Opinion ID: 1148513
Heading Depth: 1
Heading Rank: 1

Heading: equality, local control, and fiscal responsibility

Text: The conflict in goals can best be illustrated by looking at the outlines of various methods of school financing and their effect on the three goals. (1) The simplest method would appear to be total state financing of the district with the district given full control of the level of expenditure. Absolute equality of financial resources is assured because each district need only ask for funds and the state will comply. Local control is assured by definition. However, fiscal responsibility fails and the result is bankruptcy. A local district, being able to transfer all but insignificant costs to the state, will be unrestricted in spending for the benefit of its citizens on any school-related activity. Conceivably, every school district will have a performing arts center rivaling Los Angeles', resulting in insolvency. (2) Of course total state financing might avoid bankruptcy by establishing spending limits, by apportioning the entire school expenditure on a per pupil basis, or by a combination of the two. While such system might meet the goals of equality in funding resources and fiscal responsibility, it eliminates local control of spending levels. [4] (3) At the other end of the spectrum would be purely local financing. This system satisfies the requirement of fiscal responsibility  requiring the community that spends the money to tax itself for the full amount. However, the system would be less equitable than that reviewed in Serrano I. [5] (4) While the majority do not specify which system should be adopted, power equalizing appears to be their choice because it appears to be the one the majority measure against the existing system in order to arrive at invalidity. The system `has as its essential ingredient the concept that school districts could choose to spend at different levels but for each level of expenditure chosen the tax effort would be the same for each school district choosing such level whether it be a high-wealth or a low-wealth district.' ( Ante, p. 747.) The latter system is easily illustrated using hypothetical figures. If the tax rate is $2 it must produce the same amount of income per pupil in every district in the state, let us assume $800. If the tax rate in any district is $3, the district must receive the same amount per pupil, let us assume $1,200. These amounts must be received regardless of the wealth of the school district. Obviously, in poor districts, those with low assessed valuation per pupil, the tax will not produce sufficient revenue, and the state will have to provide the difference. In rich districts, the given tax rates will produce excessive revenue, with the state obtaining the excess. To illustrate the impact of the system on the districts, let us look at the effect on three kinds of districts, one having assessed valuation producing the exact amount of money set forth above, the second having half that assessed valuation (a poor district), and the third having double the assessed valuation (a rich district). In the first district fiscal responsibility is assured because school board members, considering expenditures, will have to tax their constituency for all expenditures. In the second or poor district an element of fiscal irresponsibility is introduced. For there, every dollar the school board members decide to spend, only a half dollar need be raised from the constituency, the state paying the other half. The poor district is encouraged to raise its tax rate to obtain state funding for the community, purchasing educational opportunity at the half-price sale. Because the higher the tax rate, the more state money and the greater bargain, the poor district is encouraged to adopt a high tax rate, funding programs the first district would not undertake. This, of course, is the basic spending incentive involved in partial federal support for state programs. The third or rich district, on the other hand, will be penalized for any expenditure. For every dollar it seeks to spend for its students it must raise $2 by tax, sending one to Sacramento. Faced with punishing their constituency for each expenditure, the school board members will restrain expenditure by eliminating programs the first and second districts would undertake. Viewed from the standpoint of dollar cost to the district, rather than tax rate, illustration number 4 presents a mirror image of illustration number 3, not equalizing but presenting an inverse relationship between district wealth and opportunity to fund schools. The rich district will become poor by its disincentive to spend, and the poor will become rich by its substantial incentive to spend. The fact that at any given tax rate, expenditure may be equal in each district does not eliminate either the troublesome disincentive or the incentive. Both render the opportunity for school funding unequal. The opportunity varies with the assessed valuation per student within districts  inversely it is true  but by varying with district wealth, it necessarily violates the majority's basic requirement that no such variation be permitted. [6] (See, e.g., ante, p. 747.) (5) The four school support systems illustrated above are the basic systems, given that financing depends upon property tax. Although other systems have been suggested (see, ante, fns. 5, 6), they involve either great waste of resources or lack assurance they will result in significantly greater equality than the existing system. However, before looking at the existing system, a few observations are warranted. Only the first two systems (total statewide financing) can produce the majority's requirement of absolute financial equality. The first, as we have seen, involves a substantial risk, if not a certainty, of insolvency. The second avoids bankruptcy but totally eliminates local control of expenditure levels. The third and fourth systems (local financing) necessarily involve a relationship between district wealth and the opportunity for educational funding, direct or inverse, in violation of the majority's rule prohibiting any such wealth relationship. Further, to the extent the third and fourth systems are used significantly, some wealth relationship in the opportunity for educational funding will occur. This results because local school board members  properly concerned with their constituency  will always look to the local effect of their action. In a democracy we can expect no less. Considering expenditures on the fundamental issue of whether to hire more teachers, reducing class size, or to hire fewer teachers, increasing class size, local school board members must ask what burdens in dollars and tax rates are being placed on district residents. In other words, unless state funding covers substantially all costs, the marginal expenditure is going to be based on local funding considerations. Local financing systems three and four, as we have seen, necessarily involve wealth relationships  direct or inverse  and to any extent that they are used, school funding will be based on wealth relationships. The rational approach to the three conflicting goals of equality, fiscal responsibility and local control, requires rejecting the majority's demand for absolute equality and accepting a combined system to accommodate each. Minor departure from the ideal of absolute equality must be allowed in order to accommodate the two other compelling interests. The existing system does no more. I have delayed evaluating our existing school finance system because it must be viewed in the light of alternate systems. The present system is the legislative and executive response to this court's first Serrano decision within the confines of our Constitution's requirements of a mixed system of state and local financing and control. (Art. IX, § 6; art. XII, §§ 20, 21.) The system starts with system number 4, power equalizing, giving the poorer school districts an incentive to tax at the computational rate, $2.23 at the elementary level, and to receive the foundation level, $765 per student. An assessed valuation of $28,700 per student at a tax rate of $2.23 will produce $640 per student which when added to the $125 required to be paid for all students [7] will produce the $765 figure. A district having an assessed valuation below $28,700 will not receive the $765 per student from its local taxes and the $125 allowance, and the state will make up the balance. More than 85 percent of the students in this state are in districts having an assessed valuation of less than $28,700 per student. (Table III-8, p. 28.) These districts are called the equalization aid districts. The principal criticism level against this part of the financial program is the limitation to $765, which means that for financing above that level the inequities of system 3 come into play. Why shouldn't the program of state aid extend on indefinitely to levels above $765? The answer should be apparent by now. The equalization factor produces inverse wealth relationships because the poor districts are encouraged to spend to bring state money to the community. Thus, some limitation must be placed on this type of financing, and as will appear, the $765 level is eminently reasonable. The power equalizing approach is not carried forward to those districts having assessed valuation of more than $28,700 per student. (Nearly 15 percent of the students are in those districts.) The Legislature determined not to apply the penalizing factor discussed above. This means that a district having, for example, double the $28,700 per student assessed valuation could provide $765 per student at a tax rate of little over half the computational rate of $2.23. About 2 1/2 percent of the elementary students are in school districts having double assessed valuation or more. (Table III-8, p. 28.) The principal criticism levelled against this factor of the system is that a few rich districts may have relatively low tax rates while still providing $765 per student. Although the factor gives rise to some inequality, the alternative of penalizing the rich district by giving part of its local funds to the state will impose new inequities in the opportunity for school funding  inequities much greater in practical effect than existing ones. [8] The real question is how great is the inequality  not in abstract legal terms  but under the system as it really works. Our concern should not be that there may exist a district possessing $1 million assessed valuation per student, but possessing only 38 students. To use the example of this district and a few more like it to invalidate the statewide system is unfair, if not folly. Rather, to measure the existing system we must attempt to weigh inequality against the total system. At trial, prior to the Senate Bill No. 90 and Assembly Bill No. 1267 results becoming available, attempt was made to quantify the inequalities arising under the new law in terms of total school fund revenues to be produced. The prediction was that 76 percent of the revenues would arise under the foundation program, the equalized revenues, 15 percent of the revenues would be categorical funds assumed to be equalized in this proceeding, and only 9 percent unequalized. Subsequently, records of the Los Angeles unified school districts, comprising 28 percent of the state's students, showed that only 10 percent of the budget constituted unequalized funds. In addition, the basic statewide figure showing an average current expenditure per elementary student of $985.48 (table IV-IA, p. 84) when compared with the $765 equalization aid figure, roughly indicates the correctness of the testimony. [9] By setting the equalization aid figure at such a high number, resulting in aid to more than 85 percent of our students, the present system insures a high degree of equality. Ninety percent of the funding is distributed on an equitable basis with only 10 percent distributed inequitably. Further, even as to the 10 percent, poor school districts may and do obtain part by merely raising their tax rate above $2.23. As we have seen, attempting to eliminate all inequality  the majority's perfection requirement  will result in insolvency, loss of local control, or in new and greater inequity. Substantial reduction in the 10 percent revenue inequality similarly appears to involve substantial risks of insolvency, loss of local control, or the new inequity. The majority attack the 90-10 ratio on three levels. First, they say it does not meet the requirement of absolute equality. ( Ante, p. 755.) However, as pointed out above, the requirement should not be imposed. Second, the majority state that the 90-10 ratio, based on the 1973-1974 year, does not take into account inflation and declining future enrollment. ( Ante, pp. 755-756.) However, the Legislature has provided for increases in foundational programs based in part on increases in assessed valuation, an indicator of inflation. (Ed. Code, § 17669.) The declining enrollment argument is that aid will decrease under the foundation program because there will be fewer students but that costs will decrease at a slower rate. But by looking at an historical cost relationship, the majority depart from their own equality test, introducing a new one. Third, the majority state that the ratio of 90 percent equalized to 10 percent unequalized is false, urging that foundation funds are unequalized. ( Ante, p. 757.) But the basic purpose of equalization aid has been to offset inequities in the foundation. Although the punishment factor has been omitted, it would apply only to districts having less than 15 percent of all our students, and would significantly apply to a much smaller percentage. For this reason any adjustment in quantifying the inequalities would be minimal.