School finance litigation, tax and expenditure limitations, and education spending

I. INTRODUCTION Over the past 30 years, two major changes in state legal environments have had important consequences for the financing of public education. Since 1971, a majority of states have experienced legal challenges to their education finance systems on the grounds that the system and corresponding inequities in school expenditures violated state constitutions. During the same period, voters and legislators imposed a new wave of limitations on local government tax and spending authorities. The authors contend that to evaluate the effects of education finance reform (reform) or tax and expenditure limitations (TELs) on education spending, these must be considered jointly. The existence of TELs may limit responses that state and local authorities have to state imposed reform. Thus the presence of TELs may significantly alter the impact of reform on both state and local education spending. Similarly, the ability of states to curtail local education expenditures through TELs may be influenced by reforms. It is particularly important to consider reform and TELs jointly because several researchers have suggested that education finance reform may make the imposition of TELs more likely. (1) Fischel (1989) and Silva and Sonstelie (1995) argue that school finance court rulings in California (Serranno v. Priest, 1971 and 1976) led to the imposition of Proposition 13 in 1978, which severely restricted local governments' ability to raise revenue. In a national study, Blankenau and Skidmore (2002) show that the existence of successful education finance litigation increases the likelihood that a TEL initiative or referendum will be successful in a statewide election. Thus evaluating TELs without jointly considering reform could lead to biased estimates of the effects of TELs. Similarly, evaluating the effects of education finance reform without jointly considering TELs could lead to biased estimates of the effects of education finance reform. This article simultaneously considers reform and limitations on local government budgets to determine their effects on aggregate school spending and its components using data covering the period 1971-93. School finance reform litigation has been motivated by substantial inequities in education spending across districts. (2) In most states the responsibility of providing primary and secondary education has traditionally been relegated to local government and financed in large part through property taxation. Large differences in property wealth across jurisdictions, then, result in large differences in per student education expenditures. (3) Equal protection clauses and education clauses in state constitutions have allowed for many legal challenges to this method of education finance. In fact, since Serrano v. Priest, challenges to school funding have led to reform efforts in a majority of states. (4) In many of the states that have experienced reform, TELs were either in place at the time of the ruling or subsequently implemented. These limitations on the ability of public school districts or local government more broadly to increase revenues and/or expenditures take a variety of forms. Specifically, restrictions on local government powers to tax and spend typically take the form of property tax limits or overall revenue/expenditure limits. Many property tax limitations restrict increases in the property tax rate. In several states, rate limits are coupled with limitations on assessment increases. Property tax revenue growth limits are also common. In addition, limits on the growth of total revenues and/or expenditures of local governments and school districts specifically are sometimes imposed. There is some evidence that TELs reduce the growth of local revenues and expenditures, though this is partially offset by corresponding increases in state aid to local governments. See Skidmore (1999) for a discussion of this work. Studying reform and local government TELs jointly, leads to a deeper understanding of the effects of each on education spending. …