In his State of the City address yesterday, Mayor Bloomberg announced sweeping reform in how New York City funds public education. Chancellor Klein later in the afternoon elaborated on the mayor’s words to reporters. While I don’t always agree with the chancellor, this effort to modernize America’s largest school system deserves broad, bipartisan support.

The mayor described a system of weighted student funding to replace and modernize the existing complex system. Weighted student funding allocates dollars per student, with a base sum for every pupil plus additional amounts depending on the student’s needs and circumstances. Under the current system, a central office micromanages a $15 billion budget, allocating funds to schools via myriad formulas, including 90 “categorical” programs that restrict dollars to narrow purposes. The Department of Education is in the process of instituting the new arrangement.

Weighted student funding would channel more of the city’s education dollars to students with the greatest needs, those who live in the worst poverty or struggle most in school. It would foster school choice for families — and attract extra resources to the schools that attract the most challenging kids. Thus, the new funding arrangement is better suited than the present one for a 21st-century education system, where students with varied needs have choices, and principals are held accountable for educating their pupils.

When the Thomas B. Fordham Institute recently called upon states and districts to adopt this funding formula, we were joined by a chorus of leaders from education, business, and politics — liberals and conservatives, Republicans and Democrats — who understand the need for more than incremental change. In December, when a broad-based commission, which included Mr. Klein, urged a total makeover and modernization for American elementary and secondary education, weighted student funding was among its core precepts.

Weighted student funding has three key virtues. First, it is more equitable than the current system. Today, some schools receive far more per pupil than other schools, in ways that defy both logic and equity. An elementary school in Queens with few poor students might receive $5,500 per child in city funds while another in Brooklyn that serves mainly poor children might receive $3,600.

The second virtue is that the neediest children, those who are costlier to educate, can be assured that their schools receive the additional funds they require. In addition to a base amount of, say, $3,300 per child, a low-income student might get a 10% weight, or $330. A youngster with especially low achievement might bring 20% more, or another $660. In this way, school budgets build from their pupils’ characteristics and needs. And these dollars follow students to the schools they choose, whether across the street or across town, whether a charter school or a traditional school.

Third, weighted student funding gives school principals the autonomy and budgetary control they need to run their schools in ways that serve their students best. This builds on Chancellor Klein’s existing “empowerment zone” program wherein several hundred New York principals have wider authority in exchange for strict accountability for student learning. The new funding system further frees principals from the shackles of categorical programs that currently restrict certain dollars to, say, textbooks, school psychologists, summer programs, and class-size reduction — even if that’s not the best use of these funds in a given school.

Today’s budgeting practices confer little freedom on principals to develop the programs that their pupils need and that their teachers want to provide. Such decisions have essentially been made for them already, in Albany, Washington, or City Hall, by bureaucrats or legislators who never see the students whose educations they control.

Implementing this formula won’t be easy or painless. Some schools will gain and others will feel their budgets tighten. But there will be overall benefit — the evolution of a modern, responsive, student-centered, sanely funded, and intelligently managed education system that is the only kind that will produce the student achievement and high-school graduations that 21st-century life demands.

Weighted student funding will also shift many decisions from central-office administrators to individual schools, so one can expect resistance from bureaucrats and interest groups striving to protect their turf. Adroit political and organizational leadership will be essential to defuse such tensions and ensure that children’s interests take precedence over adults’.

The timing for such a change is perfect. The courts have recently mandated that Albany send more money to city schools, but those funds need to be spent wisely. The federal No Child Left Behind Act is yielding data that show, school by school, how poor and minority students are educationally short-changed. Tomorrow’s dollars should be targeted on those kids and the schools they attend. Weighted student funding is the only sensible way to accomplish this.

Mr. Finn, a senior fellow at Stanford’s Hoover Institution and former assistant U.S. secretary of education, is president of the Washington-based Thomas B. Fordham Institute.