## **Box 1,  Financing Schools in the United States**

U.S. states have taken various approaches to school finance. The states of Hawaii, Idaho, and Washington fully finance primary and secondary education. In contrast, New Hampshire covers only 9 percent of school finance.

Delaware and North Carolina finance education through bloc grants that are indexed to population, GDP, and inflation growth rates. The grants are derived by calculating equal amounts per unit based on the number of students, teachers, classrooms, courses, classes, and other factors. The units can be standardized using various yardsticks, such as class size and teacher:pupil ratios. Various measures of students, including enrollment, average daily attendance, enrollment weighted by grades, types of programs, and number of students with special needs, are used.

Other states use equalization grants, including foundation grants, percentage equalization grants, and district power equalization grants.

_Foundation grants_ vary inversely with the fiscal capacity of a school board. The grant allocation is based on an application of the representative tax system approach to fiscal capacity equalization per student across school districts. The following formula is used: foundation grant = (maximum per student grant – own school district contribution per student based on mandated minimum tax rate applied to per student tax base)  enrollment Forty-two states have adopted variants of this approach, with 22 states specifying the minimum mandated tax rate. Various measures are used to determine enrollment, including the number of students on the rolls on a specified date, average daily attendance, and average attendance over a period. Most states (36) use a scheme that weights enrollment by grade, program, and student disabilities.

Rhode Island uses a _percentage equalization grant_ —a matching cum equalization grant for school spending based on the following formula: grant per student = [1– matching rate x (per capita tax capacity in the district/ state average district tax capacity per capita)]  district spending per capita _District power equalization grants_ , used in Indiana and Washington, include incentives for increased tax effort in an equalizing grant. The formula used is:

> grant = (per capita average fiscal capacity – per capita fiscal capacity of the district)  district tax rate

_Source_ : Vaillancourt (1998).

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# **_(b) Representative expenditure system/ standardized cost approaches_**

# _Australia_

A sophisticated variant of this methodology is used by the Commonwealth Grants Commission (CGC) of Australia, which simply equalizes what all states on average actually spend. The CGC defines standard expenditure as the cost of supplying average performance levels for the existing mix of state-local programs. Relative expenditure needs are then determined empirically using direct imputation methods for 41 state-local expenditures. The use of expenditure need factors is extensive. Several hundred factors specific to 41 areas of expenditures in three broad categories are used: (a) scale factors; 13