School Finance Inequities
Spending Differences and Local Property Wealth
Academic and policy conversations about school finance inequities today and in the past have generally focused on traditional issues. The traditional problem was that base spending per pupil, i.e., spending exclusive of resources for special student needs and/or price differences across districts, varied substantially across districts. The disparities in base spending per pupil did not stem from differences in local tax effort or local support for education, but from large differences in the property tax base per pupil.
In designing locally administered school systems, states generally gave local governments the authority to raise money for schools by levying property taxes. But when states determined school district boundaries, districts ended up with widely varying levels of property wealth per pupil, and thus large differences in the ability to raise local dollars to support public education. Districts with above average property tax bases per pupil traditionally were able to spend at above average levels with below average tax rates, while districts with below average tax bases spent at below average levels even with above average tax rates.
School finance policy debates throughout the twentieth century, including most school finance texts and most court cases ( Underwood , 1995), focused on these types of fiscal inequities. To be sure, some individuals pointed to spending differences per se, regardless of whether they were related to varying tax bases, and argued that they should be impermissible in a state education system. But the bulk of discussion centered on the links between spending differences and local property wealth per pupil.
Table 1. Status of School Finance in a Northeastern State, Late 1970s
| Decile | Revenues Per Pupil |
Assessed Value Per Pupil ( at market value ) |
Local Property Tax Rate ( percent ) |
State Aid Per Pupil |
| 1 | $2,094 | $36,670 | 3.04 | $978 |
| 2 | 2,215 | 46,845 | 2.83 | 888 |
| 3 | 2,277 | 55,203 | 2.69 | 794 |
| 4 | 2,281 | 64,875 | 2.56 | 620 |
| 5 | 2,322 | 71,762 | 2.44 | 572 |
| 6 | 2,405 | 81,913 | 2.35 | 477 |
| 7 | 2,601 | 92,949 | 2.33 | 437 |
| 8 | 2,718 | 106,195 | 2.17 | 411 |
| 9 | 3,033 | 135,496 | 1.95 | 388 |
| 10 | 3,593 | 306,766 | 1.05 | 366 |
Horizontal Equity: |
Fiscal Neutrality: |
Source : CPRE analysis of state data.
Table 1 is an example of these phenomena. These data reflect the school finance situation of school districts in a northeastern state around 1978. The data are organized by "deciles" with decile 1 being the poorest or lowest in property wealth per pupil and decile 10 being the wealthiest, with different numbers of districts but approximately equal numbers of students in each decile. Property wealth per pupil varied by a factor of almost ten to one between the poorest and richest deciles. More importantly, tax rates also varied by decile, but the highest tax rates were in poorest deciles and the lowest tax rates in the highest deciles. Indeed, the inverse relationship between tax rate and local property wealth per pupil was very consistent -- the higher the property wealth per pupil, the lower the tax rate.
As a result, spending per pupil also varied substantially. State aid only modestly offset the large property wealth advantages. The spending differences reflected a direct relationship with property wealth per pupil-- the higher the property wealth per pupil, the higher the spending despite the fact that the tax rates were lower. In statistical terms, the coefficient of variation of spending per pupil was 12.3 percent and the McLoone Index was 0.96. The McLoone Index measures the equity of the bottom half of a distribution. A McLoone Index of 1.0 should be a minimum equity standard; it would mean that the 50 percent of low revenue districts all spent at the median. The correlation between spending and wealth was high at 0.97, with an equally high elasticity of 0.2 (for more information about statistical measures of school finance inequity, click here).
This example shows the inherent inequity of traditional school finance systems. The data reflect the school finance reality in most states for most of the twentieth century. Spending per pupil varied significantly, was inversely linked to tax effort and was strongly linked to the size of the local property tax base per pupil. The system was structurally unfair. Low property wealth districts were doubly disadvantaged -- they not only had high tax rates but also had low education expenditures, and a lower quality education program. High property wealth districts were doubly advantaged -- they had both low tax rates and high education expenditures and, in most cases, a higher quality and more attractive education program. Although the strength of the connection between spending and education quality was debated, most policymakers and policy analysts admitted some connection and viewed the overall structure as unfair.