School Finance Reform Strategies
The Guaranteed Tax Base
Traditionally, the underlying problem of school finance was seen as the unequal distribution of property wealth per pupil. The way to remedy the problem was to make the ability to raise funds for schools more equal across districts. In school finance parlance, the solution was to enact a guaranteed tax base (GTB) or "district power equalizing" program, i.e., a program that guaranteed to all or nearly all districts -- rich or poor -- some high level tax base. Such a program would allow local districts to tap the same size tax base, and, by setting a tax rate, to determine the level of spending. In this way, districts could determine for themselves the level of quality of the local education program, rather than being constrained by the circumstance of being a low wealth district. The tax rate would be applied to the statewide GTB so the same amount of money per pupil would be raised from state and local sources for both poor and rich districts, i.e., for all districts with a local tax base equal to or less than the GTB. In such a program, higher spending per pupil would require a higher tax rate. Thus, differences in education spending per pupil might remain, but spending differences would result from varying tax rates, reflecting differing levels of commitment to education; these differences would not be caused by the unequal distribution of the local tax base.
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 | $2094 | $36,670 | 3.04 | $978 |
| 2 | 2215 | 46,845 | 2.83 | 888 |
| 3 | 2277 | 55,203 | 2.69 | 794 |
| 4 | 2281 | 64,875 | 2.56 | 620 |
| 5 | 2322 | 71,762 | 2.44 | 572 |
| 6 | 2405 | 81,913 | 2.35 | 477 |
| 7 | 2601 | 92,949 | 2.33 | 437 |
| 8 | 2718 | 106,195 | 2.17 | 411 |
| 9 | 3033 | 135,496 | 1.95 | 388 |
| 10 | 3593 | 306,766 | 1.05 | 366 |
Horizontal Equity: |
Fiscal Neutrality: |
Source : CPRE analysis of state data.
Most analysts suggested that the GTB should be set at a very high level, say the average of Decile 9, or in the case of Table 1 , $135,000. This would allow all districts below that level of wealth to spend at a level of $3375 if they levied the average tax rate of 2.5 percent (2.5 percent times $135,000). Such a program would allow poor districts, i.e., districts with a low level of property wealth per pupil, not only to reduce their local tax rates but also to substantially raise their education spending! Conceptually, such a program not only would provide property tax relief to the higher taxing poor districts, but also would allow those districts to raise education spending. In short, a high level GTB school finance program would remedy the core problem of school finance -- the unequal distribution of the local property tax base.
Table 2. Status of School Finance in a Northeastern State, Late 1970s with a GTB at $135,000
| Decile | Revenues Per Pupil |
Assessed Value Per Pupil ( at market value ) |
Local Property Tax Rate ( percent ) |
State Aid Per Pupil |
| 1 | $3101 | $36,670 | 2.30 | $2259 |
| 2 | 3020 | 46,845 | 2.24 | 1972 |
| 3 | 2951 | 55,203 | 2.19 | 1745 |
| 4 | 2869 | 64,875 | 2.13 | 1490 |
| 5 | 2807 | 71,762 | 2.08 | 1315 |
| 6 | 2792 | 81,913 | 2.07 | 1098 |
| 7 | 2872 | 92,949 | 2.13 | 895 |
| 8 | 2825 | 106,195 | 2.09 | 603 |
| 9 | 3033 | 135,496 | 2.24 | 0 |
| 10 | 3593 | 306,766 | 1.17 | 0 |
Horizontal Equity: |
Fiscal Neutrality: |
Source : CPRE analysis of state data.
Statistically, the anticipated results are reflected in Table 2 , which gives the simulated impact of a GTB at $135,000. The results show that spending is more related to tax rate than to property wealth per pupil. Spending disparities per se dropped, with the coefficient of variation declining from 12.3 to 4.7 percent and the McLoone Index rising from 0.959 to 0.964. In terms of the connection between spending and wealth, the simulated GTB program decreased the correlation coefficient from 0.97 to 0.23 and reduced the wealth elasticity from 0.20 to 0.02. These simulated impacts are similar to other empirical research on the short term impacts of school finance reform in the late 1970s (for more information about statistical measures of school finance inequity, click here).
It is true that even for the traditional school finance situation, some argued for just a foundation type of school finance program, under the rationale that the state fiscal interest in education was to provide funding only for a minimal education program. Moreover, most states enacted foundation programs as their core school finance strategy. Such a program boosts the level of spending for the lower spending districts, and perhaps provides them property tax relief as well. But foundation programs often were set too low and, in most cases, became out of date quickly, i.e., they were set at a specific dollar level and not adjusted annually for inflation. And the "new" type of school finance problem holds for many states with foundation equalization programs.