPLOSTS raised locally also are kept locally).   The 5 Mill share is simply the amount of the local funding "obligation" the state requires each system to pay.


Additional local funding raised from levying additional mills is used at the discretion of the local system for:


  • Additional teachers/smaller classes
  • Salary supplements
  • Paraprofessionals
  • Additional programs (e.g., SAT prep)
  • Extracurricular activities
  • Athletics
  • Technology, etc.



The local system also must use local funds to supplement state categorical grants for such things as transportation, maintenance and operations (M&O) and certain portions of QBE (e.g. social Security).


(2) Categorical Grants 


Local systems receive additional funding in the form of "categorical grants." These grants include funds for transportation, sparsity and low incidence special education students. The disparity in the transportation funding and the amount needed is one of the most frequent complaints from board members and superintendents. In FY 2007, the transportation categorical grant was $166,452,130 but systems actually spent $672,881,689 on transportation that year.  (Note:  Fiscal Year 2007 data is the most recent available from the Georgia Department of Education at this writing.  Reports are available online at under data reports.) 


(3) Equalization


QBE earnings are intended to provide for an adequate education. Equalization is an attempt to address equity.  The concept of equalization is related to the idea of the 5 Mill Share, discussed above.  Because all counties are not created equal in terms of property tax wealth, they cannot raise the same amounts of money from local property taxes. The state provides additional funding to these counties according to a formula that compares the relative property tax wealth of all counties in the state.  Systems at or below the 75% level can receive equalization funding in proportion to the amount of mills they levy beyond 5 mills.  (The Equalization formula was changed in 2001 to reduce the participation level from 90% to 75% and to include all mills above the first 5.  In the past only the mills between 5 and 8.25 were considered, thus creating a disincentive for local systems to raise their own millage rates.)  In FY 2007, this amount is $427,024,377 ñ an increase of $147,669,078 over the FY 2004 level.


Additional Funding Points:


  • Austerity cuts taken annually since the 2002 economic recession have come directly from the QBE formula earnings. From FY 2003 through FY 2009, the state paid systems about $1.5 billion less than the formula amount.
  • Direct instructional costs are fixed and increasing costs that local systems cannot change:  the numbers and kinds of students who attend their schools and the cost of teachers on the state salary schedule.  Both are increasing.  Cuts in state funding force local boards to fund the difference since the costs can not be altered.
  • The state does not fully fund teacher pay raises, so even though a system receives more money for salaries, it must contribute additional local dollars.  For example, a system may receive $6 million from the state for a 2% pay raise, but it may cost them $10 million to provide that raise.  Systems often hire more teachers than the state formula provides and pays a local supplement on top of the state salary scale.  Sometimes the system must hire more teachers than the state formula provides to meet the class size requirements set by the state.  These additional teachers and this additional salary are not included in the stateÌs 2% calculation.  Further, the state pays no Social Security -- this is totally paid by the local systems.
  • As the funding shifts more to local dollars, local systems will either need to cut expenditures, raise taxes, or use reserve funds.  Most systems maintain there is no fat left in their budgets so teachers and programs will be eliminated.  Several systems are at or near the 20-mill cap and cannot raise taxes.  Many systems report they have little or no reserves left.


The Local Budget Process


State law requires the budget be adopted before the beginning of the fiscal year (July 1).  Since the deadline for contract renewal is May 15th, the budget process begins much earlier.  It is sometimes difficult for boards to estimate revenue for the coming budget year since the General Assembly usually does not agree on the budget until the end of the session, which may be in late March or early April.  Some boards also have to contend with problems within the county tax assessorÌs office affecting the property tax digest.


The first official action of the local board in the budget process is the tentative adoption of a budget.  The process follows this sequence of events:


  • The superintendent submits a proposed budget to the board at work sessions for input and adjustments by the board.
  • The board seeks public comment on the proposal.
  • The board tentatively adopts a budget by formal vote.  This can be a simple resolution with a copy of the budget attached.  This should occur no later than June.
  • The budget is advertised at least once in a newspaper of general circulation within the geographic boundaries of the district.  The ad must contain, at a minimum, the tentative budget by revenue category and expenditure function by governmental fund type as well as notice of the date, time, and place at which the final adoption will be considered.
  • The board may revise the tentative budget as necessary and then formally adopt the final budget before July1.
  • The budget should be adopted in resolution form including at least the same amount of budget information as that included in the legal advertisement.  If the board adopts a budget at a more detailed level, the budget must be amended if that detailed level is overspent.
  • The board tentatively adopts the millage levy adequate to fund the budget.
  • Two weeks before setting the millage rate, they must publish a report in a newspaper of general circulation in the school district that includes the following:
    • Proposed millage rate for the current calendar year (Reference the Taxpayer Bill of Rights - TBOR [O.C.G.A§ 48-1-9]  The Georgia Department of Revenue also has information on TBOR, which can be found on the eBoardsmanship site.)
    • Millage rates of the last five years indicating the percentage and dollar increases each year
    • Total dollar amount of ad valorem taxes the board is proposing
    • Total amount of ad valorem taxes levied for the last five years indicating the percentage and dollar increases each year
    • Time, place and date when the board will set the millage
  • Two weeks after publishing the levy they may set the final levy for the fiscal year.
  • The county commission or city governing authority is then notified of the levy.



The board receives regular reports to help them monitor the budget and keep spending on track.  These monthly reports should be carefully reviewed. Accountability for district spending lies with the school board. Members should ask system administrators for an explanation of any financial matters about which they are unclear.  Local boards must maintain a balanced budget.  If the school system goes into a deficit, O.C.G.A. ? 20-2-67 describes the procedures to be followed.



Public Hearings Requirements


If any property within the school district was reassessed during the year and increases in value, there are additional requirements to be considered.  The tax assessor must establish the Ïrollback tax rate,Ó the millage rate, which would raise the same amount of total taxes as the previous year.  If the millage rate was 12.4 but the rollback rate is set at 11.2, a proposed millage rate above 11.2 will require the board to do the following under the Taxpayer Bill of Rights:


  • hold three public hearings, at least one of which must begin between 6:00 and 7:00 PM
  • publish a notice, with specified language, in the paper one week in advance of each public hearing
  • issue a press release


Additionally, if a local board proposes decreasing the local salary supplement of teachers in a year that the state raises the salary schedule, the board must hold at least two public hearings regarding the decrease.  The notice, including the time, place, agenda, and specific subject matter of the meeting, must be published in the legal organ of the county one time at least seven days prior to the date such hearings are to be held. Written notice shall be provided to each employee subject to the schedule of minimum salaries at least seven days prior to the date of the hearings. Each hearing shall be held after school hours to allow certificated and noncertificated personnel to attend. 


The local board is not required to raise the local supplement to match the state raise, nor is it required to hold hearings if it does not do so.  The hearings are required only if the supplement is decreased in a year when the state raises the salary schedule.



Spending Resolutions


Legally the school system cannot operate without an approved budget, but occasionally a board is unable to adopt the budget on time.  State Board rule requires the board to adopt a "spending resolution" which authorizes the superintendent to spend funds in the new fiscal year until the budget is adopted.  The resolution should be limited to one month of operations for one-twelfth of the previous yearÌs budget.  This resolution should be recorded in the minutes and be available to the Department of Education and auditors.



Limits on Expenditures


The Georgia Constitution requires that school tax funds be expended only for the support and maintenance of public schools, public vocational technical schools, public education and the activities that are a part of these institutions.  School funds may be disbursed only upon the order of the local board of education.  Board policy determines the authorization power of the superintendent.


There are several expenditure controls in the QBE formula.  That is, there are requirements that certain percentages of certain funds be spent on specific programs.  In 2006, the General Assembly passed an additional expenditure control.  Beginning in FY 2008, 65% of all revenue must be spent in the classroom as defined in O.C.G.A. ? 20-2-171 and State Board rule 160-5-1-.29.  FY 2007 will be the baseline year for moving toward compliance if a system does not meet the requirement.  If academic standards are being met, the district may apply annually for a waiver.  The application must include how they will meet the requirement.



Debt Limitations


As stated above, the board must balance the budget.  By law, no school system can operate in a deficit.  With certain exceptions, the Constitution prohibits any school board from incurring any debt without the approval of the majority of its voters in a referendum for that purpose.  Voters may not authorize a debt of more than 10% of the assessed value of all taxable property within the school district. 



Capital Expenditures


Local school systems can finance new school buildings, renovations, and additions -- capital expenditures -- in five ways:


  • SPLOST:  Special Purpose Local Option Sales Tax voted on by the voters in the district for a five year period
  • Issuing local school bonds with the approval of the voters
  • Through an additional tax levy within its 20 mill authority
  • Through a lease-purchase program in accordance with the provisions of O.C.G.A. ? 20-2-506
  • The state capital outlay program enables local boards to earn an entitlement to school construction funds based on a survey of the system's needs and a five-year building plan approved by the state board. 


All Georgia school systems earn, and may accumulate with the state, entitlement funds according to the capital outlay formula.  In 1994, provision was made for "exceptional growth" systems to receive funds beyond those provided in the original formula.  The General Assembly either appropriates the money necessary in a given year or issues obligation bonds to provide new construction or renovation money for public schools.





The Georgia Department of Audits is responsible for auditing the financial records of local school districts each year.  Local boards are authorized, but not required, to have the financial accounts of the district audited by a private accountant rather than by the state.



Lottery Funds


While Georgia is famous for its Lottery for Education program, K-12 public schools have received little funding from the lottery.  Funds for the lottery may be spent only for HOPE scholarships, the voluntary pre-kindergarten program, educational shortfall reserve not to exceed 10% of net lottery proceeds for any year, capital outlay projects and computer training for teachers in grades K-12.  The last two categories are to be funded only if the first three are fully funded according to the Georgia Constitution.  In the early years of the lottery, public schools and libraries received funding for technology, but that has not been the case for several years.