In the United States, researchers have documented persistent racial disparities in school funding for decades. Drawing on evidence from a recent policy change in Pennsylvania, this article contributes to research on the role of state governments in limiting or expanding racial disparities in K-12 education funding by examining differences in the racial composition of school districts positively and negatively impacted by a technical provision lawmakers inserted into a newly created formula for distributing state equalization aid. We find that negatively-impacted districts enroll a substantially higher number of Black and Latinx students, receive less state aid, have lower levels of state and local funding, and have lower spending levels than positively-impacted districts with otherwise similar financial needs. These findings suggest how state lawmakers can exacerbate racial inequities when pursuing reforms ostensibly focused on equity, and these results have implications for both policymakers and educational leaders focused on racial justice.