This paper sets out a new budget allocation formula for schools, designed to achieve a more equitable distribution of educational achievement. In addition to needs-based elements, the suggested composite allocation formula includes an improvement component, whereby schools receive budgetary allocations based on a new incentive measure developed in this paper: Improvement in the Educational Achievement Distribution. The development of the budget allocation formula is demonstrated utilizing Israeli data. Large-scale, nationwide datasets relating students' academic achievement to student background variables, teacher profiles, and school characteristics were analyzed to identify appropriate needs-based formula components and to estimate their weights. The results are compared with the funding formulas currently used in Israel. (Contains 16 notes, 4 tables, and 2 figures.)