The federal government, state governments, county and other intermediate units of government, municipal governments, and local school boards all contribute to the funding of public education. Money is collected through a variety of mechanisms including federal and state income taxes, state lotteries, sales and property taxes, and the issuance of bonds. Money is in turn distributed from higher levels of government to local school boards in various ways including categorical grants (money given for a specific program or purpose), block grants (money that may be utilized for any of a number of specified purposes), general state aid (money that can be used for any legal purpose), state reimbursement for local expenditures, direct state provision of services, and transfers from municipal governments to local school boards. In accordance with state law, local school boards themselves exercise their own taxing authority and must establish management systems for handling the money they have raised or received from other units of government. A complex system involving large sums of money inevitably raises many legal issues. These issues can be divided into two categories:

1. Pure finance issues concern taxation and the utilization of funds for education generally. Litigation in this category has dealt with property tax assessments and exemptions; procedures for imposing a tax or adopting a budget; disposition of assets and liabilities when school district boundaries are altered or dissolved; school accounting procedures; administration of school funds; insurance, sale, and disposition of school property; the issuance and sale of bonds; limits on indebtedness; and procedures for bidding on contracts.