Lotteries, Litigation, and Education Finance

1. IntroductionHistorically, the finance of public education in the United States has been largely based on revenue raised locally through property taxation. However, this system has been routinely criticized on the grounds that the resulting distribution of educational opportunity is inequitable and that it may lead us to forgo socially productive investments in education. Over the past several decades, these concerns have motivated extensive litigation in almost every state, challenging the constitutionality of property-based education finance. To date, the supreme courts in 17 of these states have encouraged increased state aid to school districts by concluding that their current systems of education finance were indeed unconstitutional. However, over this same period, 37 states have also turned to new state lotteries as a way to increase state funding for services like education. There are two shared reasons that these disparate approaches to directing new resources to education might prove to be ineffective. First, it is by no means clear that these reforms would actually increase state or local educational spending. State legislatures may respond slowly, if at all, to a court ruling that encourages increased aid. Furthermore, states that earmark new lottery revenues for education may simply choose to then reduce their education appropriations from other sources. And, even if these reforms do increase state aid, the effect on educational spending may be undone by reductions in education revenues raised from local and federal sources.1 second, even if new state aid were to increase local education spending, it is not clear that these new resources would be allocated in ways that actually improved school quality. The extensive though controversial literature on educational productivity suggests that new resources would not be used effectively (e.g., Burtless 1996).This study provides novel, empirical evidence on these policy-relevant concerns by examining the consequences of two of the most recent and noteworthy education finance reforms. In 1993, Tennessee began court-ordered education finance reforms while the neighboring stale of Georgia simultaneously initiated a lottery explicitly designed to promote educational spending. These policy experiments are partly of interest simply because of their narrow consequences for the patterns of educational finance and spending within these states. However, they are also likely to be of more general interest because they provide evidence on a question of importance to policymakers and voters everywhere. Specifically, the consequences of these reforms provide evidence on how plausibly exogenous increases in available educational resources are actually spent. Though there is an extensive literature on educational productivity, there is surprisingly little evidence on how school districts allocate resources.2 Furthermore, these evaluations may also prove of more general interest because each of these states adopted rather unique and interesting strategies to earmark new state aid for specific educational expenditures. In Tennessee, the court-ordered education finance reforms were accompanied by broader educational reforms designed to ensure the efficacy of the new state aid. These measures included accountability measures for schools and school districts based on controversial, value-added measures of student test performance; the phasing in of mandatory class-size regulations; and a high-profile initiative to promote technological investments in classrooms. Georgia also attempted to earmark new lottery revenues for specific educational spending by promising new and highly visible educational initiatives (i.e., Helping Outstanding Pupils Educationally [HOPE] Scholarships, prekindergarten [preK] programs, and technological investments for classrooms). The absolute and comparative success of these earmarking attempts can provide evidence to other communities that hope to promote spending on specific educational functions. …