Understanding School Funding
School funding can feel complicated, but it really comes down to two main funds: the Education Fund and the Operations Fund.
The Education Fund is funded by the state through tuition support and pays for teachers, classroom assistants, curriculum, and technology. Local property taxes do not go into this fund.
The Operations Fund is funded by local property taxes and pays for transportation, utilities, custodial staff, and building needs. A maximum of 15% of the Education Fund can be transferred here to support the shortfall in available tax dollars for school operations.
Together, these two funds cover almost everything it takes to run a school district. When the state or local revenue isn’t enough, districts can request an operating referendum to close the gap and protect programs, staff, and student opportunities. The operating referendum can be split to support both the Education Fund and Operations Fund,
FAQ: Why Doesn’t New Housing Growth Solve the Problem?
It’s a good question — if houses are being built rapidly, why doesn’t that extra property tax money cover the costs?
The answer has two parts.
Different Funds, Different Rules Property taxes fund the Operations Fund, which covers things like buildings, maintenance, transportation, and administration. By law, dollars in the operations fund cannot be used for teacher salaries, instructional aides, classroom supplies, or student programs. Those costs come from the Education Fund, which is distributed by the state through tuition support dollars—not from local property taxes.
Property tax caps limit school revenue Indiana has strict property tax caps—1% for residential homes, 2% for rental/farm properties, and 3% for businesses. This means schools don’t automatically receive more money when property values rise or when new subdivisions are built. Each year, growth in the Operations Fund is determined by the state’s Maximum Levy Growth Quotient (MLGQ). For 2026, the state has set the MLGQ at 4.0% of the previous year’s collections. This cap restricts funding growth, preventing it from keeping pace with increases in assessed value and student enrollment. As new housing developments go up, student enrollment often grows too—bringing a need for more buses, teachers, and support staff. But because of the funding cap, schools don’t receive enough new revenue to cover the true cost of serving those additional students.
A unique challenge for NACS. Experts at Policy Analytics found that 86.5% of NACS’s tax base is residential homes. Typically, a healthy spread of assessed value would be around 60% residential. Because residential property is capped at just 1%, this makes it especially difficult for the district to collect enough local funding to keep up with needs. State-level property tax changes hit our district harder than many others.
