Introduction

The U.S. system of education finance is characterized by large disparities in funding and opportunities for K-12 education among schools, local school districts, and states. These disparities have historical, constitutional, and social origins: states play a major role in financing education, local school districts bear significant responsibility for raising revenue for schools, the property tax is the primary source of local revenue for school districts, and property wealth varies significantly between districts within a state. As a result, districts with small property tax bases typically find it harder than those with large property tax bases to generate local revenue for schools. Compounding the problem, districts with more-costly-to-educate youngsters are often not the ones with the large property tax bases. Although the effects of low wealth or concentrations of costly-to-educate students have been partially offset by small amounts of aid from the federal government and larger amounts from state governments, significant disparities remain both within and between states.

Spending disparities, especially those within states, have inspired education finance reform efforts for decades. These reform efforts were initially driven by the belief that it was inequitable to have high levels of spending in some districts and low levels in others and, significantly, were quite separate from other reform efforts dealing with broader areas of educational policy. In recent years, however, questions about finance reform have increasingly been linked to questions about improving school performance. This linkage has taken on new importance in light of widespread dissatisfaction with the quality of American education, skepticism about the ways in which educational funds are used and distributed within the public school system, and growing awareness of the economic and



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1 INTRODUCTION Introduction The U.S. system of education finance is characterized by large disparities in funding and opportunities for K-12 education among schools, local school dis- tricts, and states. These disparities have historical, constitutional, and social origins: states play a major role in financing education, local school districts bear significant responsibility for raising revenue for schools, the property tax is the primary source of local revenue for school districts, and property wealth varies significantly between districts within a state. As a result, districts with small property tax bases typically find it harder than those with large property tax bases to generate local revenue for schools. Compounding the problem, districts with more-costly-to-educate youngsters are often not the ones with the large property tax bases. Although the effects of low wealth or concentrations of costly-to- educate students have been partially offset by small amounts of aid from the federal government and larger amounts from state governments, significant dis- parities remain both within and between states. Spending disparities, especially those within states, have inspired education finance reform efforts for decades. These reform efforts were initially driven by the belief that it was inequitable to have high levels of spending in some districts and low levels in others and, significantly, were quite separate from other reform efforts dealing with broader areas of educational policy. In recent years, how- ever, questions about finance reform have increasingly been linked to questions about improving school performance. This linkage has taken on new importance in light of widespread dissatisfaction with the quality of American education, skepticism about the ways in which educational funds are used and distributed within the public school system, and growing awareness of the economic and 1

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2 EQUITY AND ADEQUACY IN EDUCATION FINANCE social disadvantages facing individuals whose educational achievement is low. One manifestation of this broader concern has been the emergence of the com- paratively new legal paradigm of educational adequacy which emphasizes the adequacy, rather than the distribution, of resources available to districts and schools and of the educational outcomes they produce. This new paradigm of educational adequacy has spread rapidly in recent years and now serves as the foundation for many current court cases and legislative deliberations. Finance inequities and the linkages among education finance, school perfor- mance, and academic achievement were among the concerns that led Congress to ask the National Research Council to study the theory and practice of financing elementary and secondary education by federal, state, and local governments in the United States. The National Research Council responded by establishing the Committee on Education Finance. The key question posed to the committee was: How can education finance systems be designed to assure that all students achieve high levels of learning and that education funds are raised and used in the most efficient and effective manner possible? Although funding disparities and the adequacy of funding levels, which are the central concern of this volume, are one part of the puzzle requiring examina- tion, they must be considered in connection with other important questions about the education system. For example, while more equal funding across schools and school districts might be desirable, it does not assure that funds would be directed productively toward the goal of academic achievement, that students from advantaged and disadvantaged backgrounds would have equal opportunities, or that the educational opportunities for all students would be adequate to achieve the desired outcome of their full participation in the civil and economic life of the community. Efforts to equalize spending in order to enhance educational oppor- tunities for disadvantaged students have also raised other concerns, such as how much funding for education is sufficient for a state to meet its educational obligations. In developing our study, the committee had to consider an extensive amount of research literature on educational finance and educational reform. To help with this task, we have commissioned a number of papers. This volume presents a selected subgroup of these papers, ones that focus explicitly on issues pertaining to equity and adequacy in the U.S. education system. The authors examine the legal, economic, and political forces that influence the response of the education finance systems to shifting social concerns about racial discrimination, tax re- form, wealth differences, and the problems of inner cities in American society. The committee has chosen to publish these eight papers in advance of its final report so they may assist not only us but also the policymakers and scholars who grapple continuously with questions of equity and adequacy of school finance formulas. The papers make a significant and timely contribution to the literature on school finance reform by revealing important trends in the long struggle to reduce disparities and equalize educational opportunities. They suggest that we

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3 INTRODUCTION are beginning to understand how state education finance systems respond to court-ordered reforms and political forces within individual states. They reveal the complex dynamics of how school spending and school districts adapt to changes in state educational finance systems. They trace the evolution of finance reform based on concerns about funding equity and indicate some of the possi- bilities and pitfalls facing policy makers as equity-based reforms become increas- ingly concerned with the adequacy of the educational opportunities provided to children. The “shift toward adequacy” in school finance, as the papers in this volume suggest, begins to make explicit the link between the funding of schools and their educational performance. Yet these papers do not address in a direct way crucial questions about how the financing system does or could influence the behavior and effectiveness of schools. These questions are of central concern to the Committee on Education Finance, however, and will be addressed in our final report, scheduled for publication in late 1999. Each paper in this volume represents only the views of the individual au- thors. The papers were commissioned to inform the committee’s deliberations and were not designed to provide a comprehensive review of all issues related to equity and adequacy in education finance or to reflect the committee’s positions on these issues. Among other things, these papers do not address issues such as the impact of efforts to equalize funds on student outcomes, the relationship between spending and student performance, or the performance or behavioral incentives set up by general or categorical funding with the educational system. Signs of disagreement also exist within the papers, such as the strength of the relationship between the landmark equity cases in California (the Serrano cases) and the passage of Proposition 13 in that state (see, for example, comments by Minorini and Sugarman in Chapter 2 and by Evans, Murray, and Schwab in Chapter 3 of this volume). We recognize that many other critical concerns about educational finance are not addressed, such as the plight of disadvantaged stu- dents, the concentration of poverty in urban areas, the impacts of the growth and diversity of student populations, or the introduction of new technologies on the financing of U.S. education. These issues, and others, will be considered in our final report. The eight papers in this volume trace the history and current status of efforts to foster fairness in educational finance systems. The first paper, authored by Robert Berne and Leanna Stiefel, seeks to clarify and define concepts of school finance equity and to provide a firm conceptual framework for the papers that follow. Two lawyers, Paul A. Minorini and Stephen D. Sugarman, then examine the historical evolution, impact, and future of school finance litigation designed to foster equity in the allocation of educational resources among advantaged and disadvantaged districts. The catalytic role of the courts is documented in the third paper by econo- mists William N. Evans, Sheila E. Murray, and Robert M. Schwab. They show

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4 EQUITY AND ADEQUACY IN EDUCATION FINANCE that states facing court orders were more likely to reduce within-state disparities than states where reform was initiated by the legislature rather than the courts. Moreover they show that two-thirds of the current disparities in per pupil funding differences are attributable to cross-state differences rather than the within-state differences that can be addressed by court orders. Understanding why states differ in their ability to engage in successful fi- nance reform requires the political perspective brought by Melissa C. Carr and Susan H. Fuhrman. In Chapter 4, they describe the changing political landscape of education finance reform during the past 30 years and report on case studies of four states that highlight differences across states in their political environments and hence their ability to reduce disparities. The fifth paper, by economist Margaret E. Goertz and sociologist Gary Natriello, explores how finance reform is likely to affect spending for specific purposes. Three conclusions emerge from their analysis: (1) changes in school finance formulas increased local district spending levels; (2) changes in formulas equalized spending somewhat (which is consis- tent with the findings by Evans, Murray, and Schwab in Chapter 3 of this vol- ume); and (3), perhaps most importantly, school districts used new money pretty much the way they used old money. In tracing the origins of adequacy in education finance, Paul Minorini and Stephen Sugarman have prepared a second paper in this volume (Chapter 6) that explains how the adequacy strategy developed in school finance litigation, how it has been used in state courts, and how state courts have interpreted adequacy to date. Their paper emphasizes that although the courts can be powerful influences, they have limited power to determine the nature of state education systems. The fashioning of acceptable finance strategies is commonly left to state legislators, who must determine the goals and purpose of their state educational system and the resource allocations that are necessary to provide a fair and adequate educa- tion to children from both advantaged and disadvantaged backgrounds. The seventh paper, by James W. Guthrie and Richard Rothstein, who spe- cialize in education and public policy, describes the conceptual and technical challenges involved in operationalizing an adequacy standard and provides ex- amples of how several states are addressing these challenges. A key problem for the states is how to determine how much money a district would need to provide an adequate level of education. Guthrie and Rothstein describe and assess three approaches being pioneered by policy analysts and researchers. The final paper by William Duncombe and John Yinger, from the fields of public administration and economics, presents a technical analysis of one of these approaches, one that focuses on the differential costs of adequacy for different groups of students. The authors use a compelling metaphor to clarify the factors that affect the costs of education, that of providing comfortable shelter under varying weather condi- tions. But a tough question, which is beyond the scope of this paper, is whether the “technology” of education (input-output relationships) is as well defined as the technology of providing comfortable shelter. The Guthrie/Rothstein and

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5 INTRODUCTION Duncombe/Yinger papers differ in their assessments of the strengths and weak- nesses of efforts to define the costs of adequacy, reflecting the fact that these inquiries are in their infancy. Greater consensus about methods and magnitudes ought to grow as the efforts mature. Drawing on the fields of economics, education, law, political science, public administration, public finance, and sociology, the collection of papers suggests the breadth of ongoing dialogues about ways to understand and measure the significance and impact of selected forces in the educational environment. The multidisciplinary analyses within this volume provide a rich context for identify- ing key themes that shape discussions of equity and adequacy in education fi- nance and influence the decisions of economic, political, legal, and educational institutions. The Committee on Education Finance hopes that the insights and perspectives presented in the following papers will be useful to all who are concerned with the challenges of achieving fairness in school finance, establish- ing high standards of educational performance, and assuring equal educational opportunity for all students.

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