Members of the

Advisory Commission on Intergovernmental Relations

(December 1990)

Private Citizens

Daniel J. Elazar, Philadelphia, Pennsylvania

Robert B. Hawkins, Jr., Chairman, San Francisco, California

Mary Ellen Joyce, Arlington, Virginia

Members of the U.S. Senate

Dave Durenberger, Minnesota

Carl Levin, Michigan

Charles S. Robb, Virginia

Members of the U.S. House of Representatives

Richard K. Armey, Texas

Sander M. Levin, Michigan

Ted Weiss, New York

Officers of the Executive Branch, U.S. Government

Debra Rae Anderson, Deputy Assistant to the President,

Director of Intergovernmental Affairs

Samuel K. Skinner, Secretary of Transportation

Richard L. Thornburgh, Attorney General

Governors

John Ashcroft, Missouri

Booth Gardner, Washington

George A. Sinner, North Dakota

Stan Stephens, Montana

Mayors

Victor H. Ashe, Knoxville, Tennessee

Donald M. Fraser, Minneapolis, Minnesota

Robert M. Isaac, Colorado Springs, Colorado

Joseph A. Leafe, Norfolk, Virginia

Members of State Legislatures

David E. Nething, North Dakota Senate

Samuel B. Nunez, Jr., President, Louisiana Senate

Ted L. Strickland, Colorado Senate

Elected County Offkials

Harvey Ruvin, Dade County, Florida, County Commission

Sandra R. Smoley, Sacramento County, California, Board of Supervisors

James J. Snyder, Cattaraugus County, New York, County Legislature
The Structure

of State Aid

to Elementary

and Secondary Education

U.S. Advisory Commission on M-l 75

Intergovernmental Relations December 1990
U.S. Advisory Commission on

Intergovernmental Relations

111120th Street, NW

Suite 2000

Washington, DC 20575

(202) 6533640 .

FAX (202) 653-5429

ii
Executive Summary

Overview

Elementary and secondary education is the single

most significant publicly provided service, in terms of

budget size, for state and local governments. The

fiscal importance of education alone is sufficient

grounds for continuing interest in the arrangements

that govern its provision, but the unique role

education plays in the social and economic development of the nation also serves to keep it at the

forefront of the public policy arena.

During the past two decades, the issue of equity in

school finance has been hotly debated in the courts

and legislatures of many states. The key question

underlying this debate is: Are the educational opportunities available to children in poor school districts

equivalent to and competitive with those available to

children in wealthy school districts? If not, then what is

the obligation of state governments to provide additional assistance t0 poor districts so as to ensure that every

child will have access to a quality education?

While interest in equity remains intense in many

quarters, there is now even greater public focus on

education quality. Stated succinctly, the current

questions are: Are public schools doing a sufficiently

good job of educating our youth? If not, what types of

policies will be required to improve elementary and

secondary schools?

Answering these questions is difficult. It is a

complex task to assess how the fiscal decisions made

by state legislatures, state departments of education,

local education authorities, and, ultimately, individuals, in their roles as consum ers of education services and

as voters, interact to determine how much money any

school district will spend, and how the money will be

spent? For example, public officials might wonder

whether increasing state aid-perhaps to provide

incentives to improve math and science education-will

result in (1) the implementation of new initiatives, (2)

greater expenditures on existing programs, or (3) a

reduction in local taxes offsetting the increased aid.

In many instances, at the same time that public

off%als are deliberating questions of this kind, academic

researchers are addressing the same issues. However,

the information to be derived from this research often

does not fmd its way into public policy decisionmaking.

One reason for this is that the framework within which

these Studies are cast is often unfamiliar to anyone

without recent training in a particular research methodology For example, economic studies, such as that

reported here, typically assume that households make

decisions regarding alternative goods and services based

on the prices they must pay for those goods and

service~.~ The need to provide public goods and services

through group decisionmaking processes, especially

where multiple items are included in a government

budget, makes it difficult to determine tax-prices for

goods and services, such as education. In order to get a

handle on this, analysts “build” technical and detailed

mathematical and statistical “econometric” models that

are designed to separate out the various factors

individual consumer-voters will consider in making their

decisions regarding the level and quality of public

seti they will ‘buy.”

Another reason why it can be difficult to apply

academic research to questions facing policymakers

arises from uncertainty about the transferability of

results. Most studies of the determinants of local

school spending decisions use data from an individual

state for empirical analysis. Substantial diversity exists

across states, however, in the institutions that govern

elementary and secondary school finance. As a rule, it

is not readily apparent how well the results based on

one state’s institutional structure will apply elsewhere. Moreover, researchers examining school finance

issues in a state often have little knowledge as to how

typical or atypical the institutions in that state are.

This report analyzes the intergovernmental relationships in the public financing of elementary and

secondary education in the United States, focusing

especially on the effects that state aid programs have

had on local school district spending decisions. The
aim of the report is threefold: (1) to provide general

information about trends in elementary and secondary school finance; (2) to provide information about

the different state institutional arrangements for

financing schools; and (3) to illustrate the role that

state aid plays in econometric models of local school

spending decisions, so that policymakers will be able

to make better use of empirical research results.

It is important also to note a very important issue

that this report does not address directly, that is, what

public policy measures might improve the quality of

education. This issue is simply beyond the scope of this

report. However, the analysis developed here is useful

for evaluating and implementing proposed initiatives for

education reform, especiilly those that involve fii

incentives that state governments might provide in an

attempt to influence the performance of local schools.

Elementary and Secondary

School Expenditures

The first section of the report focuses on trends in

aggregate spending on K-12 public schools from 1960

through 1987 for the United States as a whole and for

each of the 50 states. For the United States, spending

per pupil measured in real dollars (adjusted for

inflation) increased at an annual rate of 4.0 percent,

almost twice the annual increase in gross national

product over the same period. The pattern of this

growth was 5.3 percent annually from 1960 to 1970,3.4

percent annually from 1970 to 1980, and 3.1 percent

annually from 1980 to 1987. Annual growth rates for

states over this period ranged from a low of 2.6 percent

for Utah to a high of 5.3 percent for New Jersey.

Over this 27-year period there was a modest trend

toward equalization in average spending per pupil.

That is, spending grew at a somewhat faster annual

rate in states where the initial level of spending was

lower. The trend toward equalization was greatest from

1960 to 1970, when the per pupil spending growth rate

was also greatest. The evidence also suggests that as

much as one-fourth of the variation in average per pupil

spending across states that remained at the end of the 27

years can be explained by interstate differences in the

cost of providing education services3

Public School Revenues

Elementary and secondary schools receive

most of their funds from state and locally raised

revenues; the federal government provides only

about 6 percent of the revenues used to finance

K-12 public education. A major shift over the past

quarter-century has been a reversal in the relative

importance of state and locally generated revenues

as a share of elementary and secondary school

funding sources. States, in general, now provide

almost 53 percent of the combined state-local share,

whereas 25 years ago, locally raised revenues accounted

for about 60 percent of the combined total. A major

reason for this shift has been an increase in the level of

state funding, primarily to low-wealth districts, in

response to concern about equity.

By examining in detail the revenue sources on

which states and school districts levy taxes to finance

elementary and secondary schools, the report identifies two features that are critical to understanding the

decisionmaking process that governs the provision of

this service. First, while state governments raise funds

that are earmarked for K-12 schools from a wide

variety of sources, almost without exception, the

earmarked funds are supplemented by appropriations

from state general funds. The general fund appropriations of state legislatures are called additional

dollars in this report. Second, while local govemments also tax a variety of revenue sources for locally

raised funds, additional dollars to increase the level of

education services are raised principally through an

ad valorem levy on property.

State Aid Programs

The major focus of this report is on current state

aid programs and how they affect the level of

spending in different school districts. The report

devotes a reasonable amount of technical analysis to

developing a framework suitable for examining this

question. The analysis demonstrates that state aid

programs affect local spending decisions through the

way in which they affect consumer-voter choices

regarding the trade-off between additional spending

on public schools and the consumption of other goods

and services. Moreover, state aid programs affect

consumer-voters in one of two ways. They either

increase the individual’s overall purchasing powerthat is, they provide an “income effect”-or they

lower the price of providing an additional dollar’s

worth of school spending per pupil (the tax-price)

relative to the price of other goods and services-that

is, they provide a “price effect.”

The traditional classification of state aid to local

school districts distinguishes between foundation

programs and power equalization programs.

A foundation program is a state-guaranteed

minimum level of expenditures per pupil; the state

will make up the difference between the guaranteed

minimum level of per pupil expenditures (the

foundation) and the per pupil revenues generated by

the local district from its own sources.4

Power equalization programs provide minimum

revenues per pupil for any given tax rate guaranteed

by the state. Two variants of power equalization

programs are the “guaranteed tax yield” (GTY) and

the “guaranteed tax base” (GTB). Under a GTY

program, local school districts set their own tax rate;

iv
the state makes up the difference between the

revenues generated by the local government and the

state-determined minimum yield, at that tax rate.

Under a GTB program, the state determines a

minimum tax base per pupil. As with the GTY program,

local school districts set their own tax rate; the state

makes up the difference between the revenues generated by the local school district from applying that rate

to its tax base and the revenues that would have been

generated if the local school district had the guaranteed

tax base.’ For all practical purposes, both power

equalization programs are identical.

A “pure” foundation program provides households with an income effect only, while a “pure”

power equalization program results only in a price

effect. A careful examination of existing state aid

programs, however, reveals that formulas used to

allocate state funds for the most part do not

correspond neatly to the “pure” form of either of these

traditional classifications. Most state aid programs

attempt to address a variety of special circumstances

that arise in the public financing of K-12 education, and

to do so they often must modify substantially the simple

versions of these classifications.

The report examines several variations of the two

basic classifications and analyzes how these more

complicated versions affect (1) the trade-offs between

school spending and the consumption of other goods

and services and (2) local spending decisions through

the income and price effects that they exert on

consumer-voters. With these variants, state aid

programs can sometimes result in both income and

price effects. In some cases, state aid can result only in

income effects in some districts and only price effects

in other districts, depending on the level of spending

per pupil selected by the district. As part of this

analysis, the report discusses where different states

fall in this more complicated classification scheme.

The most important conclusion that can be

derived from the analysis developed in this report is

that in order to make informed judgments about how

any state aid program affects the levels of spending

across school districts, it is necessary to analyze

information about (1) how the program affects consumer-voter choices; (2) the distribution of the values of the

economic parameters for consumer-voters; and (3) the

political institutions that govern the way in which

consumer-voter demands affect school district spending

levels. As the report documents in detail, each of these

factors can vary signifiintly across states.

NOTES

‘Households with children attending the public schools

within a community are the direct beneficiaries of public

education services, i.e., the “consumers” of education

services. In addition, adult members of the households,

regardless of the number of children in the public schools,

vote for the size of the school budget, either directly

through referenda or indirectly by voting for representatives who decide the school budget; i.e., they are the

“voters” on public school funding. Throughout this

report, the terms individual, household, and consumervoter are used interchangeably.

‘In the case of publicly provided services, such as

education, the relevant price is called the “tax-price” by

economists. The tax-price is defined as the change in a

consumer-voter’s tax liability associated with a change in

the amount of publicly provided goods and services. The

tax-pi-i&s of households depend on household characteristics and on public policies, such as tax law and

intergovernmental aid.

3The term “cost” refers to interstate differences in the

prices of inputs used to produce education servicespredominantly labor. Expenditures per pupil for each

state, in each time period, were adjusted by a specially

constructed index of labor costs. The cost-adjusted

expenditures reflect more closely actual interstate differences in the level and quality of education services

provided. For a more detailed description of the cost

index, see Advisory Commission on Intergovernmental

Relations, Expenditures: Addressing the

Neglected Dimension of Fiscal Capacity, by Robert W

Rafuse, Jr. (Washington, DC, 1990).

‘In some cases, the state will require a minimum local

effort to qualify for aid. For example, local school districts

must levy a statedetermined tax rate on property within

the district. If the per pupil property tax yield, at the

state-determined rate, is less than the foundation level,

the state will make up the difference. Thus, districts with

relatively low tax bases per pupil will receive more state aid

than those with relatively higher tax bases. In some states,

the foundation level is fully funded by the state.

5 If the tax base or tax yield per pupil within a school district

is greater than the state-guaranteed level, the district

usually receives no aid.

V
vi
During the past two decades, constant dollar

expenditures per pupil for K-12 public education have

increased by 72 percent and the primary financial

responsibility has shifted from local government (57

percent in 1971) to the states (nearly 53 percent by

1988). A major factor in these trends has been the

state court decisions concerned with equity and equal

educational opportunity. The courts responded to the

inequality in states where the levels of school funding

were tied to the property tax levies in jurisdictions

with widely disparate amounts of property wealth.

Perhaps the best known and most influential of

these court cases was the landmark California

Supreme Court decision, Serrano v. Priest (1971).

Holding that the “right to an education in public

schools is a fundamental interest which cannot be

conditioned on wealth,” the court invalidated the

state’s existing system of school funding that relied

heavily on local property taxes.

In a similar case (San Antonio Independent School

Distn’ct v. Rodriguez, 1973), the U.S. Supreme Court

held that the Texas system of school finance did not

violate the equal protection clause of the 14th

Amendment to the United States Constitution.

Although Rodriguez took the U.S. courts out of the

educational finance debate (at least for the time

being), it did not foreclose arguments that the system

of education finance in a particular state may violate

that state’s constitution. The focus of school finance

litigation then shifted back to the states.

Two aspects of the U.S. Supreme Court’s Rogriguez decision led to a flurry of state court action. First,

the court indicated that federalism concerns persuaded it to defer to state legislatures on the subject

of state taxing and spending. Second, the court based

its decision that education is not a “fundamental

interest” for equal protection purposes on the fact

that education is not afforded explicit or implicit

protection in the U.S. Constitution. In contrast, most

state constitutions direct the state to provide for a

system of free education.

Between 1971 and 1983, challenges to the school

finance system were heard by Supreme Courts in 17

states. The plaintiff’s claims were rejected in ten

states, but were upheld, at least in part, in the other

seven states.

There were no rulings handed down between

1983 and 1989, but interest in education reform did

not decline. Indeed, interest was heightened following the 1983 report of the National Commission on

Excellence in Education, A Nation at Risk, which

concluded that American education was failing by just

about any measure-test scores, preparation for the

workforce, teacher performance, or comparisons with

other countries.

Several education reform packages were enacted

in the, states, most directed toward institutional

reforms: increases in pay throughout the scale, as well

as merit pay for teachers, higher standards for

graduation, magnet schools, and various “choice”

proposals designed to introduce a degree of competitiveness into the education system. Now, a new

generation of reforms is emerging that places increased emphasis on student choice options (in

Milwaukee’s experiment, students may use vouchers

to attend private schools) and decentralization of

school management and curriculum decisions. In

addition, there is a growing recognition that there is

more to formal education than providing schooling.

Thus, some attention is nowbeing directed toward the

relationship between students’ academic performance and such factors as parental involvement and

access to social services, including public safety.

The reforms of the 1970s and 198Os, at least to

date, have been accompanied by more tax money and

a larger state role in collecting that money. As more

tax resources are directed toward K-12 public education, more attention is being paid to how the money is

used. There are two reactions. The first is a

widespread skepticism by the public that the money is

being used effectively. A recent Gallup poll reported

in State Policy Reports indicates that only 22 percent of

Preface and Acknowledgments

vii
Americans believe public schools in their community

have improved over the past five years; 30 percent

believe things are worse.

The second reaction goes back to Serrano. The

equity of school funding formulas is, once again, a

prominent concern. Since 1989, the school finance

systems in Kentucky, Montana, New Jersey, and

Texas have been declared unconstitutional; decisions

are pending in 12 states; and legal challenges are

being contemplated in 9 states.

This information report brings these two develop

ments-voter behavior and school finance reformtogether. It provides data on current trends in school

spending and sources of revenues for education. It

explains the concept of equalization and characterizes

the nature of the formulas used in the 50 states for

equalizing school revenues, or more specifically,

fiscal bases across all jurisdictions in the state. The

link to political behavior is made by analyzing school

funding from the twin viewpoints of how state aid

programs affect the choices of voters and the

implications of alternative school financing arrangements on per pupil spending across districts (i.e., the

“equalization” effects).

The report concludes that the diversity in the 50

state systems makes nationwide generalizations about

school finance difficult, and that the effect of a

specific state aid program on fiscal equity will depend

on how the program affects the economic position of

citizens and the political institutions that determine

voter influence on school district spending levels.

The difficulties of putting together school formulas, with acceptable tax packages to finance them,

makes this business very complex. The recent (1990)

lessons in ‘I&as (where the court was ambiguous

regarding the direction of required remedies) and

New Jersey (where the decision requires massive

increases in state aid to poor and medium-income

districts) are instructive. Although both states appear

to have satisfied the court requirements for school

finance reform, the process has been marked by great

political strain. In Texas, it took two legislative

sessions and court appointment of a “tax master”

whose job was to draw up a mandatory fence plan if

the legislature failed. In New Jersey, initial voter

reaction to increases in state taxes to restructure school

financing may result in a legislative effort to reform the

reform plan before it has even been put in place.

This information report was written by Vincent

Munley, professor of Economics at Lehigh University

and ACIR Visiting Scholar. The author wishes to

express his appreciation to the following persons who

provided expert advice and comment on this study:

Henry Aaron, Stephen Barro, Robert Beme, William

Colman, Elliott Dubin, Jerry Fastrup, James Fox,

William Fowler, Margaret Goertz, Debra Inman,

Marcia Howard, Harold Hovey, Jack Jennings, Larry

MacDonald, Will Myers, Nancy Protheroe, John

Shannon, Gregory Rest, Robert Rotz, Tom Tobin, and

Carolyn Winters.

John Kincaid

Executive Director

Robert D. Ebel

Director, Government Finance Research

. . . vm
Contents

Introduction .................................................................................

Overview ................................................................................

Scope of the Report ......................................................................

Chapter I-School District Expenditures ........................................................

Aggregate Trends ........................................................................

Interstate Comparisons ...................................................................

Chapter 2-School District Revenues ...........................................................

Aggregate Trends ........................................................................

Revenue Sources for State Funds ..........................................................

School Districts’ Own-Source Revenue ......................................................

Revenue Sources for Locally Raised Funds ..................................................

Chapter 3-State Aid Programs ................................................................

Legal Environment .......................................................................

Allocation Formulas: Foundation and Power Equalization Programs ............................

Allocation Formulas: What Is in Place ......................................................

Chapter I-State Aid and Local Spending .......................................................

The Local Spending Decision ..............................................................

State Aid and the Consumer-Voter .........................................................

Distriiutions of Income and l&x-Price ......................................................

The Case of Pennsylvania .................................................................

Chapter 5-Conclusion ........................................................................

The Equalizing Effect of State Aid .........................................................

Finale ...................................................................................

Appendix 1. ..................................................................................

Appendix 2 ...................................................................................

Derivations of the Effect that Alternative State Aid Programs Have on the Income Constraint

of a Representative Consumer-Voter ........................................................

2A. Trade-Off Faced by Consumer-Votec No State Aid ...................................

2B. Flat Grant Per Pupil ...............................................................

2C. Foundation Program ..............................................................

2D. Power Equalization Program .......................................................

2E. Percentage Equalization Program ...................................................

3

3

6

11

11

13

13

15

19

19

ZJ

25

25

25

25

26

29

29

30

33

37

37

37

39

42

43

45

ix
Figures and Tables

figure I-T&al Expenditure Per Pupil in ADA (constant 1988 dollars)

and Scholastic Apptitude T&t (SAT) Scores, School Years Ending 1970-89 ...................... 4

I;igure 2-Tax-Price of Raising $1 Per Pupil for Voter with Median Valued House .................... 27

Fzgure 3-Median Household Income ........................................................... 27

ngure I-Income Constraints with No State Aid ................................................. 38

F@e 5-Income Constraints with Flat Grant State Aid .......................................... 40

I;igure 6-Income Constraints with Foundation Program .......................................... 41

figure 7-Income Constraints with Power Equilization Aid Program ................................ 44

Figure &Income Constraints with “Capped” Power Equalization Aid Program ...................... 46

figure 9-Income Constraints with Two-Tier Aid Program: Tier l-Foundation,

Tier 2-Power Equalization ................................................................ 47

figure If&Income Constraints with Percentage Equalization Program .............................. 49

Table I-A-Current Expenditures per Pupil in Average Daily Attendance, Constant 1986-87 Dollars,

School Years 1959-60, 1%9-70, 1979-80, and 1986-87, Not Cost Adjusted ........................ 5

Table I-B-Current Expenditures per Pupil in Average Daily Attendance, Constant 1986-87 Dollars,

School Years 1959-60, 1969-70, 1979-80, and 1986-87, Cost Adjusted ............................ 7

Table 2-A-Summary Statistics for Education Expenditure Trends, Not Cost Adjusted ................ 8

Table 2-B-Summary Statistics for Education Expenditure Bends, Cost Adjusted .................... 8

Table 3-Public School District Revenues by Source of Funds, Selected School Years 1959-60 to 1987-88 ... 11

Table I-Source of Origin of School District Revenues ........................................... 12

Table J-Number of Fiscally Dependent and Independent School Districts .......................... 14

Table 6-Requirements for Public Referenda on Locally Raiied School District Revenues ............ 15

Table 7-State Aid Programs .................................................................. 21

Appendix Tide I-A-Relationship between Expenditure Per Pupil Level (Not Cost Adjusted)

and Subsequent Growth Rate in Expenditure Per Pupil ....................................... 33

Appendix TdZe. I-B-Relationship between Expenditure Per Pupil Level (Cost Adjusted)

and Subsequent Growth Rate in Expenditure Per Pupil ....................................... 34

X
Introduction

Overview

The quality of education in the United States has

come to the forefront as a public policy issue. Falling

scores on standardized national tests, the persistence

of widespread functional illiteracy among large

numbers of inner-city and rural residents, and fears

that a workforce ill-prepared to deal with the

technological requirements of modem industrial

processes will inhibit the United States from improving its competitive position in world markets have led

to a spate of critical reports and heightened public

concern.’ Coupled with a growing conviction that

something dramatic must be done to improve the

nation’s education system is the reality that the

current federal budget deficit will limit severely the

extent to which new federal fiscal resources can be

brought to bear on the problem. Thus, reform

proposals will of necessity focus on what changes

might be made to restructure the current school

finance system in a way that will allow schools to

improve the quality of education.

Certain features of the U.S. education system are

noteworthy from the perspective of implementing

change. First and foremost is that in most states the

primary responsibility for providing basic education

has traditionally rested with local governments. For

the United States as a whole, the distribution of

revenue sources for elementary and secondary

schools is approximately 5 percent federal, 50 percent

state, and 45 percent local. In terms of dollars, school

finance represents by far the most important intergovernmental relationship between the state and local

sectors. Equally sign&ant is the diversity across the Xl

states in the degree of decentralization that characterizes the way schools are financed and organized.2

Any reform effort intended to have widespread

success clearly must accommodate the diverse intergovernmental relationships within which schools

operate in the United States.

The purpose of this report is to examine the

current status of the public finance systems used to

provide public elementary and secondary education.

A particularly relevant consideration to any new

reform initiative is that the U.S. education system is still

in the process of working its way through two decades of

major change. The 1976 &WOW v. priest3 decision in

California marked the beginning of a series of state

court cases that challenged the financial structure used

to support elementary and secondary education in many

places4 ‘Ibgether with widespread legislative initiatives,

these cases led to a revision in the way most states

disbmse aid to local school districts. From distribution

essentially on a per pupil basis, most state systems

changed to some type of a program designed to direct a

larger share of state money to lower spending, less

wealthy districts, thereby increasing expenditures in

an attempt to enhance educational opportunity in

those districts. However, despite the considerable

changes enacted in state aid programs, controversy

continues over this issue. Appendix 3 contains a

chronology of the school finance cases.s

Scope of the Report

A notable legacy of the equity round of school

finance reform is a considerable body of research

developed in several academic disciplines. The

behavioral, fiscal, institutional, and political relationships that link school administrators, local school

boards, state education departments, and state

legislators are as complex as they are varied across the

states. Success in designing and implementing further

reforms obviously will depend on understanding

these relationships. As policy proposals-such as

merit pay for teachers, more stringent high school

graduation requirements, and expanding parental

choice with regard to which public school their

children attend-receive widespread consideration,

the task of synthesizing what has been learned and

conveying this information to those responsible for

developing new initiatives becomes imperative.

This report focuses on certain public finance

1
issues involved in the provision of elementary and

secondary education in an attempt to provide information that will serve as useful input to discussions

about education reform. The report does not evaluate

the various reform proposals or deal with the difficult

question of how dollars spent on public schools affect

the quality of education. The latter issue is not well

understood, despite the substantial research effort

that has been directed at it.6

The report begins with an examination of recent

trends in public school spending and the variation in

spending levels across states. The following section

examines how public school revenues are raised. An

examination of state aid programs and how they affect

individuals’ choices regarding school spending decisions

follows the discussion of public school revenue sources.

NOTES

‘The mast frequently cited of these reports is National

Commission on Excellence in E&cation. A at Risk

The Impemtive for Educational Reform (Washington, DC,

1983).

‘See also Frederick Wirt, “Does Control Follow the

Dollar? Value Analysis, School Policv. and State-Local

Linkages, “ Publius:The Journal of Fekmlism 10 (Spring

1980): 69-88.

3 135 California Reporter 345 (1976).

4See also Richard Briffault, “Localism in State Constitutional Law,” Annals of fhe American Academy of Political

and Social Science 496 (March 1988): 117-27.

5At the time this report was prepared, cases challenging

state aid programs were being litigated in Kentucky, New

Jersey, North Dakota, and Texas.

6See Eric A. Hanushek, “The Economics of Schooling,”

Journal of Economic Litemtunz 24 (September 1986), for a

comprehensive review of this research. The relationship

between spending for public schools and education

outcomes was the focus of the conference on the

Economic Consequences of American Education at

Lehigh University, October 19-20, 1990, sponsored by

Lehigh University, the U.S. Advisory Commission on

Intergovernmental Relations, and the University Council

for Education Administration.
A 1 I School4 District Expenditures

Aggregate Trends

In one sense, it may be surprising-perhaps even

alarming-that while average scores on standardized

exams have declined in recent years, the amount of

resources dedicated to education has grown substantially (Figure 1). Expenditures per pupil for K-12

public schools in the United States have increased

over the past quarter-century both in nominal terms

(current dollars) and real terms (constant dollars,

adjusted for inflation). For the United States as a

whole, between the 1959-60 and the 1986-87 academic

years, these expenditures increased in real terms at an

annual rate of 3.8 percent. To put this growth rate in

perspective, it is useful to note that during the same

time period gross national product per capita, median

family income, and worker productivity, as measured

by output per hour in the entire business sector,

increased in real terms at annual rates of 2.0 percent,

1.2 percent, and 1.8 percent, respectively.

Conclusions about what effect increased spending

has had on educational output must be made with

caution, however. This is because a substantial portion

of these new resources has been directed at providing

greater educational opportunity for special groups, such

as handicapped individuals. Programs developed for

these purposes often entail significant costs that do not

necessarily have a large impact on the average scores of

standardized national tests, such as SAT exams.

Table 1-A presents data on the pattern of education

expenditures for states during the period 1959-60 to

1986-87. Columns (a) and (d) show the initial and fimal

average expenditures per pupil; cohmms (b) and (c)

show the figures at the end of each decade. All

expenditure values are expressed in constant 1986-87

dollars. Column (h) presents the annual growth rate in

real expenditures per pupil for the 27-year period. This

rate ranged from a low of 2.6 percent in Utah to a high

of 5.3 percent in New Jersey.

Analyzing the pattern of education expenditure

increases across states and at different times during

the period provides insight about the way in which this

growth in spending occurred. Columns (e), (f), and (g)

show the annual growth rates for the first decade,

second decade, and the final seven-year period,

respectively. For the United States as a whole, during

those periods, the growth in spending slowed from 5.4

percent per year to 3.1 percent to 2.9 percent.

This pattern is interesting, in part, because of the

two arithmetically distinct factors that can cause

expenditures per pupil to rise over time. The fit is an

increase in school budgets in excess of any rise in

enrollment. The second is a fall in enrollment accompanied by a rising, constant, or even more moderately

declining budget. During the initial first decade, when

real expenditures per pupil grew at the greatest rate,

enrollment also grew at an annual rate of 2.4 percent.

On the other hand, during the subsequent two periods

of slower growth in real expenditures per pupil,

enrollment declined at annual rates of 0.9 percent from

1969-70 to 1979-80 and 0.6 percent from 1979-80 to

1986-87. Thus, the greatest growth came from rapidly

expanding budgets in the 1960s.

The data presented in Table 1-A (current expenditures per pupil in average daily attendance) tend to

overstate the interstate differences in the level and

quality of education services provided because the

cost of providing a unit of education services of a

standard quality varies across states. For example,

teacher salaries and class sixes are major elements in

the cost of providing education services.’ Average

teachers’ salaries can vary across states (and within

states) because of a number of factors:

1) Variations in the average level of wages

across jurisdictions, which means that teachers’ salaries will vary accordingly;

2 ) The strength of teachers’ bargaining power

relative to the hiring jurisdiction and other

public employees;

3
Total Expenditure Per Pupil in ADA’ (constant 1988 dollars) and Scholastic ADptitude Test (SAT) Scores,

School Years Ending i970.89

4500

4ooo.

3500

3oocl

2500

1-1000

.

.

.

.

I

.

‘*FAT Scores (right scale)

--a

Total Expenditures (left scale)

f

School Year

l Average daily attendance.

960

920

,880

840

-800

SOWCU: U.S. DepItwnt of Education, National Center for EducationStatMia. DfgeslofEducabbn .Wl&ics IW9,md 7kCmdificn offiiiucti 199O(Washington.

DC, 1969 and 1990). I

4
Table 1 -A

Current Expenditures per Pupil in Average Daily Attendance, Constant 1986-87 Dollars,

School Years 1959.60, 1969-70, 1979-80, and 1986.87 Non Cost-Adjusted

State

Current Exuenditures uer Puuil Averape Annual Change (aercentl

195940 1969-70 1979-80 1986-87 1959.60 1969-70 1979.80 1959.60

School School School School

Year Year Year Year 19:;.70 19;;.80 19;:.87 19;:.87

United States

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

TeXa.5

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

(a) 09

$1,420 $2,403

913 1,602

2,068 3,306

1,528 2,120

852 1,671

1,605 2,554

1,500 2,173

1,651 2,801

1,725 2,650

1,202 2,156

960 1,731

1,229 2,475

1,097 1,776

1,660 2,678

1,396 2,144

1,392 2,486

1,316 2,270

882 1,605

1,408 1,908

1,070 2039

1,487 &704

1,548 5530

1,571 2,662

1,610 2,661

779 1,475

1,302 2,086

1,555 2,302

1,276 2,168

1,629 2,266

1,3 15 2,129

1,467 2,992

1,373 2,082

2,126 3,907

898 1,803

1,388 2,031

1,382 SW0

1,179 1,780

1,697 2,723

1,550 2,596

1,565 2,624

833 1,804

1,313 2,031

901 1,667

1,258 1,838

1,221 1,844

1,302 2,377

1,038 2,084

1,592 2,695

978 1,973

1,564 2,599

1,705 2521

@I

$3,255

2,309

6,774

2,824

2,256

3,249

3,469

3,468

2E

21329

3,327

2,377

3,706

2,697

3,333

3,114

2,437

2,568

2,613

3,722

4,039

3,783

3,420

2,384

2,774

3,548

3,080

2,992

2,745

4,573

2,914

4,961

2514

2751

2,973

2,760

3,857

3,632

3,727

2,5 10

2,733

2,343

2,745

z374

2,861

2,823

3,680

2,75 1

3,549

3,620

(4

$3,977

2,573

8,010

3,544

2,733

3,728

4,147

5,435

4,825

3,794

3,374

3,787

2,585

4,106

3,556

3,808

3,933

2,733

3,069

3,850

4,777

5,145

4,353

4,180

2,350

3,472

4,194

3,756

3,573

3,933

5,953

3,558

6,497

3,129

3,437

3,671

3,099

4,337

4,616

4,985

3,237

3,097

2,827

pzz

4,399

3,780

3,964

3,784

4,523

5,201

69

5.4%

5.8

4.8

%

418

;::

2:

6:l

7.3

4.9

4.9

2-t

516

6.2

3.1

6.7

6.2

;s

512

fi:

4:o

;*“4

419

7.4

2;

7.2

3.9

4.5

4.2

E

513

8.0

2;

3:9

4.2

E

514

7.3

5.2

4.0

U-J

3.1%

3.7

7.4

2.9

3.0

2.4

4:;

1::

3.0

3.0

;:k!

i:;

3.2

i:;

3:;

E

is

4.9

2.9

2

218

2.6

4.3

3.4

5::

3.1

3.3

4.5

3.5

;:

314

3.0

3.5

4.1

2.6

1.9

;::.

t;

3:7

0

2.9%

1.6

::1

;t

2:6

6.6

2.4

2

1.9

1.2

1.5

4.0

::94

1.7

2

3:6

3.5

;:i

-0.2

2

i9

tt

3:8

i-z

3:2

3.2

3.1

1.7

1.7

3.5

4.2

3.7

2;

3.1

:i

4.3

1.1

4.7

::;

01)

3.9%

:-i

3:2

it

1;

3.9

4.3

4.8

4.3

z:

3:s

3.8

2

i9

4.9

4.4

4.5

E

i-f

3:7

2

4:1

5.3

3.6

4.2

4.7

3.4

z-i

315

::

512

3.2

4.3

t:

t;

E

40

4.2

Source: U.S. Department of Education, National Center for Education Statistics, Di&~t of Education Statistics 1989

(Washington, DC, 1989), p. 158.

5
3 )

4 )

Some jurisdictions hiring relatively more experienced teachers with more education and thus

paying higher salaries, on average; and

Some jurisdictions placing a higher value on

education than others and being willing to

pay a premium for attracting and keeping

teachers.

Other elements used to provide education

services, such as utilities, also vary in price across and

within states and affect the cost of services.

Table 1-B presents the same measures as l%ble

1-A with the expenditure data for each state adjusted

by a factor designed to account partially for interstate

differences in the costs of producing a unit of

education services. The adjustment factor is based on

a specially constructed, state-by-state index of labor

earnings. Because there is no reliable index of the

prices of other education inputs, it is assumed that

these prices are uniform throughout the country,

hence the term partial cost adjustment2 However,

the partially cost-adjusted expenditure data in l%ble

1-B reflect differences in the level and quality of

education services more closely than do the

non-cost-adjusted data in Table 1-A.

Ideally, one would want the cost index on an

annual basis, but the index used to deflate the

expenditure data is available only for 1986-87. Using a

1986-87 cost index to deflate each state’s expenditure

data in all years assumes that relative factor costs

(employee earnings in this case) across states have

remained reasonably constant over the 27-year

period. Not adjusting the expenditure data at all

assumes that interstate differences in employee eamings simply reflect differences in worker productivity

and not (quality adjusted) factor cost differentials.

Because the index is available only for 1986-87,

the expenditure per pupil values (and hence the

pattern across states) are different in columns (a), (b),

(c), and (d), but the annual growth rates for states in

columns (e), (f), (g), and (h) are unchanged.

Interstate Comparisons

The summary statistics in Table 2-A and %ble 2-B

are presented separately for the 50 states and for the

48 contiguous states. The statistics omitting Alaska

and Hawaii are shown because those states might be

atypical in terms of expenditures per pupil for two

reasons:

1) Hawaii is the only state with a single

statewide school system, and Alaska provides

for the direct support of all schools except in

9 borough and 24 city school districts.

2 ) Because of geographic separation, the prices of

education inputs almost certainly differ significantly from those in the continental U.S.

The decade of the 1960s was the period not only

of greatest increase in real spending per pupil but also

of greatest uniformity in the rate of change across the

states. ‘Ib see this, it is necessary to calculate summary

statistics for the distributions of expenditures per

pupil and growth in expenditures per pupil across the

states. nble 1-A presents the mean (average),

standard deviation (a measure of relative dispersion

about the mean), and coefficient of variation (c.v.) for

the values in columns (a) through (h) of Table l-A3

Table 2-B presents the same summary statistics for

the data in Table 1-B. Panel 1 in each table presents

these values based on the distribution for all 50 states

(the District of Columbia is not included in this

analysis); Panel 2 presents the values for the 48

contiguous states only.

Xtble 2-A reveals that any inference about how

the variation across the states in spending per pupil

has changed during the past 27 years depends on

whether Alaska and Hawaii are included in the

analysis. Based on all 50 states, the dispersion in

spending per pupil has increased somewhat, with the

c.v. dropping slightly from 22 percent in 1959-60 to 21

percent in 1969-70, and then growing to 27 percent in

198687. Based on the contiguous 48 states, the degree

of dispersion has remained fairly stable, with the C.V.

fluctuating between 20 percent and 22 percent.

For the cost-adjusted data in Table 2-B, the

difference in the values of the coefficient of variation for

columns (a), (b), (d), and (fl between the 48 and the 50

state samples is not nearly as pronounced as in able

2-A This is further evidence that expenditure per pupil

data for Alaska and Hawaii differ from that for the 48

contiguous states for cost related reasons. Notice that

for the 198687 school year the coefficient of variation in

expenditures per pupil for all 50 states is 0.27 (Table

2-A), whereas it is only 0.21 for cost-adjusted cxpenditures (Etble 2-B). This suggests that as much as

onequarter of the variation in average spending per

pupil across states may be due to cost differentials.

Analysis of the information in lhbles 2-A and 2-B

suggests that there was much more variability across

the states in the rate ofgrowth in spending per pupil

during the final seven years period than in the first

two decades. The coefficient of variation for the

growth rate increased from 22percent for the 1960s to

nearly 50 percent for the first half of the 198Os, using

either the 50-state or the 48-state distribution. During

the 197Os, the coefficient of variation for spending

growth rates was 22 percent across the 48 contiguous

states, but 27 percent if Alaska and Hawaii are

included in the analysis.

Has there been any tendency for those states

where the initial per pupil expenditures were lower to

increase spending at a higher rate?

If states where per pupil spending was initially

lower increased spending at a more rapid rate, then

6
Table I-B

Current Expenditures per Pupil in Average Daily Attendance, Constant 1986-87 Dollars,

School Years 1959.60,1969-70, 1979.80, and 1986-87, Cost A&ted’

State

Current Exuenditures oe Puuil

1979-*or

A e aee Annual Change cue ce t)

1959-60 1969-70 1986-87 1959-i I- 1969-70 1979-80 ’ l&9-60

School School School School

Year Year Year Year 19:;-70 19Lo 19E87 1982-87

United States

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

ga-!!r

Maryland

Massachusetts

Michigan

Minnesota

Mibii~~pi

Montana

Nebraska

Nevada

New Hampshire

New Jersey

EE2”

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsvlvania

Rhod$ Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

l Current acpenditures per pupil in average daily attendance divided by index of unit cost. Cost adjustment based on elementary and

secondary education factor cost index for 1979-80 in Advisov Commission on Intergovernmental Relations, Representative

Eqxwditum: Addnming the Neglected Dimension of F&l Cqmciity, by Robert W Rafuse, Jr. (Washington, DC, 1990).

Note: U.S. totals include District of Columbia.

(4

$1,420

983

1,643

1,566

956

1,540

1,504

1,552

1,722

1,294

1,008

?z!;:

11547

1,394

1,455

1,375

gig

1:426

1,601

1,441

1,586

888

1,347

1,749

:‘E

11469

1,383

1,504

2,115

I,E

1,343

1,234

1,724

1,555

1,656

926

1,586

963

1,237

1,272

1,546

1,056

1,558

1,028

1,583

1,761

(b)

$5403

1,725

2,626

2,172

1,875

2451

2,179

2,633

2,645

:‘E

2?552

$7

2,496

%i

2:372

1,639

1,878

2,457

2,593

2,616

2,442

ziz

2:157

2,589

yg

;h&

21281

ifi!

i262

2,089

1,864

2,767

mJ4

2,777

2,005

2,453

1,781

1,807

1,921

2,823

2,120

2,637

2,075

2%

,

w

$3,255

2,486

5,381

2,894

2,532

3,118

$44;

4:091

2,914

2,447

3,430

2,673

3,454

E:;

4’177

31470

2:::

21869

3,192

4,936

2,796

3,064

%z

3:919

3,643

3i%

3’300

2:503

%%f

31398

2,872

3,601

2,893

y$

I

(4

$3,977

~3~!i

31631

3,067

3,578

4,159

2zci

4:083

3,544

3,905

2,907

3,826

3’;;;

4:110

2,791

3,020

4,639

4,580

;,g;

41119

2,680

3,591

4,717

1’:;

4:394

5,611

;‘E;

31480

3,828

2;:;

4407

2;;:

3:597

3,740

3,021

3,352

252

31846

3,879

:;;

$373

Source: U.S. Department of Education, National Center for Education Statistics, Diges of Education Statistics 1989

(Washington, DC, 1989), p. 158.

7
Summary Statistic for Education Expenditure ‘h-ends, Not Cost Adjusted’

1959-60 1969-70 Decade 1979-80 Decade 1986-87 7-Year 27-Year

School School Annual School Annual School Annual Annual

Year Year Growth Year Growth Year Growth Growth

All 50 States

Mean $1,357 $2,2bS 5.3% $3,176 3.4% $3,945 3.1% 4.0%

Standard Deviation $304 $465 1.2% $798 0.9% $1,044 1.4% 0.6%

Coefficient of Variation 0.22 0.21 0.22 0.25 0.27 0.27 0.47 0.16

Omitting Alaska and Hawaii

Mean $1,345 $2,239 5.3% $3,098 3.3% $3,863 3.1% 4.0%

Standard Deviation $292 $449 1.2% $623 0.7% $886 1.5% 0.6%

Coefficient of Variation 0.22 0.20 0.22 0.20 0.22 0.2Al 0.47 0.15

‘All expenditure amounts are in constant 1986-87 dollars.

Source: Calculations based on data in Table 1-A.

Table 2-B

Summary Statistics for Education Expenditure ‘bends, Cost Adjusted’

1959-60 1969-70 Decade 1979-80 Decade 1986-87 7-Year 27-Year

School School Annual School Annual School Annual Annual

Year Year Growth Year Growth Year Growth Growth

All 50 States

Mean $1,395 $2,331 5.3% $3,257 3.4% woso 3.2% 4.0%

Standard Deviation $266 $398 1.2% $621 0.9% $882 1.2% 0.7%

Coefficient of Variation 0.19 0.17 0.22 0.19 0.27 0.21 0.36 0.17

Omitting Alaska and Hawaii

Mean $1,392 $2,320 5.3% $3,209 3.3% $4,OOS 3.1% 3.9%

Standard Deviation $268 $402 1.2% $552 0.7% $834 1.0% 0.7%

Coefficient of Variation 0.19 0.17 0.22 0.17 0.22 0.21 0.32 0.17

1 All expenditure amounts are in constant 1986-87 dollars. Cost adjustment is based on elementary and secondary education

factor cost index for 19’79-80 in Advisory Commission on Intergovernmental Relations, Representative Et-pendifures:

Addressing the Neglected Dimension of Fiscal Capcity, by Robert W. Ratuse, Jr. (Washington, DC, 1990).

Source: Calculations based on data in Table 1-B.

interstate disparities would diminish over time. To test

this proposition, consider a simple regression analysis

for per pupil spending increases over any time period:

Percentage Increase =

(Y + @ l (Initial Expenditure) + E

where CY is the constant term for the equation, l3 is the

regression coefficient, and E is a normally distributed

random error. A statistically significant estimate for b

is evidence that the rate of growth in spending is

linearly related to the initial expenditure level. A

positive and significant estimate would indicate that

the rate of growth was greater in states where the

initial expenditure was higher; whereas a negative and

significant estimate would indicate that the rate of

growth was greater in states where the initial

expenditure was lower. A statistically insignificant

estimate for S would suggest the lack of any direct

relationship between initial expenditure level and

subsequent growth rate (for a discussion of the

regression methods and findings, see Appendix 1).

Overall, the analysis developed here indicates

that during the high growth-rate period of the 1960s

there was a very modest tendency toward equalization

across the states in the level of spending per pupil.

This tendency was not present during the next 17

8
years of more moderate growth in spending. This is

consistent with the trend for expenditures per pupil in

Table 2-A, where the coefficient of variation for the 48

contiguous states declined from 22 percent in 1959-60

to 20 percent in 1969-70, and then fluctuated slightly

over the next 17 years.

NOTES

i A pooled cross-section-time-series regression reveals that

interstate variations in teacher salaries and the ratio of

teachers per enrolled pupil explain, statistically, 85

percent of the variation in current expenditures per pupil

in average daily attendance across states and over time.

‘Since employee compensation accounted for 75.3 percent

of general expenditures for primary and secondary

education in 1987, the bias in assuming uniform nonlabor

factor prices is probably not severe. For a more detailed

discussion of the cost index see ACIR, Representative

Expenditures.

3 The standard deviation is the square root of the sum of the

squared deviations about the mean divided by the number

of observations. The coefficient of variation for a

distribution is defined as the ratio of the standard

deviation to the mean. It is a dimensionless measure of the

relative dispersion in a distribution; the higher its value,

the greater the degree of dispersion.

9
1 0
2

School District Revenues

Aggregate Trends

Local taxes and state aid have been the traditional major source of revenue for K-12 public schools. As

the figures in l%ble 3 indicate, the share of public

school funds provided by the federal government has

ranged typically between 5 percent and 10 percent.

Federal funds reached a maximum of 9.8 percent in

1979-80 and have declined since then. While the

combined state-local component of public school

revenues has remained between 90 percent and 95

percent, there has been a change in the relative

contributions made by these two sources. From

1959-60 to 1986-87, the state share contribution has

increased roughly from 40 percent to 50 percent of the

federal-state-local total while the locally raised share

has declined from slightly more than 55 percent to

slightly less than 45 percent. This reversal is due to a

large extent to increases in state aid aimed at

equalizing fiscal resources across school districts-a

topic that will be examined in the next section.

Although states contribute about 50 percent of

public school revenues in the aggregate, there is

substantial variation in the ratio of state to local

revenue-raising responsibility. At one extreme is

Hawaii, where state revenues provide virtually all

funds for the single statewide school system. At the

other extreme is New Hampshire, where the state

provides only about 6 percent of public school

revenues. %ble 4 presents data for the distribution of

K-12 public school revenues by government from

1959-60 to 1986-87 for each state.l The table shows

that the aggregate trend toward greater reliance on

state funds holds true forbetter than two-thirds of the

states, and that the largest regional concentration of

states countering this trend is in the Southeast.

Before considering in detail the nature of state aid

programs designed to promote equalization in spending

across school districts, it is instructive to examine the

sources of state and local revenues for public schools.

Table 3

Public School District Revenues by Source of Funds,

Selected School Years 1959.60 to 1987-88

Federal State Local

Revenues Revenues Revenues

(percent of total)

1959-60 4.4 39.1 56.5

1961-62 4.3 38.7 56.9

1963-64 39.3 56.3

1965-66 4:; 39.1 53.0

1967-68 8.8 38.5 52.7

1969-70 8.0 39.9 52.1

1970-71 39.1 52.5

1971-72 E 38.3 52.8

197273 8:7 40.0 51.3

1973-74 41.4 50.1

197475 El 42.2 48.8

1975-76 44.6 46.5

1976-77 f*i 43.4 47.8

1977-78 9:4 43.0 47.6

1979-80 9.8 46.8 43.4

1981-82

1983-84 2:

47.6 45.0

47.8 45.4

1985-86 49.4 43.9

1986-87 ti 49.8 43.9

1987-88 6:3 49.5 44.1

Source: U.S. Department of Education, National Center for

Education Statistics, Digest of Education Statistics

1989 (Washington, DC, 1989), Table 138.

1 1
Source of Origin of School District Revenues

195940 1969-70 1979-80 1986437

Federal State Local Federal State Local Federal State Local Federal State Local

3.7%

8.1

17.9

::i

z.4

3:o

22

i:;

11.1

13.6

5.8

27

3.1

United States

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

District of Columbia

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

MiSSOUli

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

4.0

6.9

3

?z

4:s

i.3

914

4.6

2:.

1:2

4.7

1.7

fi

415

1.8

4.0

2

3:7

2

if

57

4.2

2.9

5.7

39.5% 56.8%

69.3 22.6

50.0 32.1

39.5 53.7

47.7 44.3

42.7 53.7

19.9 74.4

26.8 70.2

78.9 18.9

na. 99.2

57.7 40.1

62.8 25.1

69.9 16.5

33.2 61.0

18.9 78.4

29.8 67.1

12.1 85.0

21.5 73.2

44.9 50.4

67.7 29.9

30.6 65.4

36.4 56.7

20.5 77.5

43.8 53.4

38.2 59.1

52.4 38.4

30.5 64.7

25.4 70.9

4.3 91.4

56.4 34.2

5.3 90.1

24.1 74.4

69.4 15.4

39.3 59.5

68.3 27.0

31.3 67.0

30.3 66.9

422 50.6

29.5 66.0

50.2 48.0

18.1 77.9

70.9 23.3

8.6 86.1

54.0 42.3

49.9 45.5

41.9 52.8

23.1 76.1

36.5 54.0

61.1 33.2

54.2 41.6

21.3 75.8

45.7 48.6

7.2%

15.2

27.1

8.2

18.2

5.3

7.6

2.1

7.4

30.2

9.5

10.5

El

2:;:

2x

13:6

11.9

6.7

2.t

3:9

2;:

7:9

8.5

iTi

5:1

1:‘:

417

15.6

9.3

I”11

iis

5:9

14.0

11.7

11.9

9.3

;x

11:1

6.6

12.4

2.5

20.2

40.9%

63.3

53.3

46.4

$2

27:8

25.2

71.3

na.

55.7

58.3

87.2

37.8

34.6

39.4

~*~

56:2

56.4

32.5

35.2

20.0

45.1

46.0

53.1

33.7

25.4

17.6

36.5

8.3

27.0

61.9

21:

2517

E

2018

46.2

38.8

59.5

13.1

2-s

52.8

37.1

36.4

56.6

48.2

31.6

24.8

51.8%

21.5

19.6

45.4

37.3

57.4

64.5

72.8

21.3

69.8

34.8

31.1

53.;

5915

53.8

E

30:2

31.7

60.8

58.4

74.0

51.0

37.3

22.8

58.4

2;

5417

86.7

67.6

iit;

18:7

65.0

66.7

44.4

73.2

47.6

55.4

26.4

75.2

2:

38:2

60.0

52.5

36.8

39.4

65.9

55.0

9.2%

12.6

13.0

11.1

14.5

8.7

i.1

13:o

15.8

11.0

11.8

12.5

9.5

12.8

z-::

6:9

12.5

14.8

9.6

z-f

7:4

22

ii::

2

5:1

4.1

16.6

5.0

15.2

;;

11:8

E2

5:9

14.9

13.9

14.0

11.0

;:!i

ii::

10.6

2::

48.9%

69.0

70.2

41.6

53.0

71.2

41.0

31.5

64.7

5::;

57.6

85.2

55.0

41.2

56.1

42.2

43.3

69.7

54.4

48.9

Et

4217

56.6

53.1

36.7

49.3

18.2

58.5

6.8

2::

40:6

62.4

z”6

43:8

35.5

45.0

38.8

56.8

22

so:1

54.0

28

70:8

60.1

37.6

29.6

42.0%

18.4

16.9

47.3

32.5

19.1

52.9

62.5

2

33:7

30.6

3:::

$8

51:o

49.8

17.8

30.8

41.5

51.8

51.2

49.9

37.3

22.8

53.6

42.2

73.9

32.9

88.1

55.5

Ei

2213

45.1

51.6

2:

46:5

55.4

2;

37:7

38.9

38.2

64.2

49.6

20.6

29.3

56.8

63.8

6.4%

11.7

11.7

9.0

11.5

:3

414

7.7

10.3

7.2

7.1

11.8

8.9

4.3

4:;

4.8

11.6

11.5

6.4

2

5:9

4.2

10.5

2

6:l

4.4

3.4

1::

4:8

7.9

;::

2

5:1

4.5

8.9

11.8

11.1

2::

:::

4::

4:::

49.8%

::::

2;

69:5

39.0

40.0

69.2

5::;

59.7

%i

39:1

58.1

44.5

42.4

64.5

55.1

50.2

38.5

45.1

34.9

56.9

65.2

41.2

47.8

5:

5:9

43.0

75.1

42.4

66.0

50.8

49.6

63.5

28.0

46.3

42.6

56.0

27.2

44.5

47.1

54.4

34.4

32.9

72.4

69.8

34.5

43.0

43.936

ii!:

427

33.7

it:

5516

23

38:6

33.2

0.1

2:

3io

50.4

52.8

23.8

33.4

43.4

E

59:3

38.8

T2.z

4317

71.3

56.0

90.7

525

127

528

iti

44:8

30.9

45.4

48.6

52.9

35.1

61.0

44.4

45.8

39.6

2s

21:3

22.7

Ei

Note: 1986-87 data for Virginia are estimated.

n.a.-not applicable.

Sources: Advisory Commission on Intergovernmental Relations, Significant Features of Fiscal Fedemlism, 1988 Edition,

Volume II (Washington, DC, 1988), Table 58; and U.S. Department of Education, National Center for Education

Statistics, Digest of Education Statistics 1989 (Washington, DC, 1989), Table 139.

12
Revenue Sources for State Funds

It is commonplace for state governments to derive

some of the funds that are distniuted to local school

districts from one or more dedicated revenue sources.

Some states earmark a portion of state revenues

revenues from a particular tax base for school aid

while other states allocate the total proceeds from a

revenue source. Generalization is difficult here because

there are so many variations in the dedicated sources of

revenue and in the specifics of financing schemes.

Every state allocates a specified portion of either

the general sales tax, personal income tax, or

corporate income tax for public schools. Other

revenue sources from which all or part of the

proceeds flow to local schools include a statewide

property tax; selected excise taxes; insurance premium fees; federal forest and mineral lease receipts;

coal, oil, and gas extraction fees; lottery proceeds: and

interest from a permanent school trust fund.

Although earmarked revenues are an important

source of funds for many state aid programs,

legislative appropriations through the general fund

budget comprise the single most important component for the state share of public school revenues.

General fund appropriations account for more than

80 percent of total state aid for the majority of states,

and for many states they constitute the sole source of

state-generated revenues. Moreover, even in states

where dedicated receipts are substantial, the supplemental general fund appropriations are important.

Although it is difficult to generalize about the

extent to which states rely on dedicated receipts to

help fund public school aid programs, for most states,

the amount of revenue raised from these sources does

not determine the overall level of support. This is

because, with a few exceptions, general fund appropriations finance the additional dollars that are

allocated to local school districts.*

In a few states, supplemental general fund

appropriations are sufficiently limited that dedicated

receipts arguably might affect the overall level of

state support. For the 1986-87 school year, general

fund appropriations accounted for only 16 percent of

total state revenues for local schools in Tennessee, 12

percent in Utah, and 4 percent in Wyoming.3 In

Alabama, estimates of dedicated receipts largely

determine the amount of legislative appropriations.

In California, Proposition 98, recently approved in a

referendum, mandates that 39 percent of all state

revenues go toward financing K-12 education. For all

other states, however, it appears that the budgetary

decisions of the state legislature determine the

overall level of state funding for local schools.

School Districts’ Own-Source Revenue

When examining the sources of locally raised

revenue for public schools, it is important first t0

distinguish between states where school systems are

fiscally independent and those where school systems

are fiscally dependent on some other local govemment. The U.S Bureau of the Census defines

independent school systems as “school districts that

are administratively and fiscally independent of any

other govemment.“4 According to this definition, in

33 states, all public schools are independent, and in 12

states, some districts are independent while others

are not. Hawaii has a single system dependent on the

state government, and in Alaska and Maine, some

school districts in sparsely populated areas are

dependent on the state government. In most of the

other states with dependent school systems, they are

dependent on a county or municipal government.5

Table 5 lists the number of independent and

dependent school districts by state from three

sources: the U.S. Bureau of the Census; the American Education Finance Association (AEFA); and the

School Finance Collaborative, a joint effort by the

Education Commission of the States (ECS) and the

National Conference of State Legislatures (NCSL).

The most obvious observation is the differences

between the listings in the number of school districts

in some states and whether they should be classified

as independent or dependent. For California, for

example, the Census Bureau enumerates 1,098

independent and 53 dependent school districts, while

ECS/NCSL reports 1,025 dependent and no independent districts, and AEFA lists 1,028 districts with no

classifications. It seems likely that, at least in some cases,

these differences arise from determiniig exactly what

constitutes “fiscal independence.”

The most important dimension of school system

independence is the ability of a district to determine

autonomously the amount of local revenues to be

raised for education. Typically, this involves establishing the tax rate that will be levied on each allowable

tax base. State constitutions or legislative provisions, in

turn, usually specify what revenue sources local

jurisdictions, such as school districts, are allowed to tax.

In the case of dependent school districts, locally

raised revenue is appropriated to the school district

from the general fund of the municipal government

on which the district is dependent. In this situation,

the school district must solicit funds from the same

budget that supports police and fiie protection

services, local parks and recreation, health and

hospital services, sanitation and trash disposal, and

other functions.

There are, of course, several checks on the ability

of independent school systems to raise local revenues.

The fist, and most obvious, is the ability of voters to

elect school board members or, in the case of

appointed school boards, to elect the public officials

responsible for appointments.

Referendum requirements comprise a second

13
Table 5

Number of Fiscally Dependent and Independent School Districts

Census AEFA ECSlNCSL

Independent Dependent Independent Dependent Independent Dependent

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

129

0

227

333

1098

180

16

!E

186

11:

1029

304

451

324

178

66

88

0

5:

441

171

561

547

952

17

160

551

7:

31:

621

636

350

515

9;

193

14

1113

2:

0

297

55

433

56

5:

12

0

53

0

149

x

0

A

0

8

8

0

194

41

354

0

0

5

x

x

71

3:

198

ii

0

0

0

37

0

0

128

8

0

140

x

x

0 129

21:

55

5

333 0

-1028-

176 0

0 165

19

67 x

159 27

0

116 i

-994-

302 426 i

304 0

17866 8

0 283

0 24

56; 437

434 8

5: 154

554 8

955 0

17

159 i

582 24

0 88

724 5

0 141

z 8

No Listing

304 0

50140 ii

40 52

193 0

0 141

1061 26

2i.i x

0 139

298 0

55

432 8

49 0

1290 5:

iti 5 0

17: 1025 0

0 165

:; 8

157 27

0

116 ii

No Listing

304

436

304

178

66

282

0

x

x

8 24

0

565

367

0

435 0

0 152

E

0

x

0 17

161

606 ;

6E s

0 140

302 0

615

611 8

304

499 i

0 4 0

40 51

192 0

0 140

1063

2:

x

0

0 139

296

55 i

431 0

1 0 39

Sources: U.S. Department of Commerce, Bureau of the Census, Government Organization, 1987 Census of Governments,

Volume 1, Number 1 (Washington, DC, 1989), p. XII; American Education Finance Association, Public School

Finance Pmgmms in the United States and Canada: 19861987, compiled and edited by Richard Salmon, Christina

Dawson, Steven Lawton, and Thomas Johns (Sarasota, Florida, 1988); and Education Commission of the

States/National Conference of State Legislatures, School Finance at a Glance, prepared by Deborah A. Verstegen

(Denver, 1988).

14
Table 6

Requirements for Public Referenda on Locally

Raised School District Revenues

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

TeXaS

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Increase

Tau Levy above Specified Millage Rate

Tax Increase

Bond Issues

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Increase

Tax Increase

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Increase

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Increase

Tax Increase; Supermajority for Levy abox

Specified Millage Rate

Tau Levy above Specified Millage Rate

Annual Tax Levy for Class I & II

Districts only

Annual Budget

Annual Budget for Type II Districts only

Annual Budget for Noncity Districts only

Tax Increase

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Annual Budget

Tax Increase

Each District Establishes Procedure

Tax Levy above Specified Millage Rate

Tax Increase Greater than 8 percent

Tax Levy above Specified Millage Rate

Annual Budget

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Tax Levy above Specified Millage Rate

Sources: American Education Finance Association, Public

School Finance Pmgrams in the United Statm and

Canati 1986-l 987, compiled and edited by Richard

Salmon, Christina Damn, S&en Lawton and

Thomas Johns (Sarasota, Florida, 1988); and Education Commission of the States/National Conference

of State Legislatures, School Finance at a Glance,

prepared by Deborah A. Verstegen (Denwx, 1988).

form of direct voter control over local school taxing

and spending decisions. Thirty-seven states have

some type of provision for referendum input to the

budget process, although the exact nature of these

provisions varies considerably. In some cases, referendum approval of each year’s budget is required; in

other cases, a referendum is necessary only if the

budget requires a tax increase. In some cases, a

referendum is required only for tax levies above a

certain rate, typically, the local share of the spending

level of a state foundation program. In Nebraska, New

Jersey, and New York, certain classifications of school

districts have referendum requirements and others do

not. In South Carolina, establishing referendum requirements is a local prerogative. %ble 6 provides a

summq of state referendum requirements.

In about 20 states, the fiscal autonomy of local

school districts is constrained by constitutional or

statutory provisions that limit tax rates, spending

levels, or increases in annual spending. As with

referendum requirements, the nature of these limits

varies considerably across the states that have them.

Perhaps the most well known case is California, where

Proposition 13 limits both the local property tax rate

and the annual increase in property tax assessments,

effectively transferring the responsibility for raising

additional tax dollars for public schools to the state.

Similarly rigid limitations have had the same effect in

Nevada and New Mexico.

A distinctive approach to limiting increases in per

pupil spending exists in Indiana, Kansas, and New

Jersey. In these states, the amount by which any

district may increase spending depends on the

district’s current expenditure level. While there are

variations in these restrictions, in each case, the

general result is that districts with lower expenditure

levels are allowed to increase spending by a greater

amount than higher spending districts. Over time, this

form of spending increase limitation should work to

bring about greater equality in per pupil spending

across school districts.

Revenue Sources

for Locally Raised Funds

The ad valorem property tax is by far the most

important source of locally raised revenue for schools

in states where districts have independent taxing

authority. It accounts for more than 80 percent of

total local revenues in most cases, and in some states

it is the sole tax base on which districts may impose

their own levy. In addition to applying universally to

(all non-exempt) real estate, this tax often covers

personal property, such as automobiles and boats, and

in some cases it applies to financial instruments, such

as personally held mortgages.

‘Rvo institutional features of the property tax are

particularly noteworthy for the study of public school

15
finance. The first, discus& above, involves the various

constitutional and statutory limitations in place in some

states that restrict the ability of independent districts to

set, or raise, property tax rates. The second is the

marked interstate differences in assessment practices

and the nature of tax rate schedules.

In some states, property is assessed at full market

value. In other states, all property is assessed at a fixed

fraction of market value. Still another possibility is for

each county government to assess property so that the

ratio of assessed value to full value might vary within

the state.‘j The situation is complicated further by the

fact that some states may assess all property at the

same fraction (possibly 100 percent) of market value

but use different tax rates for different classes of

property (e.g., agricultural, commercial, residential)

and some states may tax all property at a uniform rate

but apply different assessment-to-market value ratios

to different property classifications. In addition, many

states have homestead provisions for property tax

levies, which allow a base amount of the value of

residential property to be tax exempt.’ Because of

these varied procedures, extreme care must be

exercised in any attempt to compare state effective

property tax rates for school spending.

Three states allow school districts to tax personal

income. In Iowa, school districts may impose an

“enrichment” supplement to the local share of the

state’s foundation aid program. During the 1986-87

school year, 64 of the smallest of the state’s 436 school

districts enacted this tax.l This supplement is comprised in part of a surtax on the state income tax and

“the surtax rate is determined by the state comptroller on the basis of the revenue to be raised by the

surtax for the particular district with the s~rtax.“~

In Ohio, school districts were allowed to enact an

income tax for the first time in 1981. This authority

was rescinded in 1983, however, with the provision

that the six districts that had adopted the levy were

allowed to retain it at the rate in place at that time.

(Five of the districts still impose the tax). In

Pennsylvania, school districts may impose an earned

income tax, but the rate is limited to 0.5 percent.lO

An important implication of these restrictions on

the local income tax levies is that school districts may

not set the rates. As a result, districts may not finance

an increase in the level of per pupil spending by

increasing the income tax. Thus, in no instance does a

local income tax provide a source of additional funds

for local spending on public schools.

School districts raise revenue from a variety of

other sources where they have independent taxing

authority. These include a local sales tax, occupation

taxes, motor-vehicle license fees, mineral extraction

and severance taxes, interest income, and a share of

the proceeds from court fines. In some cases, school

districts collect these revenues directly, in other

cases, they are an apportioned share of general local

revenues collected by another local government.

As in the case of the local income tax, school

districts typically do not control directly the amount of

revenue that is raised from these other sources. This

is because the tax rate or fee schedule that may be

levied on these bases is set by the state government.

Hence, the revenues constitute the minimum levels

of local funds for public education.

An important implication of this discussion-one

that will play a critical role in the analysis of the next

section-is that the property tax is quantitatively the

most important source of locally raised revenue for

independent school districts and, in general, is the sole

source for raising additional own-source revenue.ll

Identifying the source of additional funds for local

spending is more complicated in the case of dependent

school districts. These districts rely on appropriations

from local governments. In this instance, the link

between local tax dollars and school spending is simply

not as direct as it is for independent districts.

Analyzing the local expenditure decision in this

setting requires consideration of the potential

trade-off between school spending and other local

public services. In addition, analysis of expenditure

decisions require explicit assumptions of how all

funds are allocated through the local public fist in the

presence of unrestricted intergovernmental aid to

municipalities. However, because property taxes are

the single most important source of revenues for all

municipal governments in most states, for the analysis

that follows, it is reasonable to assume, at least as a

first-order approximation, that they are the source of

additional dollars in the spending decisions of

dependent, as well as independent, school districts.

NOTES

‘It is necessary to interpret the data in Table V with some

caution. This is because of the way in which states report

contributions for employee benefits, in particular for

teacher pension plans and employer payments for FICA

(Social Security and Medicare) Some states include state

funds contributed for teacher employee benefits as part of

total state aid to local school districts while other states do

not. This re~rting difference could have a noticeable impact

on the distribution of state-local shares in the table, because

these contributions account for over 20 percent of total aid

for some states that include this amount. An effort is under

way at the U.S. Department of Education, National Center

for Education Statistics, to revise reporting procedures so

that this difference will no longer exist.

2 The conclusion is based on the following reasoning: The

only instance in which dedicated revenues could actually

determine the level of state support is if they exceeded

what the state legislature would have appropriated in their

absence. In this case, of course, the state legislature would

have no incentive to supplement the dedicated receipts

with additional general purpose funds. On the other hand,

if the legislature appropriates funds over and above

16
dedicated receipts, then the dedicated revenues are

inframarginal to the allocation decision of how much state

support local schools receive, i.e., the level of aid that the

local schools would receive if the legislature did not

appropriate any additional aid from general funds.

3American Education Finance Association, Public School

Finance Programs in the United States and Canada

1986-1987, compiled and edited by Richard Salmon,

Christina Dawson, Steven Lawton, and Thomas Johns

(Sarasota, Florida, 1988).

4 U.S. Department of Commerce, Bureau of the Census,

Government Oqpnization, 1987 Census Governments,

Volume 1, Number 1 (Washington, DC, 1989) p. XII.

5 Ibid., for an extended discussion of how dependent school

districts are organized.

6This is true, for example, in Pennsylvania, where a state

Tax Equalization Board applies a uniform procedure to

determine full market values from county-determined

assessed values for each school district for the purpose of

allocating state aid, the formula for which depends in part

on a district’s property wealth per pupil.

7See Robert D. Ebel and James Ortbal, “Direct Residential Property Tax Relief,” Intergovernmental Peqective 15

(Spring 1989): 9-14, for a discussion and compilation of

state programs designed to provide tax relief for residential property.

‘Public School Finance Pmgmms in the United States and

Canada, p. 121.

Q Iowa Tmr Reptier (Chicago: Commerce Clearing House,

1988), p. 1894.

l”Exceptions are the Philadelphia and Pittsburgh school

districts, each of which has an individual statutorily

defined higher limit.

“Notable exceptions to this, among the states with

independent school districts, are Alabama, where both a

genera1 sales tax and selective excise taxes in some eases

contribute additional local tax dollars, and Louisiana,

where a general sales tax comprises the major source of

funds for discretionary local spending.

17
1 8
3

State Aid Programs

Legal Environment

As discussed above, a significant trend in K-12

public school finance over the past 27 years is the

marked increase in the relative share of revenues

provided by state governments. During the 1960s and,

especially, the 197Os, most states not only increased

their level of funding but also altered the way in which

they disbursed funds to local school districts. This

realignment began with a series of state court cases,

the most well known of which was Serrano v. Prieti in

California.

The plaintiffs in these cases typically challenged

the existing structure of local school finance on the

basis of its heavy reliance on property taxation. They

argued that children in districts with low property

wealth per pupil were denied access to educational

resources, and hence educational opportunities comparable to those enjoyed by children who lived in

communities with greater property wealth. Critical to

this argument, of course, is the proposition that there

is a direct relationship between the quality of

education and spending per pupil.

Defining the appropriate standard by which to

measure the degree of equity in educational opportunity across school districts is difficult conceptually and

operationally.’ On conceptual grounds, does pursuing

equity imply that public policies should make circumstances sufficiently similar in all districts such that

more resources are provided to schools in poor

districts and wealthy districts are restrained from

providing excess or above-average education services? Or does pursuing equity simply require that

public policies be designed to provide additional

resources to poor districts? On operational grounds,

should actual expenditures be used to measure the

degree of fiscal equity, or should some attempt be

made to adjust for regional or urban-rural differences

in factor prices? If expenditures are cost adjusted, is it

necessary also to adjust for differences in factor

quality? Should physical resources devoted to education be used as the equity measure? If so, doesn’t this

impose an even more serious mandate to account

explicitly for differences in factor quality? Finally,

perhaps educational achievement (or value added) is

the appropriate equity measure. Designing public

policies to promote equity defined in this way,

however, would require knowledge about the relationship between spending decisions and education

outcomes that is not yet available.2

The many court challenges-the outcomes of

which varied according to state constitutional provisions-prompted widespread legislative activity. The

result was a redirection of state aid aLlocation formu&

with greater emphasis on promoting equalization of per

pupil spending across districts.

Allocation Formulas:

Foundation

and Power Equalization Programs

State aid programs designed to promote more

equal spending across school districts fall into two

broad classifications: foundation programs and power

equalization programs.

Foundation programs establish access to a minimum level of expenditure for each pupil that is

guaranteed by the state. A state may fully fund this

level of expenditure or it may require each district to

contribute a local share. The amount that a district

must contribute depends typically on its wealth. For

most foundation programs, assessed property value

per pupil is the measure of wealth used, and the local

share is the amount of revenue raised from a property

tax where the millage rate (tax rate per $1,000 of

assessed value) is uniform throughout the state.

19
According to this form* the tax effort required to

support the local share of the foundation spending level

is the same in each district, regardless of its property

wealth per pupil. Because the state contribution equals

the difference between the foundation expenditure and

the local share, state aid is greater for less wealthy

districts where taxing at the statewide rate generates a

smaller local contribution. In most states with foundation programs, districts may augment the minimum

level of spending with locally raised revenues.

Power equalization programs guarantee that

each district will have the ability to generate the

same revenue per pupil from a given tax rate,

regardless of the size of the district’s taxbase. Each

district then determines the local tax rate. If the

revenues raised locally from this levy do not amount

to the program’s guaranteed level, the state

provides the difference. Guaranteed tax base

(GTB) and guaranteed tax yield (GTY) are the two

common versions of a power equalization program.

Since, for any property tax levy,

Yield = Rate x Base

is an identity, specifying either the yield or the base at

any given tax rate effectively establishes the other.

Thus, the two programs are equivalent analytically.

In implementing a power equalization program,

two important policy elements must be addressed.

The first is whether the program requires recapture.

This issue arises in the case of wealthy districts where

the amount of revenue generated at a given tax rate

exceeds the amount guaranteed under the state aid

program. Under a recapture provision, such a district

must remit to the state the excess revenue generated.

This money is then used, together with state funds, to

provide aid to districts where locally raised revenues

fall short of the equalization program guarantee.

For a power equalization program truly to

equalize revenue-raising potential regardless of differences in local wealth, a recapture provision is

necessary. Thus, a program with a recapture provision

is sometimes referred to as a “pure” power equalization program.3 However, recapture provisions tend to

be unpopular to residents of high-wealth districts. As

a result, and undoubtedly for political reasons, it has

been more common for power equalization programs

to allow wealthy districts to retain all locally raised

revenues and for the state to provide aid to districts

that raise less than the guaranteed amount of revenue

at a given tax rate.

A second policy decision is whether to impose a

limit on the extent to which the state aid program will

augment local spending increases. From the perspective of a receiving district, a power equalization

program constitutes a matching grant, where the

matching rate depends on how far the amount of local

revenue raised at a given tax rate falls short of the

program guarantee. Districts with less wealth per

pupil, for which the state must provide a greater

percentage of the total revenue raised at any tax rate,

receive a higher matching rate. As a result, the cost of

raising an additional dollar of expenditure per pupil is

the same for all districts.4 Under an open-end

matching program, no limit exists on the tax rateand hence the total expenditure per pupil- to which the

state subsidy applies. Under a closed-end matching

program, a limit is imposed on the amount of

expenditure to which the matching rate applies. The

rationale for imposing such a cap is to limit the exposure

of state budgets to the decisions of local districts.

Allocation Formulas: What Is in Place

What do current state aid programs for local

school districts look like? Table 7 presents classifications developed by the American Education Finance

Association (AEFA) and the Education Commission

of the States/National Conference of State Legislatures (ECS/NCSL) together with one by the National

Education Association (NEA). The classifications

used in the table are Flat Grant (FG), Foundation

Program Q, Full State Funding (FSF), Guaranteed

T&x Base (GTB), Guaranteed Tax Yield (GTY), and

Percentage Equalizing (PE).

Two observations about these classifications are

striking, especially in light of the preceding discussion

of the two basic types of state aid programs:

(1) The three rankings are similar in that each

uses a more involved classification system than

simply foundation program versus power equalization program. Most state aid programs are more

complicated than the simple versions of the two basic

programs outlined above. In fact, examining the way

in which the alternative rankings in ‘l’hble 7 classify

state aid provides valuable insights into the many

complexities that arise in configuring programs.

The AEFA classification distinguishes between

state aid programs that require local fiscal effort

(RLE) and those that do not (ENR). For state aid

programs where this distinction is made, RLE exceeds

ENR by about two to one.

The ECS/NCSL classification distinguishes between state aid programs on the basis of whether aid is

distriiuted on a per pupil basis (PUE) or by a

program-defined instructional unit (IUE). Instructional units typically are defined in terms of a number

of pupils per teacher, with an explicit weighting for

the teacher’s academic degree status and number of

years of teaching experience. Other items, such as an

allowance for capital expenses and pupil transportation, are sometimes included in the funding formula

for instructional units. For state aid programs where

this distinction is made, PUE exceeds IUE by slightly

better than two to one.

20
Table 7

State Aid Programs

State AEFA ECS/NCSL NEA State AEFA ECWNCSL NEA

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missol.ll-i

Legend

Type of Program

F-Foundation

GTB-Guaranteed Tax Base

GTY-Guaranteed Tax Yield

PE-Percentage Equalizing

FG-Flat Grant

FSF-Full State Funding

F/GTBfFG

F

F

GTY

F/GTY

F

F/GTB

z

GTY

;

F/GTB

Montana

Nebraska

Nevada

New Hampshire

New Jersey’

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

TeXaS2

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Foundation Unit

PUE-Pupil Unit Equalizers

IUE--Instructional Unit Equalizers

Local Spending Constraint

RLE-Required Local Effort

ENR-Effort Not Required

F/GTY

F

s

GTB

PFE

F

F

F

F/GTY

F

F/PE

PE

F

F

F

F/GTY

PE

F

9

GTB

F

‘In June 199O:the New Jersey aid program changed to a combination of a foundation grant with required local effort and a

guaranteed tax base.

2 The Texas legislature modified the existing formula to a combination of a foundation grant with required local effort and a

guaranteed tax yield. The new formula went into effect in September 1990. See Bob Bullock, “From the Capitol to the

Schoolhouse: An Analysis of the 1990 Education Finance Act,” Fiscal Notes 90 (July 1990): 1-7.

Sources: American Education Finance Association, Public School Finance P~~gmns in the United States and Can&

1986-l 987, compiled and edited by Richard Salmon, Christina Damon, Steven Lawton and Thomas Johns (Sarasota,

Florida, 1988); Education Commission of the States/National Conference of State Legislatures, School Finance a? a

Glance, prepared by Deborah A. Verstegen (Denver, 1988); and National Education Association, Sexxh:

Understanding State School Finance Fomulas (Washington, DC, 1987).

Some of the classification categories in the table

were discussed earlier. Both AEFA and ECSINCSL

utilize as classifications guaranteed tax base and

guaranteed tax yield. As noted above, however, the

difference between these two types of power equalization programs lies only in the way in which

equalization is defined.

All three rankings include a separate classification for full state funding. As noted above, Hawaii has

a single statewide school district funded from the

state budget. AEFA also classifies California, New

Mexico, and Washington as providing full state

funding on the basis that:

If the government provided a high level

of total revenue receipts (over two-thirds)

coupled with fiscal equalization programs

that deducted much of the remaining local

revenue from state allocations, the states

employing such programs were classified as

21
full state funded.5

The Nevada program would also qualify as fully state

funded under this definition were it not for the fact

that most school district revenue is raised by a locally

administered property tax (even though the rate is

uniform throughout the state).

The AEFA ranking classifies the programs in

Alabama, Delaware, Kentucky, Nebraska, and North

Carolina as a flat grant on the basis that they “do not

take into consideration the fiscal capacities of

individual school districts to support public elementary and secondary education.“6

The AEFA ranking defines as a final classification a percentage equalization program. This category

includes state aid programs in Alaska, Kansas, New

York, Pennsylvania, and Rhode Island. Under a

percentage equalization program, each district receives a certain amount of aid per pupil (or instructional unit) that is calculated to give a higher aid ratio to

districts with less f& capacity. The AEFA ranking

divides this grouping further into cases where at least a

certain level of expenditure is required (New York and

Rhode Island) and where no particular level of local

effort is required (Alaska, Kansas, and Pennsylvania).

Accordiig to the AEFA classifiition scheme:

If the local school districts had the power

to select the per unit expenditure levels, the

percentage-equalization program can be described as District-Power Equalization. . . .’

(2) There are several instances in which the three

rankings fail to agree on the classification of a

particular state aid program. Moreover, in several

instances, the ECS/NCSL and NEA rankings provide

more than one classification for a program. The

principal reason for these apparent anomalies is the

same as the one that was used to explain the first

observation. Most state aid programs are simply too

complicated for indisputable classification according

to rudimentary versions of the two basic programs

outlined above.

Aid to local school districts in most states consists

of a basic instructional aid program plus categorical

aid for a variety of special purposes. The organizational structure for accomplishing objectives, however,

varies considerably across the states. Consider, for

example, states with foundation aid programs, which

are by far the most common type of program

according to any of the three rankings in ‘lhble 7.

As noted above, in states where foundation aid is

distributed on the basis of instructional units, the IUE

definition varies across states. In states where aid is

distributed on a per pupil basis, the items included in

the foundation spending vary among the states. For

example, in some cases, transportation and capital

outlay allowances are included in foundation support,

while in other cases, these items are in separate

categorical grants. In still other cases, states do not

provide direct support for capital outlays. Some states

combine a first-tier foundation program to support a

basic level of expenditure with a second-tier power

equalization program for districts that choose to

provide a higher level of expenditure or to provide for

expenditure items not included in the first-tier

foundation program.

Two other observations about state aid programs

are not apparent from any of the rankings in Table 7,

but are nonetheless important:

(1) For per pupil based programs, the total

amount of state aid that a district receives is

equal to the amount of state aid per pupil

multiplied by the number of pupils. However, states use a variety of techniques to

measure the number of pupils in a district for

the purpose of determining state aid, each of

which raises some questions: First, should

the number of pupils be measured on one day

or as an average for several selected days

throughout the school year? Should the

number of pupils be measured by average

daily attendance (ADA) or average daily

membership (ADM). ADM approximates a

measure of total enrollment, while ADA

includes only pupils present on the day(s)

when measurement occurs. In determining

total state aid, using ADA penalizes districts

with high rates of absenteeism. Should there

be a weighting system for different grades? If

so, how should it be done? A common

scheme assigns a weight of 0.5 to kindergarten, a weight of 1.0 to elementary school, and

a weight somewhere between 1.0 and 1.5 to

secondary school.

(2) State aid programs commonly include provisions designed to address special circumstances. Examples include additional aid

based on low population density designed to

assist rural districts and additional aid based

on high population density designed to assist

urban schools. Another example is additional

aid to assist districts with rapidly increasing

enrollments.

In some instances, such special provisions

are contained in the basic state aid program,

for example, as a factor included in the

determination of a foundation expenditure

level. In other instances, these provisions are

implemented through special categorical aid

that supplements the basic program. In yet

other instances, and quite commonly, these

objectives are accomplished through

hold-harmless provisions8 One reason for this

22
type of provision is to provide relief for districts

experiencing rapid decliues in enrollment.

Another frequent use of hold-harmless provisions is to provide a minimum flat grant per

pupil to wealthy districts that otherwise would

not qualify for any aid under a foundation or

power equalization program.

This discussion suggests an extraordinarily important conclusion to be drawn from the diversity in

the structure of state aid programs. That is, extreme

caution must be exercised when making cross-state

comparisons about the degree of fisca effort that state

governments provide in support of K-12 education.

NOTES

1 For an excellent, detailed discussion of the complex issues

involved in assessing equity in school finance, see Robert

Beme and Leanna Stiefel, The Measwmettt of Equity in

School Finance (Baltimore: Johns Hopkins University

Press, 1984), especially Chapter 2

2 The difficulty associated with determining how spending

affects educational outcomes has led the courts generally

to define equity in terms of expenditures per pupil. See

Daniel Rubinfeld, “Judicial Approaches to Local Public

Sector Equity,” in Peter Mieszkowski and Mahlon

Straszheim, eds., Current Issues in Urban Economics

(Baltimore: Johns Hopkins University Press, 1979).

‘See, for example, Robert F! Inman, “Optimal Fiscal

Reform of Metropolitan Schools,” American Economic

Review 68 (March 1978).

4 Except in the absence of a recapture provision, where the

cost is lower for wealthy districts.

‘American Education Finance Association, Public School

Finance Ptvgmms in the United States and Canada

1986-1987, compiled and edited by Richard Salmon,

Christina Damon, Steven Lawton, and Thomas Johns

(Sarasota, Florida, 1988), p. 5.

6 Ibid.

’ Ibid.

nHold-harmless provisions typically place a limit on the

percentage increase (or decrease) in the amount of aid

that a district receives from one year to the next.

4

State Aid and Local Spending

The Local Spending Decision

Perhaps the most obvious question to pose at this

point is: How do existing state aid programs affect the

level of spending per pupil in different school

districts. Particularly, to what extent does state aid

supplement or even stimulate local spending, or

substitute for local dollars, providing local tax relief

rather than increasing school spending?

This is a difficuh question. To answer it properly

requires knowledge of how state aid affects consumer-voter demands for education spending and the way in

which those demands affect budget decisions.

The latter issue has been the subject of research

in the field of public choice, the scope of which

exceeds the focus of this report.’ One relevant

conclusion can be drawn from this literature, however. The way in which individual demands affect

budgetary decisions depends critically on the institutional structure that governs the process. Those

institutional structures are several and varied.2

Given the diverse institutional environments

within which school spending decisions are made, it is

not easy to generalize about how consumer-voter

demands affect school budgets. That consumervoters have an impact on local spending decisions

seems inarguable. Therefore, it is both possible and

worthwhile to consider in some detail the way in

which state aid affects the demand for school

spending. This demonstrates the role that state aid

plays in the framework that underlies the numerous

econometric studies of the determinants of local

school district spending. An understanding of this

framework, in turn, allows for better use of the results

of these studies as an input for decisionmaking.

State Aid and the Consumer-Voter

Consider first the choice that an individual faces

between different levels of publicly provided education

and other goods and services. According to the standard

paradigm of microeconomic theory, each consumer

faces the constraint that expenditures on education plus

expenditures on other goods and services, including

other public services, cannot exceed income.3 For

publicly provided goods, like education, individual

consumers do not select the level provided; rather, they

consume their community’s uniform level, as determined through the political process.

The cost to individuals of publicly provided goods

depends on the tax system used to finance them. As

pointed out above, in the overwhelming majority of

states, additional dollars of local revenues for public

school finance are raised through an ad valorem

property tax. If consumer-voters perceive that all taxes

on commercial and industrial property are borne by

nonresidents of the school district, then the tax-price

that any individual must pay for an additional dollar of

spending per pupil throughout the district will equal the

share of the local per pupil taxbase that he or she owns4

State aid affects choices by changing an individual’s income and tax-price for education (Appendixes

2A through 2E present formal analyses of consumer-voter budget constraints under various forms of

state education aid). After the distribution of state

aid, consumer-voters are free to choose the combination of education services and other goods that most

closely matches their preferences. The resulting level

of education services for the community will depend

on how these individual choices are transformed into

education budgets through the political process.

Distributions of Income and Tax-Price

The analyses in Appendixes 2A through 2E

demonstrate how alternative state aid programs

affect choices regarding school spending through the

way in which they affect income and tax-price. In light

of this, it seems appropriate to ask: What do the

25
distniutions of these economic parameters (income

and tax-price) look like across school districts? That is,

do representative consumer-voters in low-income

districts generally also face a high tax-price for school

spending (because of low property wealth per pupil)?

Is the opposite true? Are these parameters unrelated? Moreover, since the selection by a state

government of a particular type of program determines whether one or both of these parameters will

be affected, it seems reasonable to wonder about the

extent to which they are, or are not, correlated.

The distribution of these two parameters across

school districts will differ, of course, across states. It is

not readily apparent, a priori, to what extent the

overall patterns in various states will exhibit similar

characteristics. One general observation is possible,

however: The amount of variance that characterizes

the distribution of either parameter should be larger

in states where school districts are defined over

smaller populations than in states where school

districts are defined over larger populations. Defining

school districts over larger populations will generally

internalize local differentials and thus even out disparities in income and property wealth ucros~ districts. For

example, in Hawaii, where there is a single statewide

school system, there are no such differentials.

It was noted above (see T&ble 4) that the largest

concentration of states countering the national trend

toward a greater reliance on state funds as a source of

school district revenues is in the Southeast. It is

interesting to note that eight of the ten states where

more than half of all school districts are defined as

coterminous with one or more county governments

also are located in the Southeast.5 In most states

where school districts are not titerminous with

county governments, they comprise a smaller municipal unit. Considered together, these two factors may

suggest at least a partial explanation for the lack of

movement toward more reliance on state funding in

the Southeast. That is, it might be the case that defining

school districts as broad, countywide jurisdictions leads

to less pronounced disparities in income and property

wealth, and hence there is less pressure to promote

equity through state spending” However, other factors

may be involved, including political factors.

Analyzing differences in the distributions of

income and tax-price for representative consumer-voters is difficult in part because obtaining the

information required to compute tax-prices generally

requires more effort than obtaining information

about income. As derived above, even under the

simplifying assumptions that (1) house values can

serve as a proxy for an individual’s taxable property

and (2) all taxes on commercial and industrial

property are exported to nonresidents of the district,

calculating an individual’s tax-price requires information about house value, total property value in the

school district, and the number of pupils.

The Case of Pennsylvania

Because the data collection requirements involved in calculating tax-price are substantial, this

report presents an analysis of the distributions of

income and tax-price across school districts for one

state only-Pennsylvania.

There was a number of reasons for choosing

Pennsylvania, which had 504 local independent school

districts during the 1979-80 academic year. Property

taxes are the sole source of additional dollars for the

local share of school spending. The state taxes all

property at a uniform rate and excludes personal

property, such as automobiles and boats, making the

assumption that house value can serve as a proxy for

an individual’s property value quite reasonable. Most

of the data required to calculate tax-price are

available from published sources-at least for the

individual in each school district who owns the median

valued house or is a member of the household with

the median income.

Pennsylvania school districts are independent municipal units and in general are not coterminous with

any other single municipal government. Thus, it is

possible to analyze how the distributions of income and

tax-price would change if school districts were redefined

to be coterminous with the 67 county governments.’

Figure 2 presents the distributions of the

tax-price for an additional $1.00 school spending per

pupil to the individual who owns the median valued

house for Pennsylvania’s actual 504 school districts

and hypothetically defined countywide school districts. Figure 3 presents the distributions for median

household income.

The two distributions for tax-price are centered at

about $0.80. This suggests it costs about $0.80 to raise

school spending by $1.00 per pupil for the person who

owns the median valued house in a school district that

is located near the center of the distribution.

Remember, however, that this calculation is based on

the assumption that all taxes on commercial and

industrial property are exported to nonresidents. If

some of the burden of taxes on commercial and

industrial property is borne by school district residents, then the entire distribution would shift to the

right. The distribution of tax-prices for the individuals

owning the median valued homes in Pennsylvania’s

local school districts is quite symmetrical. The

tax-price in a district at the low end is only about half

that at the center, while the tax-price in a district at the

high end is 1.5 times that at the center. Thus, the highest

and the lowest tax-prices differed by a factor of 3 for the

actual districts during the 1979-80 school year.

Redefining school districts as coterminous with

county governments would reduce the variance in

tax-price. The coefficient of variation for the county

distribution is 0.20, compared to 0.25 for the local school

districts. This hypothetical redefmition produces a distri26
Figure 2

Tax-Price of Raising $1 Per Pupil for Voter with Median Valued House

$0.35 $0.45 $0.55 $0.65 $0.75 $0.85 $0.95 $1.05 $1.15 $1.25

Tax-Price for Additional $1 Per Pupil

Figure 3

Median Household Income

Median Household Income

27
bution of tax-prices that is skewed to the left. This

means that increasing the size of school districts in this

way would reduce substantially the tax-price. of school

spending for voters in actual districts with low property

wealth, but it would not increase the tax-price in some

high-wealth areas to the same extent.

The distributions for the median household

income in 1980 are both skewed to the right. Again,

redefining school districts as coterminous with county

governments reduces the distribution’s variance. The

coefficient of variation for the county distribution is

0.14, compared to 0.22 for the local school districts. It

appears that redefining school districts as countywide

would once again have more impact at the high end of

the distribution. In this case, however, reducing

variance to a greater degree at the upper end of the

distribution fails to work in a way that would

presumably lead to higher spending in poorer districts. In fact, the percentage of districts where

median family income is less than $13,000 remains the

same after this hypothetical redefinition.

What is the relationship between the two

economic parameters? For the 504 school districts,

the partial correlation coefficient between median

tax-price and median household income is 0.17. This

indicates that there is a slightly positive relationship.

Districts where median tax-price is low tend to be

those where income is low, and vice versa.* For the

hypothetical countywide school districts, the correlation coefficient between median tax-price and median

income is 0.10. This is positive but even smaller.

This positive relationship between tax-price and

income indicates the existence of many districts

where many consumer-voters have low incomes but

also face a low price for school spending. This may

explain why Pennsylvania’s state aid program uses

both income and property wealth per pupil (rather

than say a pure foundation program) in determining

the amount of per pupil aid provided to each district?

NOTES

‘Over the past two decades, most studies designed to

explain how local public expenditures are determined

have been based on the median voter model. Within this

model, the level of local public sector output is determined

by the voter, whose private demand is the median when

the demands of all voters are ranked in an ordered array.

See Randall G. Holcombe, “The Median Voter Model in

Public Choice Theory,” 61 (May 1989), for a

recent critique of this analytical framework. For an

example of this model applied to the determination of

local school spending (New York State data), see Vincent

G. Munley, “Has the Median Voter Found a Ballot Box

He Can Control,” Economic Inquiry 22 (July 1984). For an

example of an alternative framework, often referred to as

the bureaucratic supply model, also applied to the

determination of school spending (Oregon data), see

Thomas Romer and Howard Rosenthal, “Median Voters

or Budget Maximizers: Evidence from School Expenditure Referenda,” Economic Inquiry 20 (October 1982).

‘In some states, school districts are countywide; in other

states, they are smaller, autonomous local governments.

In some states, school district officials are elected by

popular vote; in other states, school district officials are

appointed by other elected officials. In some states, school

districts have independent taxing authority; in other

states, school districts receive appropriations from general

county or municipal budgets. In some states, voters have

direct control over school spending decisions as a result of

public referendum requirements; in other states, they do

not. Even in states where a referendum is required, the

requirements vary considerably. In some cases, approval

of each-year’s budget is necessary. In other cases, approval

is necessary only if the district proposes a tax increase. In

still other cases, capital expenditures require referendum

approval, but operating expenditures do not.

3The model is: Y = pe* X, + pi l Xi, where Y is the

individual consumer-voter’s income, pc is the tax-price for

education for the consumer-voter, X, is the quantity of

education services consumed, pi are the unit prices of

othergoodsandservice~,andX~are thequantitiesofother

goods and services.

4 If individuals perceive that residents hear some portion of

the tax on commercial and industrial property, then the

tax-price derived in Appendix A 1 must be modified to

take this into account. The seminal study about how

individuals perceive the extent to which nonresidential

property taxes are exported and how this affects spending

on public schools is Helen F. Ladd, “Local Education

Expenditures, Fiscal Capacity, and the Composition of the

Property Tax Base,” National Tm Journal 28 (June 1975).

For a more recent treatment of this issue, see Ronald E

Ferguson and Helen E Ladd, “Measuring the Fiscal

Capacity of U.S. Cities,” in H. Clyde Reeves, ed.,

Measuring Fiscal Capacity (Cambridge, Massachusetts:

Lincoln Institute of Land Policy, 1986).

5LJ.S. Department of Commerce, Bureau of the Census,

Government Organization, 1987 Census of Governments,

Volume I, Number 1 (Washington, DC, 1989), Table 19.

6The proportions of K-12 funding provided by state

governments are among the highest in the Southeast.

‘The following sounxs were used for these calculations:

T&x-Price: Median House Value-U.S. Department of

Commerce, Bureau of the Census, 1980 Censm of

Population, General Housing Chamcteristics, Table 45;

Market Value of Taxable Property-33rdAnnual Certifiation of the Penmylvania State Tar EquaIikation Board;

Number of Pupils data provided by Pennsylvania Department of Education (for independent school districts), and

1980 Census of Population, General Social and Economic

Characteristics, Table 175 (for counties); Median Income

data-1980 Census of Population, Geneml Social and

Economic Chamcterktics, Table 180.

8 An example of a district with both a low median tax-price

and a below average median income is the city of

Philadelphia, where median income was $13,169 and

median tax-price was $0.46.

9An example of a careful analysis of how income and

property wealth vary across school districts in the context

of evaluating alternative state aid formulas is Thomas E

Pogue and John L. Solow, “School District Fiscal

Capacity,” Public Policy Center, University of Iowa,

November 1988.

28
5

Conclusion

The Equalizing Effect of State Aid

While differing in the way in which they affect

consumer-voter choices between school spending

and the consumption of other goods and services,

most of the variations of state aid programs

analyzed here share a common purpose: They are

intended to promote equity across school districts

in the resources that are available for education. In

order to accomplish this, they dispense a greater

amount of aid to districts that without state funds

presumably would provide a lower level of per pupil

spending. To what extent have they succeeded? The

reviews are mixed.

With regard to power equalization programs,

Richard Mumane concludes that:

it seems clear that the main lesson from the

first ten years of school finance is that GTB

fiance plans which lower the price of

education to property poor communities, but

leave the communities free to choose between more spending on education or lower

tax rates, will not produce an equalization of

per pupil spending levels across school

districts and will not result in all districts

spending enough to provide their students

with a strong basic academic program.’

Mumane recommends that states adopt foundation programs with a high (required) foundation level

of spending per pupil. Ronald Fisher agrees with

Mumane and provides several examples to illustrate

why both power equalization programs and foundation programs without high required foundation levels

can fail to result in equalized spending across districts.*

The reason for this conclusion has to do with the

responsiveness of local spending to state aid. As the

analysis presented here has shown, state aid affects

consumer-voter choices through its effect on income

and tax-price. Foundation programs have only an

income effect; power equalization programs have a

price effect and an income effect. Most studies of the

demand for school spending, however, find that

locally determined levels of expenditure per pupil are

not overwhelmingly responsive to changes in either of

these parameters. Most of the evidence suggests that

a 10 percent decline in the tax-price leads to an

increase in spending per pupil between 2 percent and

5 percent, and that a 10 percent increase in income

leads to an increase in spending between 6 percent

and 10 percent.3

At first glance, it may appear that foundation

programs are superior because they increase income

and that school spending is somewhat more responsive to increases in income. Most foundation programs do not increase the income of a consumervoter enough, however, to stimulate a large equalizing effect in per pupil spending across districts.

Consider some reasonable figures. For the 1987-88

school year, the average current expenditure per

pupil for the entire United States was about $4,200.

The average state share of school district revenues

was about 50 percent. Median household income in

1987 for the entire United States was about $26,000.

Next, consider a representative consumer-voter in a

poor district where a foundation state aid program is

designed to have a large impact on school spending.

Let this individual have a household income 25

percent below the national average ($19,500), with a

relatively high tax-price of school spending per pupil

of $1.25. Also let the state provide a per pupil grant

equal to 75 percent of the national average of total

spending (combined federal-state- local) per pupil.

The increase in income that is generated by the

foundation grant (under conditions designed to favor

the stimulative nature of its effect) for this consumervoter is almost $3,950, or about 20 percent of $19,500.’

29
This, in turn, would lead to an increase in school

spending of only between 12 percent and 20 percent

above what it would have been in the absence of any

state aid.

This example may understate somewhat the

effect that state aid has on spending by school

districts. Some evidence exists that lump sum

intergovernmental grants stimulate spending to a

greater degree than increases in income-contrary

to what economic theory predicts.’ According to

this phenomenon, referred to as the “flypaper

effect” because it implies that grant money sticks

where it hits, intergovernmental grants may have an

effect about four times as great as income increases.

More recent studies, however, suggest that much of

the flypaper effect observed in early empirical

estimates may have been a result of incorrectly

specified econometric models.6

The critical feature of Mumane’s recommendation is a high required foundation spending level.

Fisher concurs, but he suggests that a power equalization program with a required minimum tax rate for all

districts is a means of accomplishing the same result.

The reason for prescribing a stick rather than a carrot

lies in the effect that price reductions and income

increases have on school spending decisions+ The

empirical evidence suggests that, given the way in

which these programs are typically structured, state

aid is used more to reduce local taxes than to increase

school spending.

Robert Beme views the results that existing state

aid programs have had on the degree of equity in

school spending with somewhat more optimism.’ His

analysis of trends in equity leads him to conclude that

the results have been mixed. He suggests that state

programs in at least some cases have prevented a

deterioration in the condition of equity that would

have otherwise occurred because of other forces

affecting school spending during the 1980s. He notes

that it is important to judge the results of state aid

programs according to what would have occurred in

their absence, not simply in terms of what has

occurred in their presence.

According to the analysis developed here, the

effect that any state aid program has on the degree of

equity that characterizes school district spending

levels will depend on: (1) how the program affects

consumer-voter choices; (2) the distribution across

school districts in the values of the economic

parameters for consumer-voters; and (3) the political

institutions that govern the way in which consumer-voter demands affect school-district spending

levels. A judgment about the success or failure of any

particular state aid program requires a careful analysis

that (1) deals explicitly with each of these considerations; (2) estimates the effect that the program has had

on school spending levels; and (3) simulates spending

levels in districts in the absence of state aid (or perhaps

under an alternative state aid program).”

Finale

The most important observation about the status

of public school finance in the United States is the

great diversity of programs and institutional arrangements. The level of state responsibility in raising

revenues, the structure of state aid programs, and the

institutions that govern the political process through

which school district budgets are determined all vary

considerably across states. This diversity makes it

difficult to formulate nationwide generalizations

about how this important public service is financed.

There are too many permutations of these factors to

make a simple evaluation meaningful.

On September 22, 1983, the Advisory Commission on Intergovernmental Relations approved the

following recommendation:

The Commission recommends that states and

the localities continue experimentation in developing

appropriate funding patterns in light of their distinctive circumstances. The Commission further recommends that in this process they should address the

equity issue, both in terms of revenue raising and of

equal access to a quality education.

It appears that the circumstances that led to this

recommendation continue to exist. Proposals that are

intended to promote excellence in education-if they

are to be implemented with success-will have to

accommodate this diversity.

NOTES

‘Richard J. Mumane, “An Economist’s Look at Federal

and State Education Policies,” in John Quigley and Daniel

Rubinfeld, eds., American Domestic Priorities: An Economic Appraisal (Berkeley: University of California Press,

19&x), p. 133.

2Ronald C. Fisher, State and Local Public Finance

(Glenview, Illinois: Scott, Foresman and Company, 19sS),

Chapter 18.

3 Ibid., Chapter 14, for a review of this literature.

4 ((.75) l ($4,200) l ($1.25)) = $3,937.50.

5 See Edward M. Gramlich, “Intergovernmental Grants: A

Review of the Literature,” in Wallace E. Oat&, ed., The

Political Economy Fiscal Fedemlism (Lexington, Massachusetts: D.C. Heath Co., Lexington Books, 1977) for an

early review of the literature. Paul N. Courant, Edward M.

Gramlich, and Daniel L Rubinfeld, “The Stimulative

Effects of Intergovernmental Grants: Or Why Money

Sticks Where It Hits,” and Wallace Oates, “Lump-Sum

Intergovernmental Grants Have Price Effects.” in Peter

Mieszkowski and William H. Oakland, eds., Fiscal

Fedemlism (Washington, DC: The Urban Institute, 1979);

and Thomas Romer and Howard Rosenthal, “An InstitutionalTheory of the Effect of Intergovernmental Grants,”

3 0
National Tm Journal 33 (December 1980) all develop

theoretical models that explain why this might occur.

6See Sharon B. Megdal, “The Flypaper Effect Revisited:

An Econometric Explanation,” Review of Economics and

Statistics 69 (May 1987), and Ernest M. Zampelli,

“Resource Fungibility, the Flypaper Effect, and the

Expenditure Impact of Grants-in-Aid,” Review of Economics and Sfutktics 68 (February 1986).

7 Robert Berne, “Equity Issues in School Finance,” JoumuZ

of Education Finance (Fall 1988).

*See Thomas Romer, Howard Rosenthal, and Vincent

Munley, “Economic Incentives and Political Institutions:

Spending and Voting in School Budget Referenda,”

National Bureau of Economic Research, Working Paper

#24&i, for an example of such an analysis.

31

Appendix 1

AppendixTable 1-A presents the results obtained

from estimating this equation for the 27-year period

pupil. The results in Appendix Table 1-B generally

and for each sub-period using (1) all 50 states and (2)

exhibit greater statistical significance than those in

the contiguous 48 states as the basis for estimation for

Appendix Table 1-A. In both tables, the results exhibit

expenditures per pupil. Appendix Table 1-B presents

greater statistical significance when Alaska and

the same results for cost-adjusted expenditures per

Hawaii are excluded. Together, these observations

corroborate the supposition that education expendi

Appendix Table 1 -A

Relationship between Expenditure Per Pupil Level (Not Cost Adjusted)

and Subsequent Growth Rate in Expenditure Per Pupil

All 50 States 48 Contiguous States

27.Year Percent Change = (Y + 8 l (1959.60 Expenditure Level)

a = 4.67 CY = 4.97

B = -0.ooo479 p = -0.000734

se@> = 0.000289

k4 _=;-g

se(p) = 0.000292

I$ _‘: o”;“z’

- .

lo-Year Percent Change = a! + 6 l (1959.60 Expenditure Level)

CY = 7.94 a = 8.03

p = -0.001925 p = -0.002027

se(P) = 0.000488 se@) = 0.000511

g4 _=;g It4 _= 0”;;

- .

10 year percent Change = CY + p l (1969.70 Expenditure Level)

a = 3.05 o! = 3.92

~e(;)o.000144 f3 = -0.000277

= O.ooO282 se(p) = 0.000232

k4 1 o”-$ L4 :;g

7 year percent Change = (Y + t3 l (1979.80 Expenditure Level)

CY = 2.95 a = 2.46

p = o.oOOO4o f3 = 0.000213

se(p) = 0.000261 se(p) = 0.000344 It4 -‘;gg

- .

Source: Based on the data in Table 1-A.

33
Appendix Table 1 -B

Relationship between Expenditure Per Pupil Level (Cost Adjusted)

and Subsequent Growth Rate in Expenditure Per Pupil

All 50 States 48 Contiguous States

27 year percent Change = Q + f3 l (1959-60 Expenditure Level)

a = 4.88 a = 4.89

(3 = -0.000659

se@) = 0.000363

f3 = -0.000706

It4 r;:

se(P) = 0.000346

i4 _=;g

10 year percent Change = (Y + /3 l (1959.60 Expenditure Level)

CY = 8.62 o! = 8.51

fl = -0.002357 = -0.002303

se(P) - o.ooo544

g4 :0”;;

&f9 = o.ooo546

= 4.22

- . R“4 = 0.28

10 year percent Change = (Y + t3 l (1969-70 Expenditure Level)

o! = 3.99 a = 4.26

p = -0.000262

se(p) = 0.000328

f3 = -0.000415

k4 :;;;

se(p) = 0.000255

;4 _=;g

7 year percent Change = Q + B l (1979.80 Expenditure Level)

(Y = 1.67 a = 2.32

p = 0.000464

se(p) = 0.000260

f3 = 0.000228

k4 ,=;*g

se(p) = 0.000259

L4 I;;;6

Source: Based on the data in Table 1-B.

ture data for Alaska and Hawaii should be evaluated

separately because of cost differentials and because of

greater reliance on state-dependent schools.

In spite of the disparity in statistical significance

across the four cases analyzed in the tables, the

qualitative conclusions are quite similar in each

instance. For the 27-year period, the coefficient of the

initial expenditure level is negative. This estimate is

statistically significant at the 10 percent level in

Appendix’lhble 1-Awhen all 50 states are used, and at

better than the 1 percent level for the 48 contiguous

states in Appendix Table 1-A. It is statistically

significant at better than the 1 percent level in both

cases in Appendix nble 1-B. These results suggest

that the growth in spending per pupil was greater in

states where the initial expenditure level was lower.

Perhaps more striking is the pattern of results

obtained for the sub-periods. For the decade of the

196Os, the effect of initial expenditure level on the

annual growth rate in per pupil spending is negative

and significant at better than the 1 percent level,

regardless of whether or not Alaska and Hawaii are

included and whether or not expenditures per pupil

are cost adjusted. For the subsequent two periods, the

coefficient is for the most part not significant at a

generally accepted level of statistical inference. (It is

marginally significant for the second lo-year period,

when expenditures are cost adjusted and Alaska and

Hawaii are excluded.)

In interpreting these results, it is important to

distinguish between (1) the statistical significance and

(2) the relative magnitude of the effect of differences

in initial expenditure level on subsequent growth

rates in per pupil spending. The fact that the

coefficient of initial expenditures is statistically

significant at better than the 1 percent level for the

first lo-year period means that if in fact there was no

relationship between initial expenditure level and

subsequent growth rate, then the probability of

obtaining this result by pure chance is less than one in

34
100. Thus, the evidence supporting the existence of a

relationship is quite strong.

On the other hand, the magnitude of the

estimated relationship is not particularly great.

Consider for example that the estimated coefficient

based on expenditures per pupil for the 48 contiguous

states over the 27-year period is -.00073. This

translates to a higher annual growth rate of 0.73

percent for a $1,000 difference in initial expenditure

per pupil. From ‘fable 2-A, the standard deviation in

1959-60 expenditure per pupil for the 48 contiguous

states was $292. Based on this, the expected annual

growth rate differential between a state initially

spending two full standard deviations below the

average and one spending two full standard deviations

above the average-a very substantial differencewould be slightly less than one percent. Within the

context of an average growth rate from 1959-60 to

1986-87 of 4.0 percent per year, the impact of this

relationship appears modest.

35
36
Appendix 2

Derivations of the Effect that Alternative

State Aid Programs Have

on the Income Constraint

of a Representative Consumer-Voter

The diagrams in Figure 4 illustrate graphically

the trade-off that consumer-voters face between

additional spending per pupil on publicly provided

education and private consumption of other goods and

services. In the vernacular of economics, this trade-off

represents an individual’s income constraint.

The vertical intercept is income divided by the

price per unit of other goods and services, shown as G’

in each panel. This represents the maximum amount

of other goods that could be purchased if the level of

school spending were zero. The horizontal intercept

is income divided by the price per unit of education

expenditures, shown as E’ in each panel. This

represents the maximum amount of education spending possible such that no income remains to purchase

other goods and services. The slope of the income

constraint is the ratio of the tax-price of school

spending to the price of other goods. The steeper the

slope, the higher is the tax-price of school spending

relative to other goods. Diagrammatically, this is

illustrated by the fact that when the slope of the

income constraint is less steep, a smaller amount of

other goods and services must be forgone in order to

provide an additional dollar of spending per pupil.

The nine panels in the figure illustrate different

situations regarding income and the tax-price of

school spending. They could portray, for example,

representative consumer-voters in different school

districts. The three columns from left to right

represent successively higher levels of income (shown

as a parallel shift away from the origin of the income

constraint). Thus, for each of the three diagrams in

any column, the distance from the origin to G’ (the

maximum amount of other goods and services that

could be purchased in the absence of any school

spending) is identical. The three rows from top to

bottom represent successively lower tax-prices

(shown as income constraints with the same vertical

intercept but less steep slopes), corresponding perhaps to individuals with similar houses in districts with

progressively higher total property value per pupil.

Thus, moving down any of the three identical income

columns illustrates that otherwise similar consumer-voters in districts with greater property wealth are

able to purchase a higher level of spending per pupil for

the same amount of forgone other goods and services.

If each consumer-voter could select the level of

school spending per pupil, then he or she would select

the most preferred combination of school spending

and other goods consumption along his or her

respective income constraint. In practice, of course,

this is not possible. Individuals instead attempt to

choose this level indirectly (1) by voting on school

budgets in referenda or (2) by voting in local school

board elections for candidates who support a level of

spending that is close to their own choice. Within this

framework, it is possible to examine how different

state aid programs affect the choices available to

consumer-voters.

2A. Trade-Off Faced by Consumer-Voter:

No State Aid

If consumer-voters perceive that all taxes on

commercial and industrial property are borne by

nonresidents of the school district, then their income

constraint is:

I = P,G + tH

where I is the individual’s income, Pg is the unit price

of other goods and services, G is the amount of other

goods and services consumed, t is the school district

tax rate, and H is the consumer’s taxable property.

Since for most individuals the principal form of

property subject to local taxation is their house, house

value (H) here proxies taxable property.

In the absence of state aid, school districts face

the budget constraint that total expenditures must

equal total locally raised revenue, or:

37
Low Income,

Low Property Wealth

District

E’ E

Low Income,

Middle Property Wealth

District

E’ E

Low Income,

High Property Wealth

District

L

E’ E

Income Constraints with No State Aid

G Middle Income,

Low Property Wealth

District

G

G

E’ E

Middle Income,

Middle Property Wealth

District

Middle Income,

High Property Wealth

District

1

E’ E

G

G

,

\

G

G7

\

High Income,

Low Property Wealth

District

E’ E

High Income,

Middle Property Wealth

E’ E

High Income,

High Property Wealth

District

E’ E

38
NE = tV

where N is the number of pupils, E is the level of

expenditure per pupil, t is again the local property tax

rate, and V is the total value of taxable property in the

district. Solving this equation for t yields:

t = E/(V/N)

Substituting thisvalue fort into the income constraint

for a consumer-voter in turn yields:

I = P,G + [H/(-V/N)@

In this formulation, it is clear that the tax-price-the

term by which E (level of expenditure per pupil) is

multiplied to obtain total expenditures on publicly

provided education-to each consumer-voter of

increasing the level of educational expenditure per

pupil in the district by one dollar is equal to the value

of the individual’s house (or taxable property), H,

divided by the total value per pupil of taxable property

in the district (V/N).

Solving the individual’s income constraint for G

yields:

G = O’Q - UW’WI’Q~E

This is the linear relationship illustrated in the nine

panels of Figure 4.

The form of state aid that is most simple to

analyze is a flat grant per pupil. An example of a 5at

grant per pupil is a foundation program where the

foundation expenditure is fully funded by the state.

State aid in North Carolina closely approximates a 5at

grant program, and 5at grants comprise a substantial

portion of the aid programs in Delaware, Kentucky,

and Nebraska.

The panels in Figure 5 illustrate the effect of this

type of aid program on the individual’s trade-off for

the nine situations regarding income and tax-price

that are depicted in Figure 4. In this figure (and in

Figures 5 through 10 below) the solid line represents

an individual’s income constraint without any state

aid, and the heavy dashed line represents the income

constraint with the state aid program. From the

individual’s perspective, this effect is identical to an

increase in income, with the stipulation that the level

of spending per pupil selected must at least equal the

amount that can be purchased with this income

transfer. (Appendix 2B presents a formal derivation

of this result.)

In each panel of Figure 5, S represents the state

aid 5at grant per pupil. Its effect is shown as the

horizontal displacement of the individual’s income

constraint by the distance from G’ to point (b). This

displacement is equal to the distance from the origin

to S on the E axis. E* represents the maximum

amount of spending per pupil possible, including the

portion financed through state aid. The amount of

income equivalent generated in this way is shown in

diagrams by the vertical distance between G’ and G*.

G* represents the maximum amount of other goods

and services that could have been purchased in the

absence of a stipulation that the grant must be used for

school spending. The income equivalent is proportional

to a consumer-voter’s tax-price for school spending (see

Appendix 2B). This can be seen by the fact that the

vertical distance between G’ and G* decreases from row

1 to row 2 to row 3, as the tax-price declines.

28. Flat Grant Per Pupil

If the state provides a 5at grant of S per pupil,

then the school district’s budget constraint is:

NE = tV + NS (1)

and the income constraint of a consumer-voter is:

I = P,G + [H/(V/N)](E-S) (2)

It is possible to manipulate this equation algebraically

and rewrite the income constraint as:

I + [H/(V/N)JS = PpG + [H/(V/N)]E (3)

This is identical to the pre-aid income constraint

except that the term [H/(V/N)]S has been added to

the left hand side of the equation-the consumervoter’s income.

Writing the income constraint in this way shows

that from the perspective of a consumer-voter, state

aid in the form of a 5at grant corresponds to an

increase in income, with the restriction that this

incremental income must be used to consume additional school spending. The amount of income equivalent

received by an individual through this in-kind transfer is

equal to the size of the flat grant per pupil, S, multiplied

by the tax-price [HI(V/N)], to the consumer-voter of

increasing school spending per pupil by one dollar.

Thus, for any level of flat grant per pupil provided

throughout a state, the magnitude of the income

increase that a consumer-voter receives is proportional

to his or her tax-price for education spending.

According to all three rankings in %ble 7,

foundation programs are by far the most common

form of state aid. The panels in Figure 6 illustrate the

effect that a foundation program has on the trade-off

that consumer-voters face between local spending on

public schools and the consumption of private goods

and services for the same nine situations that were

depicted in Figures 4 and 5. (Appendix 2C presents a

formal derivation of this result.)

F in each panel indicates the foundation level of

expenditure per pupil. As the figure is drawn (for the

39
G

G*

G

Low Income,

Low Property Wealth

District

,

*

I

,

I

8

Income Constraints with Flat Grant State Aid

Low Income,

Middle Property Wealth

District

S E’ E* E

G Low Income,

High Property Wealth

District

G

S E’ E* E

G

G*

G

\

,

\

L

SE’ E” E

Middle Income, G

Middle Property Wealth G

District

.

.

.y:’8 ’

\

\ 8 \

L

I \

, \ 81 \

\ I \

S E’ E* E

Middle Income, G’

High Property Wealth

District G

. Middle Income, G

.

* I&w Property Wealth G

a District 8

I

E’ E*E

8 High Income,

’ b L-ow Property Wealth

- 7 District

:\

1 \

S E’ E* E

* High Income,

S E’ E* E

High Income,

. High Property Wealth

_ \b District

40
G Low Income,

Low Property Wealth

DiStkt

E’ FE* E

Figure 6

Income Constraints with Foundation Program

Low Income,

Middle Property Wealth

District

E’F E” E

Low Income,

High Property Wealth

District

\

a

0

G

G

G

G

Middle Income,

Low Property Wealth

District

E’ F E* E

Middle Income,

Middle Property Wealth

District

b

FE’ E” E

Middle Income,

High Property Wealth

District

G

G

G

G!

G

G

High Income,

b Low Property Wealth

.Tr ‘\ District

E’F E* E

High Income,

b Middle Property

s-7

District

\

\

\

\

F E’ E* E

Wealth

High Income,

High Property Wealth

District

F E’ E F E’ E F E’ E

41
sake of illustration), the tax rate applied uniformly

throughout the state to raise the local share of

foundation level spending is set equal to the pre-aid

tax rate for the three panels that represent high

property-wealth districts (the bottom row of the

figure). Notice that the line segment from G’ to point

(a) in each panel has the same slope; that is, the tax

rate required to achieve the foundation spending

level is identical in all nine cases. Another way to see

this is to observe that the vertical distance between G’

and point (a) in all panels is the same. Because the

local share is generated at a uniform tax rate in all

districts, the amount of other goods and services that

must be forgone by owners of similarly valued houses

to provide the foundation level of spending is the

same regardless of income and tax-price.

The horizontal displacement from G’ to point (b)

of the income constraint again indicates the amount

of aid per pupil received from the state. If a

foundation program imposes a local-effort requirement, then individuals can attempt through voting in

school budget referenda and/or school board elections

to secure their preferred combination of spending per

pupil and consumption of other goods from among

those located along the segment of the income

constraint between point (a) and E’. If no local effort

requirement is imposed, then any combination between

point (b) and E’ represents a potential outcome.

In the absence of a local-effort requirement, a

foundation program has much the same effect as a flat

grant program. That is, from an individual’s perspective, this effect is identical to an increase in income,

with the stipulation that the level of spending per

pupil selected must at least equal the amount that can

be purchased with this income transfer. The main

distinction between the two programs is that a

foundation program provides a larger income transfer

to individuals who face a higher tax-price for school

spending (see Appendix 2C). In the presence of a

local-effort requirement, a foundation program provides the same income-equivalent transfer but with the

more stringent stipulation that the level of spending per

pupil selected must at least equal the foundation level

established by the state aid program. The overall impact

of this more stringent stipulation on spending in any

district will depend, of course, on how high the

foundation expenditure level is relative to the amount

that would have been selected locally in its absence.

Notice that under this “pure” version of a

foundation program, individuals in districts characterized by low income but high property wealth

receive no state aid. This is illustrated by the panel in

the lower left of the figure. In this case, the state aid

program has an impact on consumer-voters only if

there is a local-effort requirement. Such a provision

restricts the possible combinations of spending per

pupil and other goods consumption that are attainable to that segment of the income constraint

between point (a) and E’. An example of such a

situation might be a large city with a considerable

amount of industrial and commercial property but

where many residents have low incomes and own

modestly valued homes. Another example might be a

rural area with a high property wealth per pupil ratio.

2C. Foundation Program

Under a “pure” foundation program, the amount

of state aid that a district receives is equal to:

SN=FN- rV

where S is the level of state aid per pupil, N is again the

number of pupils, F is the foundation level of

expenditure per pupil, r is the tax rate that each district

must levy to support the foundation program, and V is

again the total value of property in the district. The

amount (rv) is usually referred to as the local share in a

foundation program. As shown in the AEFA classiication scheme in Table 7 of the report, a foundation

program may or may not require each local district to

raise and spend this amount. Under a foundation

program a school district’s budget constraint is:

N.E - tV + N[F - r(V/N)]

Rearranging terms yields:

t = [E - F + r(V/N)]/(V/N)

Substituting this into an individual’s income constraint in turn yields:

I - PsG + [HI(VM)]E - {[H/(V/N][F - r(VM)]}

o r

I + {[H/(v/N][F - r(V/N)]} = PsG + [HI(VM)]E

Notice that this is identical to the individual’s

original income constraint except that the term:

{ FW’WF- W’WI 1

is added to income on the left hand side of the

equation. This term is equal to the tax-price of an

additional dollar of spending per pupil [HI(VM]

multiplied by the how much the amount per pupil

raised locally at the foundation program’s uniform tax

rate [r&J/N)] falls short of the foundation level of

expenditure per pupil. Thus, from the perspective of a

consumer-voter, a foundation program appears similar to a flat grant program except that the income

equivalent of the in-kind transfer depends to an even

greater degree on a school district’s property wealth

per pupil. Property wealth affects the amount of

income equivalent through its role in defining an

individual’s tax-price and establishing the amount by

which locally raised revenues fall short of the

foundation expenditure level.

4 2
As discussed above, many state aid programs

address such cases through special provisions, either

by adjusting the definition of the foundation level of

expenditure to provide for these circumstances or by

supplementing the basic aid program with categorical

grants. In addition, some states modify the way in which

the local share of foundation level spending is calculated to take into account differences in income. Doing

so makes the way in which state aid affects the income

constraints of consumer-voters resemble more closely

the operation of a percentage equalization program

(described below) than a “pure” foundation program.

The other traditional categorization of state aid

to local school districts is a power equalization

program. As discussed above, a power equalization

program can be implemented through the definition

of a guaranteed tax base or a guaranteed tax yield. In

either case, the program guarantees a constant

relationship between the amount of revenue raised

per pupil and the tax rate levied by a school district,

regardless of the property value per pupil in the

district. If locally raised revenues fall short of the

guaranteed amount, then the state aid program

provides the difference. If locally raised revenues

exceed the guaranteed amount, then the district must

remit the difference to the state-if the program has a

recapture provision. In the absence of a recapture

provision, the district retains the excess revenues.

The effect of a power equalization program on an

individual’s income constraint is illustrated in Figure

7, where the nine panels depict the same income and

original tax-price conditions as the previous three

figures. (Appendix 2D presents a formal derivation of

this result.) As the figure is drawn, the post-aid

uniform tax-price in all districts is lower than the

pre-aid tax-price for the low and middle propertywealth districts (the first and second row), but higher

than the pre-aid tax-price in the high property-wealth

districts (the bottom row).

This type of program corresponds to a matching

grant, where the matching rate is proportional to the

amount by which the local tax base per pupil falls

short of the guaranteed tax base. Unlike a flat grant

program and a foundation program, the effect of a

power equalization program does not resemble an

income transfer; rather, its effect is to alter the

relative price ratio between publicly provided education, on the one hand, and private goods and services,

on the other. The amount of aid per pupil that a

district receives in this situation-as perceived by any

consumer-voter-is represented by the horizontal

distance between the pre-aid and post-aid income

constraints measured from the point on the post-aid

income constraint that corresponds to the level of

spending per pupil selected by the district.

The line between G’ and E* in the bottom row

illustrates how a recapture provision affects consumer-voters in high property tax districts; that is, it

reduces the combinations of school spending per

pupil and other goods consumption that are available.

In the absence of a recapture provision, the income

constraints of individuals in these districts would

remain unchanged from the pre-aid situation.’

Trio important observations should be emphasized at this point. The first involves the fundamental

difference in the way that foundation programs and

power equalization programs affect consumer-voter

choices between the level of local public school

spending per pupil and the amount of other goods and

services that can be consumed. A foundation program

increases the purchasing power of individuals, with

the stipulation that the amount of state aid provided

must be spent on education. It does not change the

tax-price of providing education relative to the price

of other goods and services. Power equalization

programs, on the other hand, lower the tax-price of

education relative to other goods and services. In the

standard terms of economics, foundation aid provides

a (lump sum) income effect while power equalization

aid provides a price effect.

A second important observation is that (at least

for the recent years covered by the AEFA and

ECSMCSL publications cited in ‘Ihble 7) “pure”

power equalization programs are even less common

than “pure” foundation programs. Only in Connecticut, Kansas, Michigan, and Rhode Island does the

basic component of state aid operate in a manner

consistent with the type of power equalization

program illustrated in Figure 7.2 Moreover, in

Connecticut, Kansas, and Rhode Island, the measure

of property wealth used to define the matching rate is

adjusted by some measure of income.

2D. Power Equalization Program

Under a power equalization program, the

amount of aid per pupil that a district receives is:

s = t(v+/N) - t(v/N)

where V is the value of property in the district and V*

is the program’s guaranteed tax base. N is again the

number of pupils in the district. The amount of

revenue raised per pupil [t(V*/N)] at any tax rate is

the guaranteed tax yield under the alternative

definition of a power equalization program.

Under a power equalization program, a school

district’s budget constraint is:

NE = tV + N[t(‘V*/N) - t(V/N)J

or simply:

NE = tv*

Solving this for t and substituting the result into an

individual’s income constraint yields:

4 3
Figure 7

Income Constraints with Power Equilization Aid Program

G Law Income,

Low Property Wealth

District

G ’

\

L

\

\

\

\

\

\

\\\\ L

\\\\

E’ E* E E’ E* E

Low Income,

Middle Property Wealth

District

b \\\

L-- \\\

E’ E* E

Low Income,

High Property Wealth

District

\L

\\\\

E* E’ E

G

G

Middle Income,

Low Property Wealth

District

Middle Income,

Middle Property Wealth

District \\\\\ L\ \\\

E’ E* E

Middle Income,

High Property Wealth

District

E* E’ E

High Income,

Low Property Wealth

E’ E* E

G

G

High Income,

Middle Property Wealth

District

E’ E* E

High Income,

High Property Wealth

District

E* E’ E

44
I = P,G + [H/(V*/N)]E

Notice that under a power equalization program the

price of increasing educational expenditure per pupil

by one dollar becomes the same for individuals in all

school districts.

As previously noted, many states employ aid

programs that are variations of one of these two basic

categorizations. The way in which three common

variations affect the income constraints of consumer-voters is illustrated in Figures 8,9, and 10.

2E. Percentage Equalization Program

A percentage equalization program defines a

state aid ratio (SAR) for each district as:

SAR = 1- k(fc/FC)

where k is a constant selected by the state, fc is the

district’s per unit fiscal capacity, and FC is the state’s

fiscal capacity. Under a percentage equalization

program, the amount of aid per pupil that a district

receives is:

S = E”[l-k(fc/FC)]

regardless of its level of expenditure per pupil. A

school district’s budget constraint in this situation is:

NE = tV + NE”[l-k(fc/FC)]

Rearranging terms yields:

/

t = {E - E”[l - k(fc/FC)]}/(V/N)

Substituting this into an individual’s income constraint in turn yields:

P,G + [HI(V/N)]E - (~~&N][E”[l - k(fc/FC)]]}

or

I + {[H/(V/N][E”[l- k(fc/FC)]]} =

P,G + [HI(VM)]E

Notice that, analogous to the analysis of a pure

foundation program in 2C above, this is identical to

the individual’s original income constraint except that

the term

{ [H/(V/N][E”[ 1 - k(fc/FC)]]}

is added to income on the left hand side of the

equation. This term is equal to the tax-price of an

additional dollar of spending per pupil, [H/(V/N],

multiplied by the amount of per pupil grant defined by

a district’s aid ratio. For districts with low property/income ratios relative to the state average, this per pupil

grant will be large compared to districts with greater

property/income ratios.

Figure 8 illustrates the effect of a power

equalization program where the guaranteed tax yield

applies only up to (is “capped” at) a designated level of

spending per pupil. The level of spending per pupil at

which state aid is capped is indicated by point M along

the E axis. This results in a kink in the income

constraint of a representative consumer-voter at the

level of spending per pupil where the guaranteed tax

yield ends. To the left of the kink, the tax-price (slope)

depends on the level of the guaranteed tax base. To

the right of the kink, the tax-price is what it would

have been in the absence of any state aid program;

that is, it has the same slope as the pre-tax income

constraint. This type of program is an example of a

closed-end matching grant.

A closed-end matching grant provides a price

effect to consumer-voters in districts where per pupil

spending is below the capped level (depicted by point

[a] and expenditure per pupil level M in each panel of

the figure), while it provides an income effect in

districts where spending exceeds this level. State aid

programs in Colorado, Illinois, New Jersey, and

Oregon operate as closed-end matching grants. It is

interesting to note that both the AEFA and ECS/

NCSL rankings in Table 7 classify the Illinois and

Oregon programs as foundation aid. A possible

reason for ranking the Illinois program as foundation

aid is that the level of expenditure at which the

matching component is capped is so low that virtually

all districts exceed it. In this sense, the price effect is

not effective, and, as in the case of foundation aid, the

program provides only an income effect. In Oregon,

state aid is technically called a foundation program.

The foundation expenditure level is not determined

exogenously, however; rather, it is a function of a

district’s spending per pupil up to an established limit.

Thus, it operates like a closed-end matching program.

Figure 9 illustrates the effect of a two-tier state

aid program, where the fist tier is foundation aid and

the second tier is a guaranteed tax base or a

guaranteed tax yield. E” in each panel corresponds to

the first-tier foundation level of spending per pupil.

State aid programs in Missouri and Oklahoma

operate in this manner. As in the previous case, this

results in a kink in the income constraint of a

representative consumer-voter. In this case, however,

a price effect is also provided when districts exceed

the foundation expenditure level. Given that Missouri and Oklahoma both require local effort (see

Table 7), districts must always choose a combination

that is on the segment of the individual’s income

constraint from point (a) to E*.

The Wisconsin program is yet another variation

of one of the two basic categorizations. It is a two-tier

guaranteed tax base program, where the guaranteed

tax base is lower for the second tier. Under this

program, the income constraints of a representative

consumer-voter would be similar to those in Figure 8,

45
Figure 8

Income Constraints with “Capped” Power Equalization Aid Program

Low Income,

Low Property Wealth

District

b \

\

\

L

\

\

\

E’ E* E

Low Income,

Middle Property Wealth

District

\\\\\ L-‘>,a

E’ ME* E

Low Income,

High Property Wealth

District

!L

G

G! 4

\

\

\

\

\

\

‘\ a

:’,\

G

G.’

a

9

Middle Income,

Low Property Wealth

District

E’ ME* E

Middle Income,

Middle Property Wealth

District

i

\\

\

\ \

‘1”‘\’ \

’ \

E’ E* E

M

Middle Income,

High Property Wealth

District

1

G

G

High Income,

Low Property Wealth

District

‘\-\ \

\

\

\

\

\

‘\a

i’\

, ’

I \

E’ ME* E

G

G

High Income,

Middle Property Wealth

ME’ E*E

High Income,

High Property Wealth

District

E’ E E’ E E’ E

46
F&m 9

Income Constraints with ‘ho-Tier Aid Program: Tier l-Foundation, Tier 2-Power Equalization

G

G

Law Income,

Low Property Wealth

District

b

- -\

\

\

E’E” E+ E

Low Income,

Middle Property Wealth

District

\\\ L‘y,

E’E’ E* E

Low Income,

High Property Wealth

District

L

a

,

I

E” E’ E

G

G

E’E’ E* E

b

7

Middle Income,

Low Property Wealth

District

Middle Income,

Middle Property Wealth

District

E”E’ E* E

Middle Income,

High Property Wealth

District

E0 E’ E

G High Income,

G ’ b Low Property Wealth

E’E” E+ E

High Income,

b Middle Property Wealth

1\ District

E” E’ E*E

High Income,

High Property Wealth

District

\

a

*

,

I

1

*

0

I

I

I

8

\

\

E0 E’ E
except that the tax-price (slope) beyond point (a)

would be the same for individuals with comparably

valued houses in all districts. Because this program

provides for recapture in the second tier, where

recaptured funds are deducted from first-tier aid, the

income constraints would be similar for individuals in all

districts except those where the local tax base exceeds

the higher, first-tier guarantee. This program thus

provides price effects for all consumer-voters other than

those in districts with very high property wealth.

The allocation formulas in Georgia, Montana,

Texas, and Utah are another variation of the two basic

types of state aid programs-a first-tier foundation

program supplemented by a second-tier power equalization program. Unlike the Missouri and Oklahoma

programs, however, these four states impose a cap on

the level of spending per pupil to which the power

equalization tier applies. Thus, the effect of these

programs on the income constraints of consumer-voters would appear as a juxtaposition of the situations

depicted in Figures 8 and 9. The income constraint

would begin at G’ and follow to points (b) and (a) as in

Figure 9. Then, at a higher level of expenditure per

pupil, it would kink again and have a steeper slope

(tax-price equal to the pre-aid income constraint) as at

point (a) in Figure 8. The income constraint would

thus have two kinks and three straight-line segments.

This provides for a price effect to consumer-voters only

in districts where the power equalization tier is in effect,

that is, those individuals located on the middle segment

between the two kinks. Consumer-voters in other

districts would experience an income effect only.

An example of an even more complex programat least in terms of the number of kinks that it creates

in the income constraint of a representative consumer-voter-is the South Dakota allocation formula.

State aid in South Dakota is disbursed according to a

foundation program, where the tax rate required to

provide the local share of foundation spending

increases by discrete increments at 26 different levels

of expenditure per pupil. From the perspective of a

consumer-voter, this creates a post-aid income

constraint that would appear shifted away from the

pre-aid constraint in a way similar to the traditional

foundation aid case depicted in Figure 6, and then as a

staircase with vertical risers but steps that each slope

down and to the right (at the pre-aid tax rate).

The final type of state aid to local school districts

is a percentage equalization program. The AEFA

classification scheme in Table 7 places the programs in

Alaska, Kansas, New York, Pennsylvania, and Rhode

Island in this category. According to AEFA, a

percentage equalization program defines a state aid

ratio for each district based on that district’s fiscal

capacity.3 The greater a district’s fiscal capacity, the

lower is its aid ratio.

At first glance, it seems that allocating funds on

the basis of a state aid ratio defined in this manner

would result naturally in a power equalization

program. It does so for the Kansas and Rhode Island

programs because the aid ratio applies to the level of

spending per pupil selected by each district. As noted

above, the Kansas and Rhode Island programs differ

from other power equalization programs in that

within the allocation formula the wealth measure

used to define the matching rate is adjusted to take

into account differences in income across school

districts. This is presumably the reason for classifying

these programs as percentage equalization rather

than guaranteed tax base or guaranteed tax yield.

Under the Alaska, New York, and Pennsylvania

programs, however, the state aid ratio is multiplied by

a fixed level of expenditure per pupil that is

determined by the state. The New York and Pennsylvania programs define a district’s fiscal capacity

relative to statewide fiscal capacity as a weighted

average of property value per pupil and income per

pupil.4 Figure 9 illustrates how state aid allocated to

local school districts in this way affects the income

constraints of consumer-voters. An important observation about this type of percentage equalization

program is that, as in the case of a pure foundation

program, the state aid provides an income effect but

no price effect to consumer-voters. Notice that the

amount by which the size of the grant per pupil (the

horizontal distance between G’ and point [b] in each

panel) shifts the income constraint to the right

depends on both the income level and the per pupil

property value in a consumer-voter’s district. If the

representative consumer-voters in all panels own

similarly valued homes, then the greatest impact of

state aid is on an individual residing in a low-income,

low property-wealth district (top panel on left).

An important difference between this case and

that of a pure foundation program arises from the way

in which the two programs affect consumer-voters in

low-income, high property-wealth districts (bottom

panel on left). In the case of a pure foundation

program, the state aid has no effect on the consumervoters in such districts (refer back to Figure 4). A

percentage equalization program, however, provides

an income effect to these consumer-voters. Exactly

the same result occurs under a foundation program

when the property measure used to determine a

district’s local share is adjusted to take into account

differences in local income. The allocation formulas

in Alabama, Maryland, New Hampshire, Vermont, and

Viginia are examples of income-modified foundation

programs where state aid affects consumer-voters in

different districts in the same way as the percentage

equalization program illustrated in Figure 10.

Finally, the state aid program in Alaska nominally falls into the category of percentage equalization.

The fiscal capacity measure on which the program

allocates aid, however, depends solely on local property

48
:

.’

h

;

;’ -

b

--- 7

\

\

\

\

L-

\

\

\

G

G

-

Figure 10

Income Constraints with Percentage Equalization Program

Low Income,

Low Property Wealth

District

s---e

-kb

\

\

\

\

\

\

\

\ \

E’ E* E

Low Income,

Middle Property Wealth

District

E’ E* E

Low Income,

High Property Wealth

District

G

G

G

G

,

\

, .

E’ E* E

E’ E* E

Middle Income,

Middle Property Wealth

District

E’ E* E

Middle Income,

High Property Wealth

District

b

‘\

\

\

\

\

\

\

A -

\

\

\

\

\

Middle Income,

Low Property Wealth

District

E’ E* E

G

G

G

G

High Income,

b Low Property Wealth

7, District

\

\

\

\

\

\

\

\

\

\

\

\

\

\ \

E’ E* E

High Income,

b Middle Property

7\ District

Wealth

E’ E* E

High Income,

High Property Wealth

District

E’ E

49
per pupil and not on local income. As a result, from

the perspective of consumer-voters, the program

affects the choice between school spending and the

consumption of other goods and services in exactly

the same way as a pure foundation program illustrated in Figure 6.

NOTES

l As discus& above, recapture provisions tend to be

unpopularwith residents of high property-wealth districts,

and they tend to be difficult politically to implement. In

researching for this report, the author was able to find only

two instances of a recapture provision in the descriptions

of state aid programs compiled by AEFA and FCS/NCSL

The first case is Michigan, where recapture reduces the

amount of supplemental categorical grants (but never by

more than 60 percent). The other case is Wisconsin, where

recapture occurs in the second-tier guaranteed tax base of

a two-tier GTB program. In this instance, the second-tier

recapture is deducted from the amount of first-tier aid.

Thus, locally raised revenues are not actually returned to

the state government in either case. Two-tier state aid

programs are described below.

2The classification of state aid programs in this report is

based on the detailed descriptions provided by the

American Education Finance Association and the Education Commission of the States/National Conference of

State L.egis1ature.s. See American Education Finance

Association, Public School Finance Ptvgmms in the United

States and Can& 1986-1987, compiled and edited by

Richard Salmon, Christina Dawson, Steven Lawton, and

Thomas Johns (Sarasota, Florida, 1988); and Education

Commission of the States/National Conference of State

Legislatures, School Finance at a Glance, prepared by

Deborah A. Verstegen (Denver, 1988). In most cases,

these descriptions are based on the programs in place for

the 1986-87 school year. Since then, state aid to local

school districts in Connecticut has been changed to a

foundation program.

3 Public School Finance Pqmms in the United States and

CaJuuia, p. 5.

‘In New York State, it is a 50 percent-50 percent weighted

average, while in Pennsylvania, it is 60 percent property

value per pupil-40 percent income per pupil.
Appendix 3

School Finance Litigation, 1968-1990

The following chart was compiled by the Education Commission of the States to provide a concise

picture of the school finance litigation activity of the

past two decades. The information permits comparison of time frames, plaintiff involvement and claims,

rulings, and the context of the cases

Rocedural Hiioy indicates time periods between

the filing date and the decision, and the judicial activity

the case may have undergone. Although the length of

time may vary, it is evident that many of these cases can

be long, drawn out, and remanded to lower courts.

Case NamelPlaintifi shows who is typically

interested and involved with bringing such lawsuits.

School districts, school boards, and administrators often

take part, but one should not dismiss the influence of

parents and students as primary plaintiffs.

The rzding column identifies the basis on which

the constitutionality of the public school finance

system was upheld or overturned. Lawsuits were

based on the grounds that the state finance system

violates the equal protection clauses of the state or

federal constitution and/or special constitutional

provisions relating to education. Because the equal

protection clause of the U.S. Constitution does not

prohibit unequal treatment, only unjustified unequal

treatment, a state may be able to justify its current

funding system, depending on various factors, even if

spending disparities exist between school districts.

Plaintiffs have attempted to use the language of the

education clause, i.e, “thorough and efficient,”

“uniform,” etc. to support their argument that the

state has not met its responsibility, and claim that

disparities in available resources or lack of adequate

funds do not allow such an education to be provided

and therefore violate the constitution.

HistorylContedlDevelopments descnies briefly

the situation existing at the time of the suit, particular

claims by the plaintiffs, details of the case and

developments that may or may not have resulted from

the court’s decision. (NOTE: not all responses to

litigation are included in this version.)

For further information, contact Mary Fulton at the

Education Commission of the States, (303) 2993679.

Terminology

Authorized revenue base-specific level of per

pupil revenue a district is allowed to raise; used in

Colorado’s previous finance formula in which amount

was based on 1973 spending.

Education clause violation-failure of the state

to provide the system of education to all students

mandated by the education clause of the state

constitution, i.e., “thorough and efficient,” “adequate,” or “general and suitable.”

Educational overburden-a claim by school

districts (generally urban) that the higher percentage

of economically and educationally disadvantaged students attending school in their districts is not only an

additional fmancial burden but one that requires special

services and effort as well. They also often claim that

federal Chapter 1 (compensatory education) funds may

not be enough to cover overburden.

Equal protection clause violation-a law or

activity that exhibits unjustified unequal treatment,

i.e., when a court determines that the state fails to

show a compelling interest in maintaining the current

school finance system in which all children in the state

are not provided with equal educational opportunities.

Fiscal neutrality-a court-defined standard that

holds that the quality of a child’s education should not

be dependent on the wealth of a school district but on

the wealth of a state as a whole. The standard was

developed to provide the judiciary system with a

manageable basis on which to determine the constitutionality of a school finance system, and it was first

51
used in the California Serrano v. Priest case (1971).

Fundamental right-a right that is “explicitly or

implicitly” guaranteed in the U.S. Constitution, i.e.,

the right to vote, to a fair trial, to privacy and free

speech, etc.; the U.S. Constitution does not consider

education a fundamental right. If a fundamental right

is involved when a law or activity is in question, strict

judicial scrutiny under the equal protection clause

may be applied.

Hold.harmless guarantee-a provision to ensure

that districts (commonly the more affluent or those

that have a significant decrease in enrollment) do not

receive less state aid than in previous years. This is

generally applied when a state revises the school

finance formula, and is often accompanied or followed by a phase-in approach that allows for gradual

reduction in state aid.

Municipal overburden-describes that situation

in which districts (primarily large urban areas) are

faced with competing costs for services (e.g., police,

transportation, recreation, infrastructure needs, utilities) leaving fewer dollars for educational expenditures. Districts claim that special provisions should be

made available to compensate for overburden.

Pupil weighting-a method of adjusting enrollment figures and therefore state education aid dollars

to reflect the assumed cost differences of providing

educational services to certain classes of students

(e.g., physically handicapped, gifted, small schools,

grade levels, compensatory education); usually incorporated into a state’s school finance formula to create

more equitable state funding.

Rational relationship basis-a standard used to

show the rational relation to a “legitimate” govemmental interest of a certain law or activity. In school

finance cases, the state merely has had to show a

rationality for the method of financing public education under the equal protection clause analysis. The

preservation of local control often has served as a

rational basis for the finance system although disparities are shown to exist.

St& scrutiny-a high level of judicial analysis

under the equal protection clause in which a fundamental right or a suspect class is involved. The law or activity

must relate to a “compelling state interest” and there

must be no other less dkuinkatoty policy possible.

Suspect classification-an isolated, readily identifiable group subject to purposeful and unequal

treatment by the state. The U.S. Supreme Court

recognizes three suspect classes: race, alienage, and

national origin. If a suspect class is involved when a

law or activity is in question, strict judicial scrutiny

under the equal protection clause may be applied. In a

few school finance cases, courts have considered

property wealth a suspect class.

52
State

Arizona

Arkansas

California

Prgedural History Case/Plaintiffs

1973, St. Supreme Ct. Shojazl v. Hollins

1972, County Superior Ct. plaintiffs

1971, filed students and parents from

Maricopa County

1983, St. Supreme Ct.

1981, trial ct.

1977, filed

Alma School DisL No. 3 v.

wrw

plaintiffs

11 school districts, students

from one of the districts

and members of the local

school boards

1971, St. Supreme Ct.

19??, St. Superior Ct.

1968, filed

swrano v. Priest

plaintiffs

students and parents from LA

County school districts

1976, St. Supreme Ct. set-ran0 v. Pried II

1986, Appellate Ct. serrano v. Priest III

School Finance Litigation Chart

Upheld

education fundamental right

“rational and reasonable basis”

teat sufficient to uphold system

Overturned

violated equal protection and

education clauses

education fundamental right

unequal education opportunity

among districts

no rational relationship between

finance system and educational

needs of districts

Overturned

violated equal protection clause

education fundamental right

property wealth a suspect

classification

applied fiscal neutrality standard

Overturned

affirmed 1974 trial court ruling

that finance system violated

equal protection clause

Upheld

HistorylContextlDevelopments

trial court granted summary judgment that the finance system discriminated

against taxpayers in Maricopa under equal protection clause; judgment to

take effect at close of 1974 legislative session; effective July 1,1974,

legislature repealed entire school financing statutory framework

trial court denied students’ claim of denial of right to an education

Supreme Court reversed trial court’s order to revise finance system and upheld

system; remanded case for further proceedings

added pupil weighting element to existing foundation program (1974, 1980

reforms)

plaintiffs claimed inequities in distribution of funds and educational

opportunities

plaintiffs complained about state not providing aid for capital construction,

strict limit on bonded indebtedness, method offundingvocational education

court findings: (1) higher priority to be placed on equity than local control,

(2) found disparities in staff, class size, curriculum, remedial services,

facilities, material, equipment

after circuit court invalidated finance system, legislature established

Governor’s Commission on Public School Finance to develop proposals for

more valid finance system to be implemented in ‘83 session

commission recommended: incorporate categorical programs into general aid

system through pupil weights; local fiscal capacity to include measure of

income and property wealth

legislature passed statewide education reform package in 1983; part of

package combined existing foundation program with a pupil weighting

system

landmark case; court decision based partly on “fiil neutrality” standard;

provided courts with “judicially manageable” standard to determine

constitutionality of school finance systems

first state public school finance system declared unconstitutional; first major

school finance case filed in state rather than federal court

1972-legislature increased state aid as part of new finance formula; moved to

a foundation program

1974, trial court declared current financing system unconstitutional despite

increase instate aid enacted in 1972; quality of education remained function

of local school district wealth

legislature unable to implement Assembly Bill 65 (1977)-a new finance

formula measure, due to Proposition 13 (1978) which limited property tax

rates to 1% of full cash value of real taxable property and reduced available

revenue

state had complied with Serrano II mandate to improve equity-95% of school

districts fell within maximum expenditure disparity of $200 per pupil in

1982-83
School Finance Litigation Chart

WI

P

State

Colorado

Prwedural History

1982, St. Supreme Ct.

1979, district ct.

1977. filed

Connecticut 1977, St. Supreme Ct.

1974, St. Superior Ct.

1973, filed

1982 Horton v. Meskill II

1985, St. Supreme Ct. Horton v. Meskill IKI

Georgia 1981, St. Supreme Ct.

1981, St. Superior Ct.

1974, filed

Idaho 1975, St. Supreme Ct.

1973, lower ct. ???

1972, filed

Case/Plaintiffs

Lujan v. Colorndo St&

Board 01 Education

plaintiffs

68 students from 16 low-wealth

districts

Horhn v. Meskill

plaintiffs

students in Canton, CT

McDaniel v. Thomas

plaintiffs

members of 3 local school

boards and students

Tkompson v. Engleking

plaintifls

students and parents from

Ruling

Upheld

did not violate equal protection

or education clauses

education not fundamental right

Overturned

violated equal protection and

education clauses

education fundamental right

Upheld

Upheld

did not violate equal protection

or education clauses

education not fundamental right

Upheld

did not violate equal protection

or education clauses

History/Context/Developments

suit attacked use of flat grants and Authorized Revenue Base (ARB)

supreme court reversed district court ruling that finance system was

unconstitutional

local control viewed as rational basis for existing disparitiesand asa legislative

purpose of education financing statutes

education clause did not mandate equal expenditure per pupil

legislature enacted HB1341, Public School Finance Act of 1988; moved from

a guaranteed yield to a foundation program with district “setting categories”;

a pending lawsuit was withdrawn

legislature established Colorado Commission on School Finance to review,

analyze and evaluate HB1341

court declared it was not appropriate to rely on local property tax to finance

educationwithout regard to local ability tosupport adequate education; also

caused tax disparities

1978, trial court set May 1, 1979, deadline for enactment of constitutional

plan for financing schools

Public Act 79-128 enacted April, 1979, included guaranteed tax base formula

and minimum expenditure requirement; replaced flat grant program

focused on which parties were able to intervene in the case

plaintiffs challenged Public Act 79-128 (1979) on basis of long phase-in

period, “hold-harmless” clause for wealthy towns and continued disparities

in local expenditure

supreme court remanded to superior court in 1986 with guidelines for

determining constitutionality of subsequent amendments

neither side continued to pursue case

1989, legislature passed education enhancement act -increased education

spending and created new finance formula (SB539) which replaced

guaranteed tax base with foundation formula

supreme court reversed trial court decision that held finance system

unconstitutional-violated fiscal neutrality standard

equal protection language not present in education section of state

constitution, therefore, such analysis not applicable

preservation of local control viewed as rational basis supporting finance system

although system was upheld, court concluded steps should be taken to equalize

educational opportunities and solutions must come from lawmakers;

legislature’s role to interpret mandate of “adequate” education as stated in

education clause

the Basic Quality Education law of 1985, a state education reform act,

included funding equalization measures; dramatically increased state and

local contribution to education

reversed 1973 trial court decision that finance system violated state

constitution education clause

Pocatello School Dist. No. 25 education not fundamental right
School Finance Litigation Chart

State

Kentucky

Procedural History

1989, St. Supreme Ct.

1988, circuit ct.

1985, filed

Case/Plaintiffs

The Council/or Bet&r Schools

v. Rose

plaintiffs

66 low-wealth and rural

districts

Ruling History/Context/Developments

Overturned initiated as school finance case in which plaintiffs claimed wide expenditure

entire state system of school disparities existed between districts

finance and governance violates landmark decision declaring entire state education system unconstitutional

state constitution’s education school system underfunded and inadequate; cited: poor national and regional

clause rankings in pupil expenditure and achievement, low teacher salaries, high

dropout rates

minimum foundation and power equalization program allowed wide variations

in financial resources, resulting in unequal educational opportunities

legislature permitted local districts to levy optional taxes, exacerbating

inequities; great local waste and mismanagement existed

struck down school finance system; laws creating school districts, school

boards, state education department; laws and regulations concerning

teacher certification and school construction

established task force composed of legislators and representatives from

governor’s office to comply with court order that legislature devise plan to

provide adequate and equitable funding for school system by mid-July 1990

three committees formed-curriculum, finance, governance-headed by

outside consultants

education and tax reform bill (HB 940) passed in March 1990 and signed by

governor in April

HB 940 included performance-based system of rewards and sanctions for

schools and teachers, reorganization of state department of education, limit

on amount districts could spend, revision of foundation and power

cqualiition program, raised minimum mill rate

Maryland 1983, St. Ct. of Appeals Somerset Count Board of Upheld state court rejected claims of municipal and educational overburden;

1981, circuit ct. Ealmztion v. Hombeck did not violate equal protection education clause did not mandate equal per pupil funding or expenditure

1979, filed plnintiffs or education clauses state court reversed trial court’s decision, which held the finance system

members of local school boards, violated education clause

superintendents, mayor of trial court recognized: poor districts remained underfunded while no spending

Baltimore, students and limit was placed on other districts; claims of municipal and educational

parents overburden; variation of property wealth created spending disparities; low

percent of state contribution to education, most of which was unequalized

Montana 1989, St. Supreme Ct.

1988, trial ct.

Helena School Dist No. 1, cl al, Overturned court held: foundation program relies too heavily on property tax levies and

v. stntp of Monfwla, el al. violated education clause denies equal educational opportunity to students in poor districts

plain tiffs

65 school districts

in compliance with court order, legislature passed bill (HB 28) during July

1989 special session which revised school finance formula

HB 28: a’ppropriated $375 million for K-12 in FY91; increased state support

by adopting foundation schedules $67.2 million higher than FT89;

instituted a local levy cap (up to 35% of foundation amount)

HB 28 financed by mandatory 95 mill lew (meviouslv 45 mi113.5% surtax on

individual and corporate income taxes ~n~reallocaiion of o&r taxrevenues

plaintiffs filed brieE (1) contended that ruling extends beyond general fund to

capital outlay and transportation, which HB 28 does not address; (2) argued

HB 28 is not permanent, stable funding source, does not address teacher

retirement inequities and won’t adequately reform per student spending

inequities; (3) requested court to extend declaration of constitutionality of

enacted provisions until July 1, 1991, to allow for HB 28 to go into effect,

collect more accurate data and allow legislature more time to address issues
School Finance Litigation Chart

State Procedural History

Michigan 1984, St. Ct. of Appeals

19??, circuit ct.

1982, filed

New Jersey 1973, St. Supreme Ct.

1972, County Superior Ct.

1970, filed

1990, St. Supreme Ct.

1981, filed

Case/Plaintiffs

Eat Jackson Itrblic Schools v.

State of Michiaon

plaintif& -

20 school districts and students

Robinson v. Cahill

plaintiffs

mayors. members of citv

coun& and school bbards

of 5 cities, a student and

a taxpayer

Abbott v. Burke

plaintiffs

students in 4 urban districts

Ruling

Upheld

did not violate equal protection

or education clauses

education not fundamental right

Overturned

violated equal protection and

education clauses

overturned

violated education clause

system unconstitutional as

applied to poorer urban

districts

History/Context/Developments

plaintiffs alleged reliance on state equalized valuation (SEV) of taxable

property allows for disparities; state does not equalize for expenditure

differences that result in unequal education programs

court held that to provide free public education is not synonymous with

providing equal financial support

plaintiffs asked for: finance system to be ruled unconstitutional and revised;

district boundaries to be redrawn; and for property tax system to be ruled

unconstitutional to extent it was used to fund public schools

plaintiffs’ claims against finance system: violated education clause., unequal tax

burden on low property-value districts, violated fiscal neutrality standard,

racial discrimination

first cast to rule finance system violated education clause of state constitution;

did not provide “thorough and efficient” education system

in compliance with court order to establish reforms, legislature enacted Public

School Education Act of 1975 (S.1516)

funds for public schools were enjoined and schools were closed for 2 weeks

after legislature failed to assure full funding for new act by July 1, 1976;

legislature enacted income tax to fund act and injunction was lifted

plaintiffs contended Public School Finance Act of 1975 was not properly

funded and allowed financial disparities to remain excessive; state argued

local school districts were guilty of educational mismanagement

superior court dismissed suit in 1983; appellate court ruled in favor of the

plaintiffs in 1984; state supreme court reversed appellate court decision in

1985 and remanded to administrative law judge

state supreme court ruled that administrative remedies must be exhausted

before court could rule on merits of suit

August 1988, administrative law judge pled school finance system

unconstitutional-violated education clause; decision forwarded to

commissioner of education, who upheld state’s position

supreme court ruled finance system unconstitutional as applied to poorer

urban districts; 28 districts identified

court also held: minimum aid provisions unconstitutional; act must be

amended to assure funding in poor urban districts at level of property-rich

suburban districts-funding cannot depend on ability of district to tax and

must be guaranteed and mandated by state; funding must provide for special

educational needs of poor urban districts

court addressed areas of categorical, transportation, pension, and capital

outlay aid

court recognized deficiencies in curricula; need for better services and

programs, including early childhood

dismissed deficiencies in education being primarily related to mismanagement

rather than expenditure per pupil differences

July 1990, legislature enacted Quality Education Act of 1990, based on

governor’s recommendations

act allocates $1 billion in additional state aid (funded through income and

sales tax increase); ohased-out minimum aid to wealthy districts: wealthv

districts to abso&‘their costs for teacher pensions; set Leigh foundation IGel

($6,835 for elementaly and additional amounts for secondary for 91-923;

established “special needs” districts; accountability measures
State

New York

Ohio

Oklahoma

Oregon

Texas

Proqedural History

1982, St. Ct. of Appeals

1981, Appellate Division

of St. Supreme Ct.

1978, County Supreme Ct.

1974, filed

1979, St. Supreme Ct.

1977, county ct.

1976, filed

1987, St. Supreme Ct.

1980, filed

1976, St. Supreme Ct.

1975, circuit ct.

1972, filed

1973, US Supreme Ct.

1971, district ct.

1968, filed

Case/Plaintiffs

Board of Educadon, Levittown

v. Nyguist

pkzintifi

boards of education and

students from 27 districts

and 4 large cities

School Finance Litigation Chart

Ruling History/Context/Developments

Upheld

did not violate equal protection overburden

or education clauses

education not fundamental right

or interest

plaintiffs from large urban districts claimed municipal and educational

state court of appeals reversed two lower court decisions

court recognized existence ofsignificant disparities; “judicially imprudent” to

rule unconstitutional, partly due to lack of proper remedy

preservation of local control viewed as rational basis supporting finance system

no requirement for education to bc equal in every district, must only provide

minimal, acceptable facilities and services

Board of EducaGon of the C@

School District of Cincinnati

v. Wdtw

plaintifls

Cincinnati board of education,

district’ superintendent,

parents, students

Upheld

education not fundamental right

preservation of local control

rational basis supporting

finance system

plaintiffs alleged: burden on districts to raise. excessive portion of education

funds to meet requirements-dependent on voter approval of tax levies,

rather than on cost to provide thorough and efficient education

plaintiffs claimed municipal and educational overburden

plaintiffs challenged fiscal penalty-reduced state aid for district’s inability to

meet mandated educational standards

supreme court reversed county court decision

court reluctant tojudge whether system “thorough and efficient”-function of

General Assembly

education opportunity not absolutely denied

constitutional limit on property tax level and other restrictions complicated

property-poor district’s ability to raise adequate amount to support

educational services: nlaintiffs claimed great financial disparities among

districts existed *

fir School Finance Council

of Oklahoma v. Oklahoma

ptiiffs

38 school districts, students,

taxpayen

Oken v. Oregon

plaintiffs

class action suit on behalf of

all public school children in

staie except in high wealth

districts; taxpayers

San Antonio Independent School

District v. Rodriguez

pkxinliffs

parents from Edgewood School

District: class action suit on

behalf of poor and minority

students

Upheld

flat grant program provided same amount of aid to all districts, and foundation

program failed to close gaps

1981, legislature revised finance system-pupil-weighting scheme using

foundation and guaranteed tax base; 1982, added $150 million to finance

system

Upheld

did not violate education clause

preservation of local control

served as rational basis

supporting finance system

plaintiffs claimed flat grant uronram had disequalixing effect and finance

system violated fiscal net&a& standard

court ruled that the interest impinged upon-educational opportunity-was

outweighed by objective to maintain local control

Upheld

education not fundamental right

of US Constitution and did

not require strict scrutiny

under 14th Amendment (equal

protection clause)

district court ruled finance system unconstitutional under equal protection

clause of 14th Amendment-significant disparities in school expenditure

existed

US Supreme Court declared system did not deny opportunity to obtain basic

minimal skills

rejected “poor students” or “poor school districts” as suspect class

cited imoortance of local control

historic &e that eliminated federal courts as receptive forum to school

finance cases since education is not a fundamental right under US

Constitution and cannot be held to strict scrutiny -

provided guideline for state courts: if importance of education is mentioned in

state constitution, such language allows for, but does not necessitate,

fundamental interest status of education
School Finance Litigation Chart

Case/Plaintiffs Ruling Hitoty/ContexUDevelopments

E&mood Xntikpendmf School Overtumed history: (1) May 1989, legislature appropriated additional $450 million to

Diskicl v. Kirby violated education clause qua& districts over 2-year period-court recognized low impact on

pk&iffS system that spends $12 billion annualb (2) 1977-84, legislature distributed

67 districts and 14 families $1.1 billion in equalization aid; (3) 1984, passed education reform act

HB72-revised school funding system-created two-tier system which

funded based on pupil units, increased equalization aid and general funding

to poor districts; system remained underfunded

basis of suit: inequity of and reliance on local property taxation

1987, trial court held in favor of plaintiffs; 1988, third court of appeals

revexxd decision; 1989, state supreme court unanimously reversed court

of appeals and declared school finance system unconstitutional

supreme court affirmed use of “f-1 neutrality” standard, but qualified:

school districts must have “substantially qua1 access to similar revenues per

pupil at similar levels of tax effort”

state finance program-foundation school program, does not cover cost to

meet state-mandated minimum requirements, no allotments for school

facilities or debt service

court held, “... state’s school financing system is neither financially efficient nor

suitable in the sense of providing for a ‘general diffusion of knowledge’

statewide”-violated education clause

state comptroller ordered to stop payments to public schools after court

imposed deadline of May 1,1990, for legislature to devise plan to reduce

wide funding diiparitiesbetween districts and achieve efficient system -or at

least to generate equalization money for 90-91 school year and then

concentrate on permanent solution next legislative session

legislature and governor failed to reach consensus by May 1 deadline; court

appointed “special master” to develop plan in case consensus could not be

met

toworkwithin existing resources, “special master” proposed plan to shift state

aid from wealthy to poor districts

during fourth special legislative session, SB 1 was enacted, which revised

finance system and addressed other areas of education

SB 1 (1) maintains two-tier foundation and guaranteed yield program,

(2)changedpupiLweightingsystem, (3) raisedguaranteedyield,(4)changed

pupil count measurement, (5) included $4 billion in new funds over 5-year

period, (6) allows “equity standard” to change based on accountable-t

study, (7) addressed issues relating to governance, school-based management, regulation waivers, earty childhood

Northshore School District v.

Kinneur

pkzintijjTi

school districts, students,

paren% faxpayers

Upheld plaintiffs alleged violation of fiscal neutrality standard and disparities in

did not violate qua1 protection expenditure, education quality, and tax rate

or education clauses “uniform and general” system requires only certain minimum educational

opportunity

dissenting judge found state aid to have nonqualiiing effects and be in

violation of education clause; laid ground for subsequent lawsuit

State Procedural History

1989, St. Supreme Ct.

1988, Ct. of Appeals

1987, district court

1984, filed

(n

00

Washington 1974. St. Supreme Ct.

1972, filed
School Finance Litigation Chart

state Procedural History

1981, County Superior Ct.

1978, St. Supreme Ct.

1977, superior ct.

1977, filed

WWSIII 1976, St. Supreme Ct.

1989, St. Supreme Ct.

west

Virginia

1982, circuit court

1979, St. Supreme Ct.

1977, circuit court

1975, filed

Case/Plaintiffs Ruling

scortlc School Disbid No. I of Overturned

King County v. Wmhingfon violated education clause

platktifi

24 school districts, education

associations and advocacy

groups, and others

Buw v. Smith Overturned

p&if@ “negative aid” provision violated

“negative aid” school districts, uniformity clause of a state

taxpayers, school board constitution tax article

members, parents, residents

Upheld

povlclv. e

pkdifi

parents and students of

linodn County

overturned 1979, state supreme court reversed trial court’s dismissal of plaint&

violated equal protection and complaint and remanded case to circuit court

education clauses circuit court of Kanawha County found finance system unconstitutional:

education fundamental right -did not provide equitable and adequate funding for thorough and efficient

wealth as suspect classification system

HistcuylContext/Developments

plaintiffs contended that 40% of Seattle’s education budget depends on

passage of annual referendum; without passage, cannot meet state

requirements

1978, supreme court held trial court’s decision declaring school finance system

unconstitutional -violated education clause

supreme court stated that legislature had duty to define “basic education” and

provide for funding through regular and dependable taxes

1981, plaintiffs filed suit in state supreme court claiming state failed to define

and fund basic education

cast transferred back to county superior court, which ruled “basic education”

must include handicapped, bilingual and remedial programs; revenue

shortfalls not legitimate excuse for failure to provide adequate funding

state has since adopted finance plan relying heavily on state support

plaintifb challengd “negative aid,” or “recapture” provision of 1973 School

Finance Act

supreme court struck down negative aid provision; violated principle of state

constitution article in that taxes levied in one district could not bc used for

direct benefit of other school diitricts or for sole benefit of the state

plaintiffs contended finance system did not take into account special needs of

districts that enroll high percentage of “at risk” students

court held that resolving inequities among districts is responsibility of

legislature, not courts

-a&i for programs such as special education, remedial education, early

childhood must be retlczted in funding formula

-inadequacies and inefficiencies (as dcfmcd by educational inputs) resullcd

from finance system and related to varied educational resources and

expenditures among counties

-reliance on locally funded excess levies to provide “thorough and

effwient” system was unconstitutional

-state failed to provide adequate funding for school construction

-taxation and assessment of property is not equal or uniform

addressed not only financial and educational equity, but quality and substance

of education

court ordered executive and legislative branches to develop master plan to

create equitable, hi quality education system in regard to staff, facilities,

courses and to correct offering disparities by 1983

master plan for education, which addressed roles of state and local Education

agencies, educational facilities and changes in finance system approved by

trial court in 1983
School Finance Litigation Chart

State Procedural History Case/Plaintiffs Ruling History/Context/Developments

Wyoming 1980, SL Supreme Ct. Wmhakie Coun@ School Overturned

1979, trial court

court supported claim that disparity in financial resources is related to quality

District No. I v. Herschler violated equal protection and of education

1978, filed plaintiffs education clauses court declared, “no trial is necessary in this case because, as a matter of law, the

3 districts and school board education fundamental right statutory structure is inherently defective”

members, taxpayers, parents, court ordered legislature to adopt constitutional system of finance by July 1,

students 1983

revised school funding system in 1983, including a recapture provision
61

Recent Publications of the

Advisory Commission on Intergovernmental Relations

Representative Expenditures: Addressing the Neglected Dimension of Fiscal Capacity, M-174,

1990,128~~. ............ ........... .... ......... ........... .. ...... .......... .........

Mandates: Cases in State-Local Relations, M-173, lWO,64 pp. ..................................

, Changing Public Attitudes on Governments and Taxes: 1990, S-19, 1990,40 pp. ...................

1988 Fiscal Capacity and Effort, M-170, 1990, 160 pp. ..........................................

State Constitutional Law: Cases and Materials, 1990.91 Supplement, M-172, 1990, 56 pp. ..........

Intergovernmental Regulation of Telecommunications, A-115, 1990,48 pp. ........................

The Volume Cap for Tax-Exempt Private-Activity Bonds: State and Local Experience in 1989,

M-171,1990,36pp ......................................................................

Significant Features of Fiscal Federalism, 1990 Edition, Volume I, M-169, 1990, 152 pp. ............

Volume II, M-169-11, 1990,280 pp. ........................................................

State and Local Initiatives on Productivity, Technology and Innovation, A-114, 1990, 180 pp. ...........

Local Revenue Diversification: Rural Economies, SR-13, 1990, 60 pp. ............................

State Taxation of Banks: Issues and Options, M-168, 1989, 48 pp. ... ............................

A Catalog of Federal Grant-in-Aid Programs to State and Local Governments:

Grants Funded FV 1989, M-167, 1989,40 pp. ..............................................

Local Revenue Diversification: Local Sales Taxes, SR-12, 1989, 56 pp .............................

State Constitutions in the Federal System: Selected Issues and Opportunities for State Initiatives,

A-l13,1989,128pp. ....................................................................

Residential Community Associations: Questions and Answers for Public Officials, M-166, 1989, 40 pp. ..

Residential Community Associations: Private Governments in the Intergovernmental System?

A-l12,1989,128pp. ....................................................................

Readings in Federalism-Perspectives on a Decade of Change, SR-11, 1989, 128 pp. ...............

Disability Rights Mandates: Federal and State Compliance with Employment Protections

and Architectural Barrier Removal, A-111, 1989, 136 pp.....................................

Hearings on Constitutional Reform of Federalism: Statements by State and Local

Government Association Representatives, M-164, 1989,60 pp................................

State and Federal Regulation of Banking: A Roundtable Discussion, M-162, 1988, 36 pp. ...........

Assisting the Homeless: State and Local Responses in an Era of Limited Resources,

M-161, 1988, 160 pp. ....................................................................

Devolution of Federal Aid Highway Programs: Cases in State-Local Relations

and Issues in State Law, M-160, 1988, 60 pp. ..............................................

State Regulations of Banks in an Era of Deregulation, A-110, 1988,36 pp. ........................

State Constitutional Law: Cases and Materials, M-159, 1988, 480 pp. ............................

Local Revenue Diversification: Local Income Taxes, SR-10, 1988, 52 pp. ..........................

Metropolitan Organization: The St. Louis Case, M-158, 1988, 176 pp . ............................

Interjurisdictional Competition in the Federal System: A Roundtable Discussion, M-157, 1988, 32 pp. ...

State-Local Highway Consultation and Cooperation: The Perspective of State Legislators,

SR-9,1988,54pp. ......................................................................

Governments at Risk: Liability Insurance and Tort Reform, SR-7,1987,42 pp. ....................

The Organization of Local Public Economies, A-109, 1987, 64 pp. ...............................

Is Constitutional Reform Necessary to Reinvigorate Federalism? A Roundtable Discussion,

M-154, 1987,39 pp. .....................................................................

Local Revenue Diversification: User Charges, SR-6, 1987, 64 pp. ........... .....................

The Transformation in American Politics: Implications for Federalism, B-9R, 1987, 88 pp. .........

Devolving Selected Federal-Aid Highway Programs and Revenue Bases: A Critical Appraisal,

A-108,1987,56pp. .....................................................................

Estimates of Revenue Potential from State Taxation of Out-of-State Mail Order Sales,

SR-5, 1987, 10 pp. ......................................................................

Federalism and the Constitution: A Symposium on Garcia, M-152, 1987, 88 pp. ....................

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