Reforming Public School Finance: Proposals and Pitfalls
by Anthony M. Cresswell - 1972
Article discusses reforms in educational financing and what may be done in the courts to change the present school finance systems. (Source: ERIC)
Strong currents of reform are moving through all areas of public education, but none with more potential for change than in school finance. And although this has always been an area of substantial effort for reformers, recent events suggest that the magnititude and rate of changes to come will dwarf those of the past. Almost simultaneously courts in four states have taken up the question of wealth-based inequities in school finance systems, especially those which rely on local property taxes. Both the California Supreme Court and a Federal District Court in Minnesota recently struck down the school finance systems in those states. Law suits are now pending in Texas and Michigan which could have the same effect.1 These cases can have immense impact on school finance in the states involved. But, more importantly, they raise the possibility of U.S. Supreme Court action. If the high court were to strike down wealth-based school finance systems, the impact on state and local government would rival the 1954 school desegregation decision or reapportionment in 1964. In further activity, the National Educational Finance Project has been studying these same questions and recently issued a report calling for states to assume responsibility for most school funding, with less reliance on local property taxes.
When things are moving at this pace it is wise to examine carefully the proposals that are offered for reform. It is one thing to condemn the inequities of the present system; it is quite another to translate that criticism into an appropriate instrument of equity. One work, because of its influential role in these recent actions, deserves special attention. In Private Wealth and Public Education John Coons, William Clune, and Stephen Sugarman laid much of the legal and fiscal groundwork for the California Supreme Court case. Their attack on the inequities of the old system is well done, and their legal arguments are persuasive, but their proposed new system is simply inadequate. Its major flaws are discussed here to illustrate the general problems involved in school finance reform and perhaps prevent similar errors elsewhere.
There is a seductive simplicity in the Coons et al. approach to the reform of school finance. Their argument is straight forward; it goes something like this:
1. There is inequality of educational opportunity in the schools. Some schools spend much more than others.
2. The school finance system is the villain; it's too dependent on wealth. It must be altered.
3. But the schools belong to the people. We must maintain local control.
4. Equalization is the answer to wealth disparities, and a large step towards equality of educational opportunity.
Their method is power equalizing which, they claim, makes the amount of money raised for the schools independent of wealth. School revenue is determined by tax effort. Once a school district (or family) chooses a level of effort, the amount raised for the schools is fixed by the state. If more than the standard amount is raised, the excess goes to the state; if less, the state subsidizes. If you choose low effort you get cheap schoolsno matter how rich you are. If you choose high effort you get expensive schoolsno matter how poor you are.
The authors (attorneys all) present their legal arguments cogently and forcefully. Showing the villainy of the present system is simple and from there it's an easy step to power equalizing, which, they say, will establish the equal protection of the Fourteenth Amendment for the allocation of school funds. Once again the logic is deceptively simple: (1) most current school finance systems violate the Equal Protection Clause of the Fourteenth Amendment; (2) workable remedies must be presented to the courts for them to act; (3) power equalizing is just such a remedy.
It's unfortunate that the bases for the whole approach are so seriously flawed. The authors have done yeoman work in reviewing the background of school finance reform and displaying some of the fiscal inequities in the present system. Their treatment of the development of the legal concepts and precedents for equality of educational opportunity provide a thorough coverage of the topic. But the value of all this is largely cancelled because of the inadequacy of their concept of educational opportunity and the specific finance proposal itself.
As an approach to the solution of a public finance problem, power equalizing is myopic in its perception of school finance, conceptually crippled, and generally headed in the wrong direction.
Cost and Educational Opportunity
First of all, Coons et al. define equality of educational opportunity in terms of dollars. This is justified only if different levels of spending do in fact result in different levels of educational opportunity. Such educational opportunity can only be defined in terms related to the instructional programs of the schools and their outcome. Adequate funds are, of course, necessary, but not sufficient. If two children go to schools with comparable program quality, it is of no consequence, as far as educational opportunity is concerned, that one school spends more than the other. By the same reasoning, a child attending a school with an inferior program is denied educational opportunity regardless of how much that school manages to spend. A definition of educational opportunity in terms of dollars must be based on a solid relationship between cost and quality. I find, however, no such relationship established in Private Wealth and Public Education.
In fact, evidence to support such an assumption is not easy to come by. Some work, including reanalyses of the Coleman data, has shown weak relationships between categories of school expenditures and achievement scores, but the findings are far from conclusive.2 On the other hand, evidence abounds that simply increasing expenditures for educational programs is ineffective. New York City schools, for example, have nearly doubled their per pupil expenditures in the past ten years while reading scores have continued to plummet.3 Evaluations of Head Start and Title I (ESEA) programs come up with the same discouraging results.4 Not only are positive results hard to find, there is increasing evidence of mismanagement of funds and malfeasance at the local level.5 In short, dollars alone do not create educational opportunity.
Certainly where gross disparities in available revenues for education exist, there may be violations of the Fourteenth Amendment. But to remedy those disparities does not necessarily improve educational opportunity. To say that it does flies in the face of substantial evidence and diverts attention from areas more in need of reform.
Educational opportunity depends on educational programs that work. Educational reform which does nothing about improving educational programs is an empty promise.
It is not enough for the authors to say that their concern is simply for the provision of adequate funds. Any system for the distribution of intergovernmental transfers, such as school grants-in-aid, involves the entire administrative structure of the system. The arrangements and conditions for the allocation of funds to the schools constitute a substantial element of the total educational policy-making structure. To maintain that the school finance system is merely a dollar distribution mechanism is short-sighted at best. The allocation of funds from the state to local school districts is the foundation of the relationship between state and local school administration. If this fundamental element of the relationship ignores the educational opportunity in all but dollar terms, it sets a pattern for the continued failure of schools. If significant reform is to be attained, the administrative structure and program design at the state and local levels must be redesigned to provide both adequate funds and quality education. Power equalizing moves in the opposite direction by putting the fiscal power of the state at the disposal of families and school districts without a word about promoting effective use of the funds. This is an irresponsible approach to any financial reform, but especially in the educational area where so little is known about the relationship between costs and quality.
Consider the following situation. A city with a large minority group population spends $1000 per pupil. A nearby wealthy suburb spends $1500 per pupil. Kids in the city schools fail; kids in the suburban school succeed. The courts step hi and equalize so that both spend $1500 per pupil. What changes? Do the good teachers from the suburb move to the city system? Not likely. Does the city import the successful programs from the white, middle-class suburb and improve achievement for its Black and Puerto Rican children? Not likely. Do the parents of the city school children suddenly have more impact on the operation of the city school bureaucracy? Not likely. Does the teachers union in the city suddenly decide to hold teachers contractually accountable for the success of the school children? Not likely. In short, opportunity in educational terms is unaffected by extra dollars. But even if this approach is accepted at face value, substantial faults remain. One springs from not considering school finance as part of the public finance system.
Schools and Government Finance
To propose massive school finance reform which ignores the remainder of the public finance sphere is self-defeating. School finance and budget decisions are not made in a vacuum.6 Neither can their reform succeed in isolation. It is long past the time when reformers should stop looking at the schools as operating outside the rest of government. The schools are not financed that way, they cannot operate that way, nor will significant reform be achieved with this narrow view. The authors acknowledge, grudgingly, that the schools are part of the public sector of the economy and are financed through taxes. But they persist in ignoring or discounting the need to deal with the whole public finance system. Because it is a system, no one part can be affected without reaction in the rest of the system. The authors cannot deny that all taxes come from the same pockets but counter with the statement that theirs is a "concern for children, not for taxpayers." This narrowness of approach leads further to a mishandling of the problem of municipal overburden.
Marginal Utility and Overburden
Under the power equalizing scheme a district with a 5 percent tax rate for municipal services would be treated the same as another with a 2 percent municipal tax rate. Obviously a 1 percent school tax is more effort in the first case than in the second. (The same applies, of course, to any other particular portion of the tax.) The authors identify this problem, called "municipal overburden," correctly as a special case of the general problem of marginal utilities. That is, it is easier for the rich to pay for some governmental service than it is for the poor. But their correct identification of the problem is a far cry from an adequate solution.
Their approach to the problem is twofold. They claim that (1) there is no ideal solution to the overburden problem because it is really a problem of wealth disparities in the society at large, and (2) some partial solutions to the problem are possible, but not particularly necessary. Their reasoning in the first case is faulty. To adjust for the problem of municipal overburden, it is argued, it is necessary either to power equalize or to centralize all governmental finances so that effort can be equalized. But, they argue, spending on municipal services is not distinguishable from private spending. A dollar spent on a new Chevrolet is no longer available for a policeman's salary. Any spending is more difficult for the poor than the rich, and thus to eliminate the marginal utility problem would require dismantling the free enterprise system and power equalizing everything.
Not so. Private spending is distinguishable from spending for schools. It is, for example, of little consequence to the state whether John Doe buys a new Chevrolet or a ten-year-old VW. The school finance system need not recognize these private spending decisions. But the state has a large interest in the education of Dick and Jane Doe. An equitable school finance program would insure that their access to quality public education is not limited by their family's ability to pay for it. To do this the finance system should take into account the family's wealth and the demands that public decisions (in the form of taxes) place upon that wealth. A power equalizing scheme could do this, as they point out, by a progressive formula which takes into account the level of taxation for other governmental services. These are all public goods and the state has an interest in assuring that the burden of one or any group of government services does not result in an underprovision of another.
Coons et al. argue further that the source of the tax which provides the state's share can help to alleviate the effects of municipal overburden. But the fallacy of their reasoning on this point can be seen in a comparison of cities with suburbs. In terms of wealth, or tax base, the cities often compare favorably with surrounding suburban areas, due to the fact that there tend to be large numbers of high income residents and concentrations of industrial and commercial properties in cities. The inequities in the system arise from two factors: the concentration in the cities of large numbers of poor, aged, and handicapped who require higher levels of governmental services, and the commonplace factors usually associated with municipal overburden (greater need for police and fire protection, services for commuters, etc.). While it is common to find the overall tax rates in cities substantially higher than in their suburbs, the cities usually provide approximately the same or lower levels of educational expenditures.7 If the city and suburbs have comparable tax bases, the overall incidence of some progressive tax instrument is likely to be the same for both the city and the suburbs. If these two areas have comparable wealth and comparable educational expenditures, they will receive, under the power equalizing plan, approximately the same subsidy from the state. The problem of municipal overburden remains. Total tax rates in the cities could be double those of the suburban areas and power equalizing would provide no relief.
Coons et al. argue that power equalizing of education which takes other municipal spending into account will prompt distortions in spending for non-educational programs and competition among localities for subsidized municipal services. The authors suggest, for example, that:
Districts without the overburden problem (municipal finance wealthy) could elect to turn more things over to municipal government ... in order to be rewarded with greater school funds.8
This is not likely. A district could, under such a scheme, increase the amount available for schools by increasing effort for non-educational expenditures. But this means, of course, higher tax rates; the added municipal services would not be "free" since the additional school funds produced would (presumably) be earmarked for use only in schools. The added school funds could not be used to lower either the school or non-school effort. Additional subsidy would come only at the expense of added tax effort. The increase of the subsidy would exceed the increase in tax effort by large proportions only in poorer districts where resources are limited and, therefore, little distortion would be expected. At that the authors patronizingly claim that a little extra money for education in the poor districts is to be preferred anyway. They do not elaborate on what evidence suggests that provision for education at the expense of, say, health care or fire protection is in the public interest.
In further discussion, the authors do offer some suggestions for municipal overburden corrections which show promise. But they conclude that:
... variations in personal wealth generally and the uneven distribution of municipal costs specifically may have a whole range of effects on school spending under power equalizing, some selectively hurting the poor by forcing them to choose poorer schools, some not. Hence it may be desirable to eliminate or temper some of their influences. But we decline to endorse this as a crucial initial step. Simple power equalizing meets the minimum standard of a democratic society.9
This approach betrays an unfortunate narrowness of vision. It is one thing to analyze the inequities in present school finance systems and to lay the groundwork for what an equitable finance system should accomplish. This the authors have done well by focusing on the schools themselves. And certainly, a power equalized school finance system is preferable to most present systems, even with the faults noted. But the need for straightforward, simple fiscal propositions to employ in court have lead the authors away from the necessary complexity and breadth of analysis. For example, we find another limitation, rooted in this narrowness, arising from their concern for local control.
Subsidiarity and Spillovers
Private Wealth and Public Education discusses the need for balance between the benefits of subsidiarity (local control) and the demands of equality.10 Its approach to school finance is an attempt to maintain subsidiarity and infuse equality in the system through state subsidy of poor districts. But the problem is not one of balance between subsidiarity and equality alone; sufficiency and quality must also be taken into account. The state has a vital concern for the maintenance of optimum provision for education because the effects of the educational system spillover to the state as a whole (and outside the state as well). A municipality should not be allowed, for example, to operate low quality garbage incinerators even if it so chooses. The obvious spillovers from improper garbage incineration provide a clear justification for some controls and administration from a larger governmental unit.
The same principle applies to education. Individual families or school districts should not be expected to take into account the spillover effects of educational expenditures. When they ignore these important benefits they tend to spend less than the social optimum for schools.11 Even the rich, therefore, can be expected to underinvest in education, regardless of the school finance system. Small unit autonomy, therefore, leaves the state (or nation) with the possibility of underinvestment and low quality in education.
How this critical point escaped Coons et al. is not clear. But it badly weakens their argument for subsidiarity in the choice of educational expenditure. Assumption of greater responsibility for both equalized and high educational expenditures by larger political units is justified to insure these spillovers will be taken into account. The family or school district does not have the unencumbered right to choose low levels of education for its children. The argument for more central administration is more substantial than their analysis shows.
In missing this point, the authors further reduce the value of what could have been a substantial contribution. And, as it turns out, the elaborate exercise in design of an alternative finance system for the courts was unnecessary in the California case. The court there found that a school finance system based on wealth was unconstitutional and could be voided without the judicial substitution of an alternative scheme.12 That task is left to the California legislature, as it should be. Of course, this contribution by Coons et al. is welcome, as would be any well documented proposal for school finance reform. The best solution can only be found through consideration of many alternatives. But constructing a system to fit the courts did not work, and perhaps there is a lesson in this: the best reforms of the schools and their finance system may not come from the courts at all. Instead, it seems, we must rely on grassroots work in legislation and comprehensive administrative change. The courts may set the guideposts, but the structure must come from professional and popular action.
1. In Seranno v. Priest (Sup. 96 Cal. Rptr. 601) the California Supreme Court held that the present system which relies heavily on local property taxes violates the equal protection clause of the Fourteenth Amendment. The Federal District Court for Minnesota reached a similar conclusion in Van Dusartz v. Hatfield, but the point is moot since the system in question for Minnesota was changed during litigation. In the case of Rodriguez v. San Antonio Independent School District a three-judge Federal panel overthrew the Texas school finance system on grounds of its alleged violation of the Fourteenth Amendment. And in Michigan, Governor Millikan has challenged the use of local property taxes for the financing of the public schools.
2. This is not to say that there is no relationship between school input variables and school achievement. That is not the question here. To advocate a simple equalizing of school expenditures requires a direct cost-quality relationship which does not appeal to any intervening variables (such as teacher quality). It is the evidence for this direct relationship which is inconclusive. For a review of related research see James Guthrie et al. Schools and Inequality. Cambridge, Mass.: M.I.T. Press, 1971.
3.The total expenditure for New York City in 1959-60 was $558 per pupil; in 1969-70 it was almost $1100. New York State Department of Education, Educational Finance Division Annual Report. Albany, N.Y.: Department of Education, 1960 and 1971.
4.See Victor G. Cicirelli et al. The Impact of Head Start: An Evaluation of the Effects of Head Start on Children's Cognitive and Affective Development (study conducted by Westinghouse Learning Corporation and Ohio University). Washington, D.C.: Office of Economic Opportunity, 1969; Education of the Disadvantaged, An Evaluative Report on Title I of the Elementary and Secondary Education Act of 1965. Washington, D.C.: U.S. Office of Education, 1970.
5.See Title I ESEA: Is It Helping Poor Children? Washington, D.C.: NAACP Legal Defense and Education Fund, Inc., 1969; George R. La Noue, "Church-State Problems in New Jersey: The Implementation of Title I (ESEA) in Sixty Cities," Rutgers Law Review, Vol. 22, Winter 1968, pp. 219-280; Comptroller General of the United States. Improved Administration Needed in New Jersey for the Federal Program of Aid to Educationally Deprived Children. Washington, D.C.: U.S. General Accounting Office, 1971. (Similar reports are available for Ohio and West Virginia.)
6.See Stephen K. Bailey et al. Schoolmen and Politics. Syracuse, New York: Syracuse University Press, 1962; and H.T. James, J.A. Kelly, and W.I. Garms. Determinants of Educational Expenditures in Large Cities of the United States. Stanford, Calif.: School of Education, Stanford University, 1966.
7.Advisory Commission on Intergovernmental Relations. State and Local Finances: Significant Fea' tures, 1967-1970. Washington, D.C.: U.S. Government Printing Office, 1969, p. 68.
8.John B. Coons, William H. Clune III, Stephen D. Sugarman. Private Wealth and Public Education. Cambridge, Mass.: Harvard University Press, 1970, p. 238.
9.Ibid., p. 242.
10.In the authors' words subsidiarity is, "the principle that government should ordinarily leave decision-making and administration to the smallest unit of society competent to handle them." Ibid., p. 14.
11.See, for example, Charles S. Benson. The Economics of Public Education. Boston: Houghton Mifflin, 1968, pp. 32-36; and Burton Weisbrod, "Spillover Effects of Expenditures on Public Goods," Journal of Political Economy, November, 1964, pp. 416-420.
12. Serrano v. Priest, op. cit.