ERIC Identifier: ED357130
Publication Date: 1993-04-00
Author: Ascher, Carol
Source: ERIC Clearinghouse on Urban
Education New York NY.
Efficiency, Equity, and Local Control--School Finance in Texas.
ERIC/CUE Digest, Number 88.
Efforts to equalize funds available to students in different school districts
in Texas go back some 70 years. The current struggle for financial equity began
in 1968 when a sheetmetal worker, Demetrio Rodriguez, became head plaintiff for
parents in a poor district in San Antonio. In RODRIGUEZ V. SAN ANTONIO
INDEPENDENT SCHOOL DISTRICT (ISD), the U.S. District Court found that the
state's method of school finance, which relied heavily on local wealth,
discriminated against children living in poor school districts, and was
therefore unconstitutional. Although in 1973, the U.S. Supreme Court reversed
the lower court's findings in RODRIGUEZ, holding the state system of finance to
be constitutional, many Texans gained a new awareness of inequalities in their
system. Thus, the struggle for equalization of funding continues today, as the
Texas Legislature works to respond to EDGEWOOD ISD v. KIRBY, an equity suit now
in the State Supreme Court.
Despite strides towards equity both before and since RODRIGUEZ, differences
in per pupil spending in Texas remain extremely high (Verhovek, 1993). To be
sure, some of the highest spending districts are in remote areas, where an oil
well easily supports the excesses of a teacher, a bus, and a school building for
half a dozen students (B. Walker, personal communication, January 1993).
However, other high spending districts are in wealthy urban and suburban
neighborhoods, often right next to poor districts (Kozol, 1992).
The legal rulings in the evolving case of EDGEWOOD ISD v. KIRBY, which
mandate far-reaching remedies and an extensive overhaul of the existing system,
are generally considered among the most significant in the nation. To make the
Texas experience useful to educators in other states, this digest summarizes the
system of school finance in Texas before EDGEWOOD, and then briefly describes
the evolution of the lawsuit, focusing on key school finance principles treated
by EDGEWOOD and on the legislation that has attempted to produce a
constitutionally acceptable state finance plan. A final section suggests some
social and economic issues that are influencing the solutions to school finance
in Texas as well as in other states.
CURRENT SCHOOL FINANCE IN TEXAS
In Texas, as elsewhere, the
system of school finance has been based on local property taxes collected at the
district level. Although the state has historically augmented local money, until
1949 state funds were largely allocated on a per pupil basis, not by district
needs. That is, the state only minimally equalized disparities in funding
capabilities among districts. However, using a structure similar to that
developed in other states, since 1949 Texas has partially compensated for wide
district disparities through a Foundation School Program. Put simply, the
Foundation School Program guarantees that every district, regardless of its tax
revenues, has available a set amount considered necessary for a minimum
education per student.
In reality, however, the funding guaranteed by the Foundation School Program
has been far below the cost of providing students with even "the basics"
(Walker, 1990). Thus, in 1989, in response to the EDGEWOOD suit, the state both
increased the Foundation School Program and created a second tier of support. In
this second tier, the Guaranteed Yield Program, the state guarantees a dollar
amount per student per penny raised in taxes between the required first tier and
a tax limit set by the Legislature. In both the first and second tiers, the
state weights per pupil costs to account for students who require larger
expenditures in order to be educated successfully. Nevertheless, the second tier
does not eliminate inequities, because poor districts simply cannot raise as
much money as the wealthier districts. Further, the main source of inequality
among districts has been caused by the capacity of wealthy districts to take
advantage of a third tier of "unequalized enrichment." Districts that can reach
this level of funding receive no additional aid from the state but also have no
caps on what they can raise from taxes or spend on their students (Bullock,
1990; Levine, 1991; Walker, 1990).
THE EDGEWOOD ISD V. KIRBY CASE
TEXAS DISTRICT COURT
In 1987, the District Court held in EDGEWOOD that
Texas's system of school finance was unconstitutional on two grounds. First, it
denied children in poor districts "the equal protection of the laws, equality
under the laws, and immunities guaranteed by the Texas Constitution" (cited in
Walker, 1990, p. 7-8). Second, it failed to provide an "efficient" educational
system, as required by the State Constitution.
This criticism of the school system as "inefficient" was based on the Texas
Constitution which, like that of most other states, provides that, since "a
general diffusion of knowledge" is "essential" to Texas, it is the duty of the
State Legislature to provide "for the support and maintenance of an efficient
system of public free schools" (cited in Walker & Thompson, 1990, p. 417).
In EDGEWOOD, "efficiency" was interpreted to mean both the proper distribution
of money to secure the best education and the conservation of educational
resources (Walker, 1991). A critical source of inefficiency, as delineated by
the Court, was that district boundaries created areas of highly unequal property
TEXAS APPEALS COURT
In 1989, the District Court judgment was reversed by the
Texas Appeals Court, which stated that, while the existing system should not be
considered "desirable," or not in need of change, education is not a fundamental
constitutional right and wealth is not a "suspect classification." In fact, the
Appeals Court found the state's use of local property taxes to finance education
a "rational" means to advance local control of the schools (Sparkman & Campbell, 1991).
TEXAS SUPREME COURT
Later in 1989, the Texas Supreme Court unanimously
reversed the Appeals Court, reaffirming the District Court's decision that the
state's school funding system was unconstitutional (Sharp, 1992; Walker, 1990).
Nevertheless, the Supreme Court made important modifications in the lower court
decision. First, the Supreme Court did not consider the issue of whether the
finance system violated the "equal protection" provision in the Constitution.
Instead, its opinion was made entirely on the "efficiency" clause. However, the
Court went to some length to show that an inequitable system is inherently
"inefficient," and particularly that the concentration of resources in
property-rich districts that tax at a low rate is inefficient (Walker, 1989;
1990). That is, a system is inefficient when property-poor districts end up with
fewer educational resources despite higher levels of taxation. In an efficient
system, districts would experience a direct and close connection between their
level of taxation and the educational resources available to them.
In contrast to the Appeals Court, the Supreme Court also pointed out that an
efficient system "does not preclude the ability of communities to exercise local
control over the education of their children" (cited in Walker, 1990, p. 10).
Finally, the Supreme Court held for adequate state support, pointing out that
state aid to the Foundation School Program did not cover mandated minimum
requirements, and that the state did not help with debt service that consumed a
larger proportion of funds in poorer districts than in wealthier ones (Walker,
1990; Walker & Casey, 1992).
Since 1990, both the Texas Legislature and the plaintiffs have sent the
courts several new plans. However, in successive versions of EDGEWOOD the courts
have continued to hold that the proposed systems of school finance are
unconstitutional. For example, while the Texas District Court allowed that it is
impossible to create a system that is 100 percent equal in finance, when the
1990 State Legislature proposed a system that would have excluded the wealthiest
districts from the equalization formula, the Court rejected it (Hobby &
Walker, 1991). Thus, a new version of EDGEWOOD was created with a much stricter
standard for district equalization. In any case, a deadline for an acceptable
plan has now been set for June 1, 1993, after which, should the Legislature fail
to act, Texans will be left without state financing for their schools.
As the Texas case makes clear, the issue of equality in school finance can be
evaluated from two standpoints: whether there is equity for students, and
whether there is equity for taxpayers. The following sections show how these two
issues have been tackled in Texas.
FUNDING LEVELS AND EQUAL EDUCATIONAL OPPORTUNITY FOR
There has been a good deal of controversy in the past decade about
whether more money for schools results in higher student achievement. Not
surprisingly, educators in districts with great property wealth traditionally
argue that money is relatively unimportant to the success of their students. At
the same time, those from poorer districts are quick to point out the many
material disadvantages in their schools--and to ask why, if money doesn't make a
difference, the wealthy districts are so reluctant to share their resources
(Cardenas, 1992). In its EDGEWOOD decision, the Texas Supreme Court argued that
the money available for any student has a "real and meaningful impact on
educational opportunity" and that the educational responsibility of the state
"is the same for all citizens, regardless of where they live" (cited in Walker,
Within this broad notion of equal educational opportunity for students, there
are two quite different theoretical approaches to measuring fiscal equity. From
one point of view, perfect equality among students can only be achieved when the
combined revenues from the state and local sources produce exactly the same
amount of money per pupil. Technically, this is called "horizontal pupil
equity." The issue of inequities in district spending per pupil was addressed by
a court in EDGEWOOD in its description of a variety of deprivations suffered by
students in property poor districts: lack of up-to-date curriculum and
technology, high student-teacher ratios, etc.
From another point of view, perfect equality can only be achieved when
available revenue is distributed to create "unequal treatment of unequals." That
is, districts and students with greater needs should have greater resources.
Technically, this is referred to as "vertical pupil equity." The Texas Supreme
Court also addressed this concept in EDGEWOOD, asserting that, in creating
equity, the state can "weight" both districts and students, giving more funds to
districts that are more expensive to run, such as certain big city districts; or
to students who are more expensive to educate, because they require vocational,
compensatory, remedial, and other special education programs (Levine, 1991;
TAXPAYER EQUITY OR FISCAL NEUTRALITY
A second major way of
evaluating fiscal equity in education considers not what students receive, but
how heavily the tax burden rests on residents of different communities. In
1985-86, the wealthiest district in Texas had over $14,000,000 of assessed
valuation per child, while the poorest district had only $20,000--a ratio of 700
to 1. Even in the 100 wealthiest districts, property wealth is 20 times greater
than in the 100 poorest districts. And in the two neighboring San Antonio
districts mentioned previously, per pupil wealth in Edgewood is $39,000,
compared to $570,000 in Alamo Heights (Cardenas, 1992; Sparkman & Campbell,
1991). Because of the vast differences in property values, wealthy districts
have characteristically raised much more for their students' education even
while taxing themselves at a far lower rate. For example, because Alamo Heights,
one of the 12 school districts in San Antonio, has so much property wealth, its
residents pay taxes at the lowest rate in the county and still generate the
highest revenue of any of the San Antonio school districts (Cardenas, 1992).
In RODRIGUEZ and again in EDGEWOOD, the Federal District Court ruled that
state subsidies should ensure substantially equal results for equal levels of
taxation. Commonly referred to as fiscal neutrality, this does not require equal
expenditures by districts in a state, but only an "equal opportunity to generate
equal revenues at a given level of tax effort" (Walker & Casey, 1992, p.
88). Property-poor districts should not have to tax themselves at far higher
rates than property-rich districts in order to gain the same level of resources
(Sharp, 1992; Walker & Casey, 1992).
The court in EDGEWOOD also addressed the issue of equal taxation for
taxpayers with an equal ability to pay, or what is technically known as
"horizontal tax equity." For example, in Texas as elsewhere, the tax burden on a
$100,000 home can vary greatly across districts, with some areas being "tax
havens" for those with substantial taxable property. If the tax havens were
eliminated, so that a $100,000 home in all districts in Texas was taxed at
substantially the same rate, the tax burden would begin to be equalized and
additional resources could be generated.
NARROWING FUNDING DIFFERENCES THROUGH REDISTRICTING
is divided into 1,058 school districts--among the most of any state. This large
number of districts results in part from the state's large size, but many
districts have extremely small enrollments, and over 700 have fewer than 1,600
students. While some of these small districts are caused by a low concentration
of students spread over a wide area, not all are. In contrast to most states,
which do not encourage small districts, Texas gives these districts special
financial assistance to compensate for the diseconomies of scale (Cardenas,
1992). Still, as in other states, small district size has also tended to
reinforce financial disparities, since district lines often conform to the
boundaries of neighborhoods of greatly varied wealth. In fact, among school
finance experts, it is an axiom that consolidation leads to greater equalization
(Walker & Casey, 1992).
Yet local control of schools has been "sacrosanct" in Texas, and there has
been a great deal of opposition to district consolidation (Walker & Casey,
1992). For example, when the 1991 State Legislature attempted to neutralize
district wealth by creating 188 special purpose districts (157 county-wide, and
31 multiple-county) whose only function would be to collect and distribute
taxes, there was widespread apprehension among school districts that with
consolidation for equity purposes, consolidation for operational purposes would
not be far behind. Moreover, the media often fueled fears further by referring
to the new districting as the "Robin Hood plan" (Cardenas, 1992). Finally, the
tax mechanism of these special county education districts was struck down by the
Texas Supreme Court, which declared that they "illegally constituted a statewide
property tax not approved by the voters" (Sharp, 1992, p. 13).
STRATEGIES TO EQUALIZE RESOURCES AMONG DISTRICTS
past years of controversy, wealthy districts in Texas have often argued that
poorer districts should be "leveled up" to their standard of spending. Yet the
per annum cost of bringing all school systems in Texas to the level of the
highest spending district would be approximately four times the annual operating
budget of the entire state government (Levine, 1991). Moreover, in the past each
attempt by the Legislature to narrow disparities among districts by infusions of
state funds has been followed by increased expenditures by wealthy
districts--and increased disparities in resources among districts (Cardenas,
1992). Still, it has been argued that the vast discrepancies in wealth among
school districts could be reduced if oil, gas, and minerals were not taxed as
part of the local property tax but rather taxed by the state. There is, however,
much popular resistance to such a change. Moreover, in order to create a state
tax on assessed property, a constitutional amendment would be required (Sparkman
& Campbell, 1991).
Short of rethinking what sorts of property should be taxed to generate local
as opposed to state income, or bringing the spending of poor districts up to
that of wealthy districts, several other strategies have been suggested to
equalize funding. The first is generally referred to as setting spending "caps."
Although the Texas Supreme Court in EDGEWOOD did not suggest any spending caps
for high wealth districts, in 1991 the Texas Legislature enacted into law two
types of caps: a limit on local tax rates, which would set a ceiling for the
rate at which property can be taxed; and a freeze on local and state spending
when disparities among school districts reach a certain level. In theory, the
tax rate cap has the capacity to create equality in rates of taxation over
several decades, as low tax districts gradually build up to the rates of high
tax districts. However, while the freeze on spending would prevent increases in
disparities among districts, the disparities would remain at a very high level
(Cardenas, 1992; B. Walker, personal communication, January 1993).
Another strategy proposed by the Legislature in response to EDGEWOOD, the
aforementioned "Robin Hood" technique, would have attempted to "recapture" funds
from wealthy districts to use on a regional basis. That is, to ensure that all
districts net equal revenue, the state would give (make up) the difference in
revenue for poor districts and take locally raised funds away from wealthy
districts that raise too much money. However, the Texas Supreme Court decided
that "recapture" is prohibited by the State Constitution, which allows taxes
collected in a district to be used only by residents of that district.
In response to this decision, in February 1993, the State Legislature voted
for a constitutional amendment to allow the Legislature to shift a relatively
small amount (2.75 percent of all state and local revenue from districts with
high property wealth) to poor districts. This constitutional amendment will go
before the voters in a May 1 election (Verhovek, 1993). Although redistribution
is unlikely to be popular with voters, the threat of either district
consolidation or school closing may make it the better alternative for the
majority of voters.
OBSTACLES TO EQUITY IN TEXAS SCHOOL FINANCE
common to public schooling across the country have made it difficult to redress
inequities in the school finance system in Texas. Most important, the 1980s was
a period of economic recession for the state, with static or declining revenues
from oil, natural gas, real estate, and general state sales taxes. As a result,
either the school finance system had to remain much the same or state taxes had
to be raised. At the same time, Texas was experiencing a 20 percent increase in
the number of school children, with Hispanic students comprising the largest,
and African American students the second largest, increase. Moreover, a similar
growth in the number of students, largely caused by minority population growth,
has been projected for the 1990s. Thus, an aging white population with fewer
children has seen itself as paying for a growing minority population. Since this
white group constitutes the bulk of voters, support for fiscal equity has
involved political risks (Sparkman & Campbell, 1991).
Although 80 percent of the new jobs in Texas will require a high school
education, minority dropout rates will continue to be high, and achievement low,
compared to that of white students. Low achievement and high dropout rates have
many causes, including the lack of resources in poorer districts. It is ironic,
then, that the continuing disparities in the achievement and graduation rates of
white and Hispanic students may also make some white voters wonder whether their
money for schooling is being well spent (Sparkman & Campbell, 1991).
Finally, in 1993 the state school finance law is being written amidst
pressure for spending in other areas like social services, corrections, and
health care. As Sharp points out, "School finance arguments are even harder to
resolve in times of tight budgets" (1992, p. 13). At the same time, it is
extremely difficult to gain support for new revenue sources such as personal and
corporate income taxes (Walker, 1989). Not surprisingly, few see an easy end to
the protracted school finance litigation in Texas.
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