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4 Court-Mandated School Finance Reform: What Do the New Dollars Buy? Margaret E. Goertz and Gary Natriello As states reformed their education funding systems in the 1970s and increased their share of K-12 education funding, policymakers raised several concerns about how districts would use their new state aid. The first concern was that districts would use a portion of their increased state aid for tax relief, rather than for increased education spending, thus limiting the impact of school finance reform on expenditure equity and educational program improvement. The second concern was that the dollars allocated to education would be used primarily to increase teachers' salaries. Daniel Patrick Moynihan argued that "teachers will benefit. Any increase in school expenditures will in the first instance accrue to teachers, who receive about 68 percent of the operating expenditures of elementary and secondary schools" (Moynihan, 1972:75). Finally, state legislators worried that districts receiving large aid increases, particularly urban districts, would not use these new funds efficiently. One reaction to the 1990 school finance reform in New Jersey reflected this view: "Frankly it is hard to avoid the suspicion that, at this frenzied pace, the money won't be carefully directed, but will be shoveled hastily into the bottomless pit of New Jersey's disaster areas" (Sacks, 1990:A14). In spite of these ongoing concerns, we know little about whether and how school finance reform translates into enhanced educational services. This chapter uses data from intensive case studies of Kentucky, New Jersey, and Texas to answer three sets of questions about the impact of court-mandated school finance reforms on both education revenues and services: 1. How did low- and high-wealth districts respond to court-mandated state
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school finance reforms in the 1990s? Did the level of revenues available to districts from state and local sources change? By how much and why? Did expenditure patterns change? What did the new dollars buy? 2. What factors influenced these changes in revenues and expenditure decisions? What roles did state fiscal and nonfiscal education policies, district context, and district fiscal and administrative capacities play? 3. What are the implications of these findings for school finance reform policy and for research on the impact of finance reform policies? Although we present evidence on what the new dollars that flowed to school districts as the result of court-ordered finance reforms enabled districts to purchase, we cannot address the ultimate question of the impact of finance reforms on student performance. None of the studies considered here collected student achievement data. In New Jersey and Kentucky, changes in state testing programs during the study period make pre- and post-study period comparisons impossible. The chapter begins with a summary of three models of district response to changes in state education aid, followed by a brief description of the methodology used in the three state case studies. The next three sections report on (1) the fiscal response of districts in the three states to their 1990 school finance reform laws, (2) how districts chose to allocate new state aid dollars, and (3) what districts bought with these new dollars. In the concluding section, we examine the implications of our findings for policy and research. Throughout, our focus is on school finance equity as it was defined in court decisions during the early 1990s; we cannot address more recent issues of finance adequacy that are emerging in these and other states. Accordingly, for the most part, we employ theories and measures developed for equity analyses. Models Of District Response To Changes In State Aid Researchers have developed three models that are intended to explain how school districts respond to changes in available resources: intergovernmental grant theory, expenditure models, and decision-making models. This chapter relies on intergovernmental grant theory to understand how districts respond to changes in state aid; it makes use of expenditure models and decision-making models to interpret district responses to increases in resources. Clearly, the court cases reviewed here that attempted to change the way states raise and allocate dollars to districts are only one of a number of factors that affected district expenditure patterns during the early 1990s. Although we acknowledge that other factors also affected district actions, we do not review data on how spending might have changed in the absence of court cases, and so we restrict our analyses primarily to the impact of the court cases.
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Intergovernmental Grant Theory State or federal governments provide grants to local school districts in order to change the way they allocate resources. Unrestricted general aid is designed to increase the amount that communities spend on education generally; categorical grants are used to ensure that school districts provide services deemed important by the state or federal government. Unrestricted general aid increases a school district's revenues, but districts are free to use the new dollars in any way they see fit—to supplant local revenues and thereby reduce tax rates, or to increase overall education spending, thus providing more or better services. Past research on the effects of unrestricted intergovernmental grants for education has shown that school district spending increased by only a portion of the increase in state aid. The rest is devoted to local property tax relief. Tsang and Levin (1983) reviewed much of the research conducted in the 1960s and 1970s on district response to changes in unrestricted general education aid. By examining the different studies and different states, they found that, on average, school districts used about half of the increases in state general education aid on educational programs and about half to reduce local tax rates. Districts that received large increases in state aid as part of New Jersey's 1975 education finance reform, however, directed most of their new funds—about 85 percent on average—to education rather than to tax relief (Goertz, 1979). Districts with high levels of fiscal burden or relatively high spending levels took more tax relief than less-burdened or lower-spending communities. In her study of New York, Adams (1980) also found that high-wealth districts were more likely to use increased state aid to reduce local tax burdens than their low-wealth neighbors. Expenditure Models How do school districts allocate these expenditure increases? Do they use new dollars to raise teacher salaries, to increase the intensity of instructional services, to expand the ''administrative blob," or for other activities? Cross-sectional analyses of districts with different spending levels (Alexander, 1974; Barro and Carroll, 1975; Hartman, 1988; Odden et al., 1979) and longitudinal studies of district response to major school finance reforms in California (Kirst, 1977) and New Jersey (Goertz, 1979) generated the following findings about how districts use increases in their education budgets. First, expenditures for administration increased at a lower rate than total spending. Second, while districts spend a comparable percent of their budgets on instruction—around the national average of 60 percent of operating budgets—higher-spending districts purchase a different mix of instructional services than low-spending districts. As spending levels increase within a state, districts tend to use the additional money to hire more teachers and to increase nonteaching components of the budget, such as specialists and supplies and equipment. As a
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result, high-spending districts have lower pupil/teacher and pupil/staff ratios than their lower-spending neighbors. Third, contrary to the Moynihan thesis, only a small portion of each additional dollar is spent on higher teacher salaries. Alexander (1974) found than less than half and Barro and Carroll (1975) found that less than one-third of increased expenditures on teachers were used to increase salaries. Kirst (1977) found that under Senate Bill (SB) 90, the increase in teachers salaries in the poorest California districts actually fell below the average increase in the state (8.24 percent versus 8.45 percent). Goertz (1979) found similar patterns in the aftermath of New Jersey's 1975 finance reform law. Salary increases in districts that received at least a 25 percent increase in state aid were lower than the statewide increase: 11.8 percent versus 13.2 percent for a two-year period. Decision-Making Models We know far more about how school districts allocate increases in state aid than why districts make these tax and spending decisions. Kirst (1977) examined the decision-making process of five districts in the wake of SB-90 and determined that an organizational model (rather than an economic or political model) best explained the allocation decisions in these districts. Searches for alternative uses of new dollars were limited to past expenditure patterns and current educational approaches in these and neighboring districts. The particular types of new instructional personnel and programs funded by these five California districts reflected district priorities and pent-up demands—programs that had been considered but not funded in the past. Firestone and colleagues (1997) use a modified version of Firestone's (1989) "ecology of games" to explain how school districts use new resources generated by school finance reforms. School finance reform comprises at least four games: the court, state politics, state policy, and local administration. Each game is played on its own terms, but each depends on other games for resources, regulations, demands, and so forth. In determining how to spend new state aid dollars, districts respond to two contexts—their community and state policy. The community provides students and funding based on available property wealth and community support. The state policy context includes fiscal policy, nonfiscal policies (such as state standards and assessments), and the ways that the state administers these policies (including oversight and technical assistance). These two contexts are mediated by the school district's own context, including its administrative culture, existing spending levels and patterns, and the status of district capacities (personnel, teaching, social services, and facilities) before the school finance court decision. These approaches are consistent with institutional theories that argue that organizational decisions are driven by a need to maintain legitimacy in the wider environment (Meyer and Rowan, 1977; Powell and DiMaggio, 1991). From this
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perspective, organizations such as school districts may be even more responsive to immediate external forces related to efficacy and efficiency as long as doing so does not violate the expectations and assumptions held by important elements in the external environment. In summary, prior research has shown that some new state aid is used for tax relief. But, contrary to Moynihan's hypothesis, in the 1970s new dollars were not absorbed disproportionately by salaries for existing teachers, thereby increasing the price of existing services. Rather, it appears from these studies that low-spending districts modeled the behavior of the wealthier districts; that is, they did "more of the same" with their new state aid dollars—lowered class sizes, provided additional support services, and purchased more instructional materials and equipment. Specific district decisions, however, reflect local context. Methodology This chapter draws on studies of Kentucky, New Jersey, and Texas conducted by the Finance Center of the Consortium for Policy Research in Education (CPRE) and the Center for Education Policy Analysis—New Jersey (CEPA-NJ) at Rutgers University in the aftermath of these states' court-mandated school finance reforms.1 The heart of these studies is a set of qualitative case studies that examined district response to reform in a small number of school districts in each state: two low-wealth and two high-wealth districts each in Kentucky and Texas; six low-wealth urban, two moderate-wealth suburban, and four high-wealth districts in New Jersey. The districts were selected to reflect variation in community wealth, district size, urbanicity, and geographic location within each state. Researchers interviewed district superintendents, finance officers, and other central office staff and analyzed annual financial reports and budgets in each of the study districts. District-level data were supplemented in New Jersey with interviews and surveys of staff in a sample of schools in each of the study districts. All three studies used 1989-90 as a base year. This was the year immediately preceding the implementation of new finance laws in Kentucky and Texas, and two years preceding the implementation of New Jersey's reform law. The Kentucky and Texas cases tracked districts through 1992-93; the New Jersey research continued through 1993-94. The researchers also used statewide databases to examine changes in the overall equity of these states' funding systems between 1989-90 and 1992-93 using traditional school finance equity measures (Berne and Stiefel, 1984). These studies have several limitations that affect the analyses presented in this chapter. First, the sample of case study districts is not representative of districts in any of the three states, so we cannot generalize from the case study data to all districts in each state. The qualitative data do provide insights, however, into how and why poor and wealthy districts respond to major changes in
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school funding laws. We have analyzed statewide data wherever possible to see whether these patterns hold over a larger number of districts. Second, we have limited data on the impact of finance reforms on schools in New Jersey, and none in either Kentucky or Texas. The school-level data in New Jersey are drawn primarily from a teacher survey that focused on changes in curriculum, instruction, and teaching conditions; the survey was supplemented by interviews with the school principals, in four to eight schools in each of the study districts. Impact Of School Finance Reforms On School District Revenues The school finance laws enacted in Kentucky, New Jersey, and Texas were designed to respond to their respective court mandates. Court decisions in Kentucky (Rose v. Council for Better Education, 1989) and New Jersey (Abbott v. Burke, 1990) emphasized student equity and adequacy.2 The Kentucky court called for a funding system that was "adequate" and "substantially uniform," and that would provide "equal education opportunity" to all children, but would allow local districts to supplement the state's uniform, equal educational effort (Adams and White, 1997). The New Jersey decision focused on inequities between the state's poor urban and wealthy suburban communities, and required the legislature to equalize education spending between these two groups of school districts. In contrast, the Texas decision (Edgewood v. Kirby, 1989) emphasized fiscal neutrality, requiring that all districts have "substantially equal access to similar revenues per pupil at similar levels of tax effort."3 Table 4-1 presents the key components of the basic education funding formulas that were implemented after the court decisions and compares them to the systems in place prior to the courts' actions. Both Kentucky and New Jersey made major changes to their school funding formulas. Kentucky replaced what was essentially a flat grant system based on classroom units4 with a cost-shared foundation formula5 and an optional guaranteed tax base.6 New Jersey substituted a foundation formula for a guaranteed tax base system. Texas did not make structural changes to its allocation formula but substantially increased the foundation levels, required local contribution, and guaranteed yield. The major change was the establishment of county education districts (CEDs) to raise local property taxes, essentially creating a county-level recapture provision.7 In addition, all three states increased their support of programs for special needs students. Kentucky and Texas included program weights for students with disabilities, at-risk students, and students with limited English proficiency (Texas only) in their foundation formulas. Kentucky also added separate categorical grant programs for extended school services, preschool for at-risk children, and family resource and youth service centers. New Jersey retained separate categorical aid formulas for special education, at-risk, and limited English proficient students but substantially increased funding of these programs.
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Changes in State Aid All three states increased state aid to education significantly between 1989-90 (pre-reform) and 1992-93 (post-reform), ranging from 31 percent in New Jersey to 35 percent in Kentucky and Texas. As shown in Table 4-2, most of the new aid was targeted on low-wealth school districts. In Kentucky, for example, the lowest-wealth quintile received, on average, $1,145 per pupil more in state aid—a 66 percent increase—compared with a $190 per pupil increase in the highest-wealth quintile (an 11 percent change). Similarly, districts in the two lowest-wealth deciles in New Jersey saw their state aid allocations increase, on average, $2,151 and $2,009 per pupil—a 46 percent and 54 percent gain, respectively. The two highest-wealth deciles lost small amounts of state aid, representing less than 5 percent of their state aid. In Texas, state aid increased $1,219 per pupil in the lowest-wealth decile, a 48 percent jump. State aid losses in the higher-wealth districts were aggravated by the loss of local property tax revenues through the county equalization system. Evans, Murray, and Schwab (Chapter 3, this volume) found similar patterns in their analysis of 16 states with court-mandated school finance reform. Low-wealth communities were not the only winners in these states. Districts in the second and third quintiles in Kentucky and in the third through sixth deciles in New Jersey and Texas also received large dollar and percentage increase in state aid. The gains result from the operation of these states' new foundation formulas; in Kentucky and New Jersey, the post-reform foundation level was above the average spending level of the middle-wealth districts prior to reform. Middle-wealth districts in Kentucky and Texas also benefited from the guaranteed tax base (GTB) add-on provisions in their formulas. District Response to State Formula Changes The impact of increased state education aid on school district spending is influenced by three factors: the size of the state aid increase, local taxing decisions, and the limits imposed by tax or expenditure caps. Our review of earlier research studies showed that increases in state aid do not automatically flow to educational services for students. Other demands are made on these dollars, including a press for tax relief. Table 4-2 shows, however, that school districts in all categories of wealth in the three study states generally increased their local tax rates in response to changes in state funding formulas. Three factors account for these changes: (1) required local effort provisions in the state aid laws, (2) fiscal incentives to spend above the foundation level, and (3) demographic, cost, and programmatic pressures on school districts. All three states enacted foundation formulas that require districts to contribute a specified amount of local revenues, often called a required local effort (RLE). Required local efforts are usually specified as minimum tax rates, which are applied to local property tax bases and, in some states, to local income wealth.
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TABLE 4-1 Basic Education Funding Formulas in Effect, 1992-93: Kentucky, New Jersey, and Texas Base Tier 1 Tier 2 Kentucky: Kentucky Education Reform Act (1990) Foundation formula. Foundation level at $2,420; required local effort of 3 mills. (optional) Up to 115% of the foundation level; equalized at 150% of property wealth. Vote required. (optional) Up to 130% of the Base plus Tier I: no equalization. New Jersey: Quality Education Act (1990, as amended in 1991) Foundation formula. Foundation level at about $6,100 per pupil (K-5); required local effort of about 11.6 mills. (optional) Up to district budget cap; no equalization. Vote required. Texas: Senate Bill 351 (1991) Foundation formula. Foundation level at $2,400 per WADAa (which is equal to $3,441 per ADA); required local effort of 8.2 mills. (optional) Guaranteed yield of $22.50 per WADA ($29.24/ADA) per 0.1 mills between 8.2 and 12.7 mills. Vote required. (optional) Between 12.7 and 15 mills. No equalization. Vote required. Recapture through County Education Districts. WADA, weighted average daily attendance; ADA, average daily attendance. a Student counts are modified by special program (e.g., compensatory education) or instructional arrangement (e.g., grade level) weights. The reform laws in both Kentucky and Texas increased districts' RLEs substantially: from 0 to 3 mills in Kentucky and from 3.4 to 8.2 mills in Texas. Nearly half of the school districts in Kentucky had been taxing below their RLE prior to the Kentucky Education Reform Act of 1990 (KERA). Thus, they had to raise their local tax rates to meet the new state minimum (Adams and White, 1997). The situation was different in Texas, where most districts were already taxing at close to the new effort level. Many high-wealth districts had to increase their taxes, however, to meet the requirements of the county equalization program. In New Jersey, the "fair share" requirement of the Quality Education Act (QEA), coupled with budget caps, put a floor on how much tax relief the high-taxing, poor urban districts could take. Kentucky and Texas incorporated voluntary GTB add-ons in their new funding
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Formula It Replaced Changes in State Aid (1989-90 to 1991-92) Kentucky: Kentucky Education Reform Act (1990) Essentially a flat grant based on classroom units tied to a state minimum salary schedule. State aid increased $541 million or 35%. New Jersey: Quality Education Act (1990, as amended in 1991) Guaranteed tax base formula. Expenditures equalized up to 65th percentile; equalized at 128% of property wealth. State aid increased $1.02 billion or 31%. Texas: Senate Bill 351 (1991) Same formula structure with lower foundation amount ($1,477) and required local effort (about 3.4 mills), and lower Tier 1 guaranteed yield (about $18.87) and tax effort limit (between about 3.4 and 5.75 mills). State aid increased $2,105 billion, or 35% SOURCES: Table compiled from data from the following: Kentucky (Adams and White, 1997; Koch and Willis, 1993); New Jersey (Goertz, 1994); Texas (Picus and Toenjes, 1994; Texas Education Agency, 1991, 1993). programs as an incentive for districts to spend above the minimum foundation level. This provision was successful in both states. All but two of Kentucky's 176 school districts participated in the Tier 1 program to some degree (Koch and Willis, 1993). Many poor districts in Texas also increased their tax rates to take advantage of that state's second tier of aid (Picus and Toenjes, 1994). In fact, the level of participation in both states was so high that demands for additional state aid exceeded the funds allocated for the add-on provision.8 This led both states to reduce funding allocations through proration. In Texas, the proration represented nearly 10 percent of state aid in 1992-93, leading many districts to raise their tax rates even higher (Picus and Toenjes, 1994). Finally, district taxing decisions reflected the interaction of changes in state aid and local contexts. For example, high-wealth districts in New Jersey and
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TABLE 4-2 Changes in State Aid per Pupil, Local Revenues per Pupil, Tax Rates (in mills), and Total Revenues per Pupil, 1989-90 to 1992-93: Kentucky, New Jersey, and Texas Kentuckya Wealth Decilec Change in State Aid Change in Tax Rate Change in Local Revenue Change in Total Revenue 1 2 $1145 1.6 $ 211 $1355 3 4 825 1.4 252 1077 5 6 653 1.3 276 929 7 8 405 1.0 385 790 9 10 190 1.2 328 518 State average 639 1.3 288 927 Change in Property Value per Pupil +16.7% a Data were reported in quintiles, rather than deciles. Revenues do not include transportation and categorical grant programs, such as preschool and extended school programs and include intrastate cost adjustments. b Change between 1988-89 and 1992-93. c Each decile (and quintile) has approximately the same number of students. Texas that lost state aid (and in the case of Texas, lost local revenue through county equalization) raised their tax rates to offset these reductions. They raised their rates even higher to address growing enrollments, increased program costs (due to salary settlements, inflation, and the growth in the number of special needs students), and/or declining or stagnant property valuations. For example, the four high-wealth districts in the New Jersey study raised their local taxes so they could maintain growth in their school budgets (adjusted for enrollment growth) of between 2 percent and 6 percent a year (Firestone et al., 1997). One of the two high-wealth districts in the Texas sample raised its taxes 33 percent. The funds available after accounting for a shortfall in state revenues were used to support its strategic plan for school improvement. The second high-wealth district was forced to increase its taxes just to maintain its spending level (Picus, 1994). In New Jersey, a poor economic climate in the early 1990s depressed property valuations and dampened public support of rising school budgets, especially
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New Jersey Texasb Wealth Decilec Change in State Aid Change in Tax Rate Change in Local Revenue Change in Total Revenue Change in State Aid Change in Tax Rate Change in Local RevenueChange in Total Revenue 1 $2151 -0.3 $10 $2161 $1219 3.6 $-73$1147 2 2009 0.4 129 2138 940 2.8 192987 3 1509 0.6 7 1516 793 2.4 -37757 4 783 2.3 582 1365 500 2.4 101601 5 946 2.3 608 1554 506 3.0 202707 6 803 1.9 556 1359 422 2.5 28450 7 415 2.7 957 1371 264 3.0 167431 8 90 2.6 967 1055 -177 4.5 659481 9 -18 2.6 1340 1323 -227 2.7 330101 10 -69 1.8 1663 1594 -196 4.5 425229 State average 766 2.1 742 399 399 3.4 201600 Change in Property Value per Pupil -4.5% -14.6% SOURCES: Table compiled from data from the following: Kentucky (Adams and White, 1997); New Jersey (Goertz, 1995; reanalysis of NJSDE data by Goertz); Texas (Texas Education Agency, 1991, 1993). in the wealthier communities. School budgets were defeated at the polls, and many wealthy districts chose to keep their spending levels below those permitted under state budget caps (Firestone et al., 1997). In Texas, per-pupil valuations dropped nearly 15 percent between 1989 and 1992, limiting the average per-pupil increase in local revenues to $200, in spite of a 30 percent increase in tax rates. In contrast, increased state aid for most districts (and a save-harmless provision for the very wealthiest communities) coupled with growing property valuations and continued public support for education led to increased revenues across the board in Kentucky (Adams, 1994; Adams and White, 1997). Changes in Revenues and Revenue Equity The interaction of new finance structures, increased state aid, and rising tax rates resulted in substantially more revenues for school districts in Kentucky,
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New Jersey Texas Materials and Resources High-wealth and middle-wealth districts reported minor delays in purchases of materials and resources. Low-wealth districts reported modest increases in the purchase of such materials. Respondents in low-wealth districts reported that they could purchase the supporting materials for new textbook series for the first time in years. One high-wealth district deferred plans for purchasing new technology. One low-wealth district devoted about $1 million to technology improvements, partially for instructional purposes and partially for management systems. None of the districts indicated that it would use funds to purchase materials to supplement state-adopted textbooks. Program Low-wealth districts added elective offerings to the curriculum, established new programs for students in need of special assistance, added more challenging programs for students who could benefit from them, and modified the curriculum to respond to the new high school graduation test. High-wealth and middle-wealth districts made less dramatic changes, at times involving minor reductions. Low-wealth districts also invested in extended day programs (e.g., after-school homework centers), extracurricular activities (e.g., high school clubs), early childhood education (e.g., full-day kindergarten, pre-kindergarten), and health and social services (e.g., parent programs, counselors, school-based health centers). High-wealth and middle-wealth districts made few or no changes in these areas. Both low-wealth districts planned programmatic changes. One low-wealth district made organizational changes to improve the quality and quantity of staff development for teachers. The other low-wealth district was able to use new general revenues to support programs previously supported with Chapter 1 funds; the released Chapter 1 funds were used to establish a parent-involvement program. New funds were also used to establish an Instructional Monitoring Program which placed central office staff in school sites on a regular basis and to establish a year-round education program to provide remedial education to students having difficulty. One high-wealth district that experienced a funding reduction reduced central office staff and hired fewer replacement teachers. The other high-wealth district that received new money from a local property tax increase initiated curriculum improvement activities at the school site level. Facilities One low-wealth district made facilities construction a top priority and minimized increases in other areas to build two new structures and renovate other buildings to increase space as a prerequisite to expanding programs. Two other low-wealth districts refurbished buildings, and another district improved high school science labs and established new computer labs. There were no dramatic changes in facilities in the middle-wealth and high-wealth districts. One low-wealth district used most of its new funds to build a new middle school and to improve other facilities. The other low-wealth district did not use new money for facilities. One of the high-wealth districts used funds to upgrade school facilities.
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Materials and Resources Low-wealth districts in all three states devoted additional funds to materials and resources in support of their regular instructional programs. Expenditures for technology, an area often emphasized in state education reform efforts, were a priority in many districts. Other districts increased purchases of ancillary materials in support of new text series that incorporated new approaches to the teaching of reading, mathematics, and science. Programs In all three states low-wealth districts used the additional funds provided by the finance reforms to increase their program offerings. Most low-wealth districts added special programs to enhance the learning of at-risk students. These programs sometimes extended the school day and at other times extended the domains in which schools typically operated to include social and health services. District investments in programs were often in response to the mandates of state reform or changes in the state assessment program. Facilities Finally, low-wealth districts in all three states used some portion of their new funds to address facilities needs, including the construction of new buildings and renovation of existing buildings. These investments responded to years of deferred maintenance and unmet facilities needs, as well as a need to house new students and new programs. Districts were most likely to commit new resources to facilities when they were confronted with enrollment growth and when the present state of facilities posed barriers to the implementation of new programs and services. Summary Low-wealth districts in all three states used the additional resources they received to increase salaries and personnel, to augment staff development efforts, to add new technology and other resources, to implement new programs, and to refurbish old facilities and build new ones. In making these decisions, district leaders were responding to multiple forces, including enrollment growth and new state standards and requirements. At a time in the early 1990s when states were beginning to develop performance standards and loosen the regulations on how monies could be spent, we might have anticipated that the confluence of these developments would lead districts to use dollars differently to maximize performance. However, it appears that at least in this early stage the spending norms
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were so strong that departures from the patterns of spending evident in higher-performing neighboring districts were not seriously entertained. Implications For Policy And Research In this concluding section, we consider the implications of our findings for the design of new school finance systems, and for research on the impact of finance reform policies. We identify four key themes drawn from our analyses of finance reform in Kentucky, New Jersey, and Texas. We suggest that despite differences in local contexts, district spending patterns become more similar in the wake of reform. We note that, in addition to the level of funding, the perceived stability of funding affects spending decisions in local districts. We consider both the need for and the limitations of linkages between state education reform plans and state finance plans. Finally, we identify areas in which additional research might advance efforts to develop school finance policies that lead to school improvement. Context and Consistency Local district responses to finance reform can be characterized in terms of two superficially contradictory trends. Local districts in these three states were influenced by local contextual issues in distributing the additional resources made available through finance reform. At the same time, these new local allocation decisions resulted in patterns of resource utilization that were quite consistent from district to district. How can both these trends be true? Local districts react to a host of local, state, and national contextual factors in shaping their decisions on the allocation of resources in the wake of finance reforms. District responses to increases or decreases in funding are influenced by the following: other state education policies, particularly in the areas of curriculum, assessment, and accountability; demographic trends in the districts (e.g., enrollment changes, changes in the composition of the student body); local governance structures; and the status of education programs in the districts. Although there was relative consistency in the way districts used new resources, particular allocation decisions were driven by particular local configurations of needs. For example, districts that had neglected their facilities when funds were scarce or that had experienced rapid enrollment increases identified facilities as a major priority for new expenditures. Districts with less severe and immediate facilities problems were able to devote more of the new dollars to program enhancements. At times facilities needs restricted program development, as when districts found themselves unable to offer full-day kindergarten or pre-kindergarten because they lacked physical space for more classes of students. If districts are responding to local contextual issues in the allocation of resources, how do the district-to-district patterns of resource allocation become
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quite similar? Local districts apparently share a similar model of optimal resource distribution and utilization. Districts that receive infusions of state aid look to higher-spending/higher-performing districts for models of how to use these new dollars. These expenditure models are very traditional: lower class sizes; improved facilities; and increased professional development, equipment, and instructional materials. The spending decisions of poor districts were not capricious. One of the reasons that spending patterns appear similar in all three states is that districts receiving new funds are modeling their spending decisions after those of districts deemed to be more successful. Perhaps the best explanation for this pattern of activity comes from institutional theory. The central project of the new institutionalism is to show how, independently of efficiency demands, organizations adopt specific forms and structures to maintain their legitimacy (Powell and DiMaggio, 1991; Rowan, 1982; Tolbert and Zucker, 1983). Regardless of their contribution to organizational effectiveness, such forms constitute legitimating myths that give organizations credence, the perception that the organization is doing the right thing, in the outside world (Meyer and Rowan, 1977). Adoptions for legitimation can come through three means: coercive isomorphism where pressures are brought to bear—often through government mandates—to take on certain characteristics, copying successful organizations in the same field, and normative pressures from the spread of professionalism (DiMaggio and Powell, 1983). All three of these can be observed in the case of school finance reform. State governments have influenced local school districts in their spending patterns through mandates for certain programs as well as through setting expectations for what constitutes legitimate expenditures. Local districts do appear to copy well-financed and more successful (in terms of student outcomes) counterparts in other communities. Finally, professional staff throughout local districts are influenced by national professional movements that establish standards for professional practice. Each of these processes influences the resource allocation decisions in local districts. However, the efficacy of poor and urban districts adopting the spending profiles of wealthy and suburban districts remains to be determined. Dollars and Sense Local district responses to state finance reform are influenced not only by the actual changes in the dollars available for education, but also by the ways that district leaders perceive the probable future of state funding. The change embodied in each reform is a reminder of the dependency of districts, particularly poor districts, on state actions often beyond their control. To the extent that state revenues are perceived as unstable and unpredictable, districts avoid new expenditures with long-term commitments. Districts also were deterred from long-term planning by the perceived instability of state funding. District responses reflect local perceptions (and realities) of the instability of
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state reform dollars. Therefore, districts are more apt to spend new dollars on "one-shot" expenditures, like equipment and facilities. Local districts in Kentucky, New Jersey, and Texas experienced a significant change in state policy with the finance reforms. Consequently, district leaders questioned the stability of the newly reformed arrangements and avoided long-term resource commitments. This cautious approach proved prescient in New Jersey and Texas, where reform laws lasted only two years. The New Jersey legislature modified the Quality Education Act between its initial passage and implementation, reducing the amount of aid targeted to the special-needs districts and requiring these districts to revise their spending plans on short notice. The major provisions of this amended QEA were in place only 2 years before politics placed the law on hold and subsequent judicial action required more changes. The Texas school finance formula was changed three times in 4 years in response to state court decisions. It is not surprising, then, that one low-wealth Texas district chose to use 80 percent of its state aid increase on facilities and technology (Picus, 1994). The perceived instability of state reforms clearly constrains local decision-making, and the effects of such constraints may lead to less than optimum spending decisions. Finance Reform and Education Reform New dollars are put to better use in districts that have a vision and plan for education reform. Strategic plans for the use of new funds are critical for obtaining the support of taxpayers (especially if a tax increase is required) and for mediating competing claims for these new resources. Not surprisingly, districts with strong leadership are more likely to develop these kinds of plans. But states can help districts identify needs and establish priorities for the use of new state aid. For example, as part of the New Jersey finance reform, each low-income district was visited by a team of outside reviewers who prepared a plan containing a list of priorities. The Kentucky education reform that accompanied that state's finance reform contained a great deal of specific guidance regarding the direction and content of district reform. Similarly, Texas districts used new dollars to respond to that state's class size and assessment and accountability policies. Despite these examples of state actions to assist districts in shaping a vision for school reform, the relationship between finance reform and education reform remained separate at the state level in Kentucky, New Jersey, and Texas. No attempts to directly link state standards to foundation level funding emerged, even in Kentucky where education reform and finance reform occurred simultaneously. It is perhaps not surprising, then, that researchers did not find many examples of standards-driven resource allocation decisions at the local level beyond generalized responses to state and national curriculum reform standards, such as aligning curriculum and purchasing related instructional materials. Where
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there were some examples of linkages between finance reform and education reform, as in Kentucky, they were in response to categorical funding for things like preschool and extended day services. As states move forward, the trade-off between linking finance reform to education reform and allowing districts sufficient discretion to make appropriate allocation decisions needs to be made more explicit. There is increasing interest in connecting finance reform to education reform and using the former to drive the latter. It is certainly possible to devise finance reform strategies that are connected to education reform goals; this is the theory behind the use of categorical grants. However, the diversity of local district conditions and contexts requires a host of resource allocation decisions to be made at the local level to insure the most efficient and efficacious use of resources. The constraints imposed by highly specified, state-level finance systems may exact a price in terms of local district efficiency. The challenge is to design state finance systems that move local districts in reform directions while allowing for the most efficient and effective distribution of resources. The danger for prescriptive state finance systems is that they might achieve control without coordination or without an appreciation of the local context. New Dollars and New Data There is limited research on how and where districts spend new state aid dollars in the aftermath of major school finance reforms. Further research requires the collection of quantitative data by expenditure function and object (particularly salaries) and on the numbers and type of staff districts employ. Current financial reporting procedures obscure the level and type of reform activities undertaken at the district and school level (Adams, 1994). Therefore, we must continue to rely on qualitative data collection to understand what new dollars buy programmatically, how educators use reform dollars to improve educational programs, and the factors that districts identify as influencing their resource allocation decisions. The development of better program-level accounting and of school-level finance data should help (Busch and Odden, 1997). But, because of the complexity of the factors that contribute to spending decisions, no one decision-making model can predict or explain changes in district expenditures and resource use. Even with the collection of additional data on school district expenditures, a number of factors make the determination of "reform dollars" (i.e., dollars intended for reform) difficult. First, comprehensive finance reform involves modification of more than one aspect of a finance system and makes identification of the net effects difficult. These multiple modifications at times reinforce a particular direction and at other times operate inconsistently. Moreover, the multiple alterations to a system often have different effects in different kinds of local districts. For example, a reform that adjusts the foundation formula and restructures
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categorical programs may lead to very different outcomes for districts that have slightly different student populations. Second, changing local circumstances can check the intended effects of particular elements of a reform. For example, rapid changes in student enrollment can lead to very different consequences depending upon the nature of the linkage of funds to enrollments. Third, local district finance and accounting systems may not have the capacity to track income in terms of "old" and "new" dollars and so may not allow analysts to reconstruct the connection between new dollars and reform-related expenditures. All of these factors mean that the concept of "reform dollars" may be more appropriate as a rhetorical device than useful as an analytic category for tracking the impact of finance reform. The research reported in this chapter confirms Kirst's (1977) finding that school district administrators use organizational models, rather than rational microeconomic concepts, in making resource allocation decisions. This is due, in part, to the limited applicability of these microeconomic models in education. As Jesse Burkhead noted, [even] if school administrators had knowledge of or interest in the marginal productivity of resource inputs … it could not be assumed that it would be possible to secure least-cost combinations, given the institutional rigidities of mandates and conventional practice. Neither is there a reasonable substitute for the objective function of profit maximization. Thus the optimization rationale that underlies production functions in the private sector is inapplicable for elementary and secondary education (1973:198). Assessing the impact of changes in state funding on student outcomes will require researchers and policymakers to identify and track important intermediate outcomes, such as changes in the size and mix of educational staff, size and quality of facilities, instructional and student support services, and classroom curriculum and instruction. At the moment, the determination that certain intermediate outcomes of finance reform are important for producing student learning rests on a foundation of assumptions with varying degrees of support from empirical research. As we discussed above, movement along the equity dimension drives poor districts to emulate wealthy districts in their spending patterns. But the determinations as to whether continued progress toward equity for poor districts will lead to the most efficient use of new dollars in these districts require consideration of several factors. First, the efficiency of spending in wealthy districts needs to be determined through empirical research. Several efforts are now underway (see Guthrie and Rothstein, Chapter 7 in this volume) to develop different models of efficient spending that can be related to a definition of adequacy in state school finance. A second fruitful line of research might be to work from the emerging models of whole-school reform to develop their implications for resource requirements and expected outcomes and to determine their relative efficacy in low-wealth districts.
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Such models were not available to district leaders during the early 1990s when the new funding discussed here became available. A third approach is to build on current efforts to formulate the cost differences between rich and poor districts and determine whether major variations in student or school characteristics create different models of efficiency for rich and poor districts (see Duncombe and Yinger, Chapter 8 in this volume). At the moment, the absence of multiple studies that can yield empirical information in each of these three areas presents a major challenge to evaluations of the efficiency of current spending patterns in different types of districts. Improvements in our understanding of the variations in the nature of schools, students, and reform efforts within different states will contribute to the future models of school spending that can be used as the basis for determinations of efficiency of both current and new dollars. In the interim, we should exercise caution in assuming that all district spending patterns are driven by similar forces, especially in areas characterized by significant economic transitions, residential instability and demographic changes, or large concentrations of students with special characteristics or needs that have cost implications. Notes 1. The CPRE research was funded by a grant from the U.S. Department of Education, Office of Educational Research and Improvement (Grant R117-G10039). CEPA-NJ's study of New Jersey was funded by the Mellon Foundation, the Pew Charitable Trusts, and the Rockefeller Foundation. 2. See Rose v. Council for Better Education, Inc., 790 S.W.2nd 186 (Ky. 1989) and Abbott v. Burke, 119 N.J. 287 (1990). 3. See Edgewood Indep. Sch. Dist. v. Kirby, No. 362, 516 (259th Dist. Ct. Tex., 1987), rev'd 761 S.W.2d 859 (Tex. Ct. App., 1988), rev'd 777 S.W.2d 391 (Tex., 1989). 4. The prior funding system used a foundation formula structure, but there was no required local effort. As a result, there was little wealth-based variation in the allocation of state aid (Koch and Willis, 1993). 5. A foundation aid formula guarantees that each student's education is supported by a state-prescribed amount of money or foundation. School districts must contribute to this foundation amount, typically by levying a state-established tax rate. State aid is the difference between the foundation amount and the district's required contribution. 6. Guaranteed tax base plans are designed to ensure that every district in a state can act as though its tax base is the same as some state-set level—a guaranteed tax base (GTB). Under this approach, the local school district chooses its tax rate for education, which is then applied to the GTB and the district's actual tax base. State aid is the difference between what would be raised with the GTB and what can actually be raised from the local tax base.
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7. In 1991-92, the CED—a single or multi-county entity—replaced the local school district as the source of revenue for the required local contribution in the foundation formula. The CED generated and distributed this local revenue to each school district within its boundaries, substantially equalizing the range of property tax bases in the county. The CED provision was declared unconstitutional by the Texas Supreme Court in 1992 and was replaced with a requirement that high-wealth districts reduce their per-pupil property wealth to $280,000 (Picus and Toenjes, 1994). 8. For example, the Kentucky legislature had appropriated only $25 million for Tier 1 in 1991-92. It raised this appropriation to $150 million for the 1992-94 biennium to fully fund this program (Koch and Willis, 1993). References Adams, E.K. 1980 Fiscal Response and School Finance Simulations: A Policy Perspective . Report No. F80-3. Denver, CO: Education Commission of the States. Adams, J.E., Jr. 1994 Spending school reform dollars in Kentucky: Familiar patterns and new programs, but is this reform? Educational Evaluation and Policy Analysis 16(4):375-390. 1996 Organizational Context and District Resource Allocation. Paper presented at the annual meeting of the American Educational Research Association, New York. Adams, J.E., Jr., and W.E. White II 1997 The equity consequences of school finance reform in Kentucky. Educational Evaluation and Policy Analysis 19(2):165-184. Alexander, A.J. 1974 Teachers, Salaries and School District Expenditures. Santa Monica, CA: The RAND Corporation. Barro, S.W., and S.J. Carroll 1975 Budget Allocation by School Districts: An Analysis of Spending for Teacher and Other Resources. Santa Monica, CA: The RAND Corporation. Berne, R., and L. Stiefel 1984 The Measurement of Equity in School Finance. Baltimore: The Johns Hopkins University Press. Burkhead, J. 1973 Economics against education. Teachers College Record 75:193-205. Busch, C., and A. Odden 1997 Introduction to the special issue: Improving educational policy and results with school-level data—A synthesis of multiple perspectives. Journal of Education Finance 22:225-245. DiMaggio P.J., and W.W. Powell 1991 Introduction. Pp. 1-40 in The New Institutionalism in Organizational Analysis, W.W. Powell and P.J. DiMaggio, eds. Chicago, IL: University of Chicago Press. Firestone. W.A. 1989 Educational policy as an ecology of games. Educational Researcher 18:18-24. Firestone, W.A., M.E. Goertz, B. Nagle, and M.F. Smelkinson 1994 Where did the $800 million go? The first year of New Jersey's Quality Education Act. Educational Evaluation and Policy Analysis 16(4):359-373.
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Firestone, W.A., M.E. Goertz, and G. Natriello 1997 From Cashbox to Classroom: The Struggle for Fiscal Reform and Educational Change in New Jersey. New York: Teachers College Press. Goertz, M.E. 1979 Money and Education: How Far Have We Come? Financing New Jersey Education in 1979. Princeton, NJ: Educational Testing Service. 1994 The Equity Impact of the Quality Education Act in New Jersey. Paper presented at the annual meeting of the American Education Finance Association, Nashville, TN. 1995 The Equity Impact of the Quality Education Act in New Jersey. Unpublished paper prepared for the Consortium for Policy Research in Education, Rutgers University. Hartman, W.T. 1988 District spending: What do the dollars buy? Journal of Education Finance 13(4):436-459. Kirst, M.W. 1977 What happens at the local level after school finance reform? Policy Analysis 3(3):301-324. Koch, K., and T. Willis 1993 The Kentucky Education Reform Act of 1990: A Review of the First Biennium. Paper presented at the annual meeting of the American Education Finance Association, Albuquerque, NM. Meyer, J.W., and B. Rowan 1977 Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology 83:340-363. Moynihan, D.P. 1972 Equalizing education: In whose benefit? The Public Interest 29:69-89. National Center for Education Statistics 1995 Digest of Education Statistics 1995. NCES 95-029. Washington, DC: U.S. Government Printing Office. Odden, A., and L.O. Picus 1992 School Finance: A Policy Perspective. New York: McGraw-Hill. Odden, A., R. Palaich, and J. Augenblick 1979 Analysis of the New York School Finance System, 1977-78. Denver, CO: Education Commission of the States. Picus, L.O. 1994 The local impact of school finance reform in four Texas school districts. Educational Evaluation and Policy Analysis 16(4):391-404. Picus, L.O., and L. Toenjes 1994 Texas School Finance: Assessing the Equity Impact of Multiple Reforms. Paper presented at the annual meeting of the American Education Finance Association, Nashville, TN. Powell, W.W., and P.J. DiMaggio 1991 The New Institutionalism in Organizational Analysis. Chicago: University of Chicago Press. Rowan, B. 1982 Organizational structure and the institutional environment: The case of public schools. Administrative Science Quarterly 27:259-279. Sacks, D. 1990 It will murder the middle class. New York Times (July 11):A14.
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Texas Education Agency 1991 Snapshot '90:1989-90 School District Profiles. Austin, TX: Texas Education Agency, Office of Policy Planning and Evaluation. 1993 Snapshot '93:1992-93 School District Profiles. Austin, TX: Texas Education Agency, Office of Policy Planning and Evaluation. Tolbert, P.S., and L.G. Zucker 1983 Institutional sources of change in the formal structure of organizations: The diffusion of civil service reform, 1880-1935. Administrative Science Quarterly 28:22-39. Tsang, M.C., and H.R. Levin 1983 The impacts of intergovernmental grants on education spending. Review of Educational Research 53(3):329-367.
Representative terms from entire chapter: