The legislature establishes the dollar amount of the basic allotment and sets the rules for calculating ADA for each biennium. Funding for any given fiscal year is based on attendance for that year. Tier I revenues could be relatively simple. But school districts range from urban to rural, large to small, wealthy to poor. The cost of providing a given service can vary greatly simply because of different economic conditions in different areas of the state.
Students are even more diverse.
The cost of providing special services or classes for certain populations of students can be greater than the cost of providing a basic program. As an example, equipping a career and technology class to teach students welding could cost considerably more than a regular English class. Adjusting for District Differences and the Cost of Education Index To account for varying conditions among school districts, the FSP formula allows for adjustments to the basic allotment. Many small rural districts suffer a hardship due to diseconomies of scale. A school district that must provide a physics class for only five students will have a considerably higher per pupil cost than a larger school district that places twenty students in the same class.