ERIC Identifier: ED324777
Publication Date: 1990-00-00
Author: McGuire, Kent
Source: ERIC Clearinghouse on Educational Management Eugene
Emerging Issues in State-Level School Finance. ERIC
Digest Series Number EA 56.
Almost two decades have passed since the state role in funding schools
became a major education policy issue. After years of dormancy, the controversy
is heating up again. The evidence nationally is very thin, but what is
available indicates that states have made little progress in reducing wealth-related
expenditure disparities among school districts (Schwartz and Moskowitz
Over the last twenty-four months, nearly half of the states have been
somehow engaged in debate about the fairness and/or constitutionality of
their school finance systems. At last count, thirteen were engaged in or
about to launch investigations of their funding formulas, usually at the
behest of a legislative or executive branch task force. Eleven states are
presently at various stages of "pending decision" status in the state's
highest court. (For a review of school finance litigation, see LaMorte
Three state finance systems were ruled unconstitutional early in the
1980s (Arkansas, West Virginia, and Wyoming) and four in the last twenty-four
months (Kentucky, Montana, New Jersey, and Texas). It seems that America
has yet to break the link between local wealth and the quality of a child's
WHAT ISSUES SURROUND THE PROPERTY TAX?
A key source of revenue for the public schools, the local property tax
is the subject of regular debate in school finance. It is part of the general
concern over sources of revenue for the public schools. Some say that property
taxes should be abandoned as a source of revenue for schools. The argument
is that taxing property is inefficient and unfair, as the value of one's
home or business is not realized until it is sold. Property tax opponents
suggest that income is the more appropriate measure of local wealth; it
is what people use to pay their taxes.
Proponents of local property taxes call for the improved administration
of this tax. Property taxes, it is argued, are as good a measure of fiscal
capacity as income or any other measure of wealth, perhaps even easier
to measure. Because property taxes are much less subject to short-term
fluctuations in economic activity than sales or income tax receipts, they
are considered reliable as a source of revenue for schools. Proponents
further argue that property tax circuit breakers can be used to prevent
an unfair burden on the poor or fixed income taxpayers. Expect the debate
over appropriate sources of revenue for schools to continue. If school
costs rise significantly during the 1990s, it will place continuing pressure
on policy makers at the state and local levels to find new revenue for
WHAT ARE OTHER REASONS FOR THE FOCUS ON SCHOOL FINANCE?
The property tax is not the only reason for this renewed interest in
school finance at the state level. Most state aid systems are old, the
majority of the basic formulas for distributing aid to school districts
having been designed and implemented in the early to mid-1970s. As we enter
the 1990s, much has changed. Enrollments--stable in the early 1970s and
declining during the middle 1970s and 1980s--are now growing again in some
parts of the country. Land values, particularly in agricultural states,
are stable to declining, placing upward pressure on local tax rates. The
program and service requirements of schools have changed also, particularly
regarding the programs and services associated with various special student
populations. There are many reasons why school funding formulas might need
significant reform to bring them in line with the times.
A decade of emphasis on making qualitative improvements in the schools
at the state and local levels may also explain the new focus on school
finance. Efforts to raise graduation requirements, mandate expanded student
testing and assessment, increase teacher salaries, and require new services
for students (for example, early childhood, dropout prevention, employment
training) have amplified concerns about the cost of education and highlighted
existing differences in the resources from district to district.
Fuhrman, Clune, and Elmore (1988) concluded, in their review of state
education reform initiatives, that the performance of state school finance
systems (for example, their ability to provide equal resources) affects
local ability to respond to education reform initiatives. Rosenholtz's
(1988) research on initiatives designed to establish minimum competency
standards for students and career ladder programs for teachers confirms
that money is an important factor in the successful implementation of these
initiatives. Research evidence, limited though it may be, suggests that
providing adequate revenue in an equalized way is key to school improvement
initiatives around the country.
HOW DOES SCHOOL RESTRUCTURING AFFECT SCHOOL FINANCE?
Complicating matters are several important themes running through the
restructuring debate of the late 1980s and early 1990s. One has to do with
enhancing the institutional competence of schools. This appears to mean
a number of things--fostering the professional growth of teachers, providing
time and structures that allow school staff to pay more attention to problems
of teaching and learning, and allowing school staff, particularly teachers,
to play a greater role in the day-to-day operation of schools.
Another theme has to do with "decision-making and governance in schools."
A popular viewpoint is that schools are in the best position to decide
how to use the resources at their disposal to meet school- and system-wide
objectives. Schools should decide which services to purchase (such as testing
or curriculum specialists) from the central district or from other sources
and should determine their staffing needs and how to fill them. A key finance
issue is the "fair share" of resources (in dollars) that are controlled
at the school site. Should building administrators receive the monetary
equivalent of their current staff allocations? How are the relative needs
of schools determined and quantified so decentralization does not create
intradistrict disparities in resources and opportunity?
Finally, restructuring seems to involve a basic shift in the incentive
structure that drives behavior and resource allocation in schools. For
most reformers, this means developing new forms of and mechanisms for accountability.
It has been suggested that schools should develop assessment strategies
designed to measure problem solving and cognitive development. Rewards
and sanctions, it is argued, should be linked to these "robust" outcome
measures so that the consequences of success and failure are clear and
direct. There are many questions. How many of the rewards and sanctions
involve money? If the high achieving schools are wealthy and the low achieving
schools poor, how is the wealth-related difference in performance to be
addressed--through rewards and sanctions or structural change in the finance
formula? What are the costs of school-centered assessment instruments and
WHAT ARE IMPLICATIONS FOR LOCAL POLICY MAKERS?
There is little doubt that the traditional school finance equity issues--measuring
educational needs and assessing the relative fiscal capacity of school
districts--will receive attention in the 1990s as policy makers calibrate
their finance systems to changing economic and demographic conditions and
accommodate the new programs and standards implemented during the 1980s.
School boards and administrators will need to assist state policy makers
in appropriately defining the needs of schools in the new decade, helping
to translate these needs into mechanisms that create fair and adequate
distributions of resources.
Of course, education policy making in the 1980s has created new equity
issues. We can expect policy makers at all levels to be held accountable
not just for providing equal dollars per child but for (1) the distribution
of excellent (master/lead) teachers; (2) access to curricular offerings
and instructional experiences; and (3) the availability of high-quality
facilities and instructional materials. When patterns emerge between inequities
in these resources and variables like district size, location, student
characteristics, and wealth, state school finance laws are sure to be challenged.
Local officials must pay attention to the impact of these reform initiatives
WITHIN district boundaries. Unequal distributions among schools within
districts may also be challenged.
Finally, school boards and administrators must participate aggressively
in the continuing debate on restructuring and education accountability.
Recent developments in states like Kentucky, New Jersey, and Texas underscore
the growing link between the allocation of resources and the use of those
resources at the local level. Pressure to relate money to student outcomes
may grow. Efforts to redefine power and authority relationships governing
the allocation and use of resources will continue under the heading of
"site-based decision-making" or related initiatives. The traditional school
finance linkages between funding and local practice are already changing.
Observe how fully funded state programs/mandates are giving way to "fiscal
incentives" and other approaches for sharing fiscal responsibility for
state education policy goals. Because many districts felt constrained by
undue regulations, it is now popular to grant flexibility in the use of
existing funds in lieu of providing "new" money. In the absence of clear
knowledge about the success or appropriate use of these strategies, it
behooves local leaders to frame local priorities carefully and to use skill
in interpreting the objectives of state policy makers as they legislate
in this area.
WHAT QUESTIONS STILL NEED TO BE RESOLVED?
The current policy debate in education does raise some interesting questions
in school finance:
What are the costs of restructuring the public schools? Can the schools
be substantially improved without a significant infusion of resources?
How do school finance formulas interact with attempts to manage resources
at the school site? Will restructuring and site-based management force
states to develop a new generation of funding mechanisms? To what extent
can incentives and sanctions be used in a state funding formula?
Schwartz, Myron, and Jay Moskowitz. Fiscal Equity in the United States,
1984-85. Washington, D.C.: Decision Resources Corporation, February 1988.
LaMorte, Michael. "Courts Continue to Address the Wealth Disparity Issue."
Educational Evaluation and Policy Analysis 11, 1 (Spring 1989).
Furhman, Susan; William Clune; and Richard Elmore. "Research on Education
Reform: Lessons on the Implementation of Policy." In Microlevel School
Finance, edited by David Monk and Julie Underwood. Cambridge, MA: Ballinger
Publishing Company, 1988.
Rosenholtz, Susan. "The Effects of Education Reform on the Professionalization
of Teachers." In Microlevel School Finance, edited by David Monk and Julie
Underwood. Cambridge, MA: Ballinger Publishing Company, 1988.