Presentation on theme: "Chapter 9 The Structure of School Finance Systems"— Presentation transcript:
1Chapter 9 The Structure of School Finance Systems
2Education Is a State Responsibility States have the responsibility to plan for and deliver a systemof free, public educationStates also have the dutyto equalize funding based on the localities’ fiscal capacity to pay for educational programs
3School Finance Relationships PoliticalFinancialControlDirectionWhoever funds schools controls its direction and practices.
4Localities Operate Schools Although education is a state function, virtually every state, except Hawaii, has delegated the school systems’ operation to the localitiesThe states, for the most part, maintain an oversight and compliance role in the local school systems’ operation
5Consolidation for Efficiency Once local oversight was relegated to neighborhood schools and school boardsThe trend over the last years has been to decrease the number of school districts in the United StatesThis consolidation has made for greater efficiency. It has, however, depersonalized to some extent schools’ operation & administration
6Consolidation for Efficiency, cont. Gradually over the 20th century, the states assumed more responsibility to oversee educationIn , the first year keeping such statistics, the U.S. had 119,001 school districtsIn , the total number of school districts totaled 14,859
7Consolidation for Efficiency, cont. More school districts brought together more communities representing a wider geography supporting the schoolWhile school consolidation may have provided greater efficiency, it also negatively impacted citizens’ perceptions of their public school ownershipIn fact, this ownership issue has resulted in some calling for replacing school boards with local school councils
8Consolidation for Efficiency, cont. While this trend decreases resource duplication and waste, it likewise decreases community feelings of pride and investment in their local schools
9Number of Students per School District, 1939-40 and 1999-2000 Total School Enrollment25,434,00046,857,000Number of School Districts117,10814,928Students per School District2173,188
10Revenues and Expenditures The federal share of public school revenue has increased each decade from less than 1% in 1919 to a high of 9.8% in 1979
11School Year Federal % funds State Local 1919-20 0.3 16.5 83.2 1939-40 School YearFederal% fundsStateLocal0.316.583.21.830.368.04.47.349.522.214.171.124.052.139.9
12% of Revenue by Source Region & State Federal State Local 50 states and DC7.350.242.5New England5.348.146.6Mid East6.737.955.5South East9.155.035.9Plains7.247.345.6Far West8.461.030.6
13Federal Revenue Sources The New England states have the lowest percentage of federal revenue source at 5.3%
14Federal Revenue Sources, cont. The Southeast states, on the other hand, have the highest revenue percentage from federal sources at 9.1%
15State Revenue SourcesThe Mid East states have the lowest percentage at 39.9% while the Far West has the highest percentage of state revenue at 61%
16Local Revenue Sources The Far West has the lowest percentage at 30.6% Mid East region has the highest percentage of local revenue sources at 55.5%
17Local Funding Local funding is at the heart of schools The range in local revenue percentages ranges from a low of 12.6% in New Mexico to a high of 64.9% in Nevada12.6%Localrevenues64.9%Localrevenues
18Federal Responsibilities Congress established the United States Department of EducationLater downgraded to an Office of EducationBecame part of the Department of Housing, Education, and Welfare.1980 – Reestablished as the Department of Education
19Federal Responsibilities, cont. The federal education functioned primarily providing grants & guidance for states and school systems under various programsTitle V of the Elementary and Secondary Education Act of 1965 strengthened the State Departments of Education by providing funding for increased state education personnel as well as for training, equipment, research and development
20State Responsibilities The State Education Agencies (SEAs) are generally empowered by the state legislature to coordinate and oversee the local education agencies (LEAs)State Boards of Education date back to 1784The first State Superintendent was appointed in New York in 1812
21State Responsibilities, cont. State superintendents have the responsibility for providing leadership to the State Department of Education and carrying out the duties with which the agency has been chargedIn that process, state superintendents have been in the position to become eloquent spokespersons for education with the general public and with the legislators, as was the case with Horace Mann
22State Responsibilities & Politics The Governor influences education through their campaign platforms, whom they appoint in leadership positions once elected, and their position’s sheer bully pulpitThe Department of Education is generally responsible for carrying out the state’s education legislation
23Federal, State, Local $$$ Interaction The federal No Child Left Behind legislation of 2001 focuses on states’ accountability to meet academic standardsWhat takes place at the federal, state, and local levels varies depending upon how the grant legislation is written
24Federal, State, & Local Funding The Federal Department of Education announces the latest authorization of the ABC Act once Congress approves the legislationDOE makes legislative details available to the publicState Education Agencies (SEAs) are authorized to submit applications for funding
25Federal, State, Local Interaction The SEAs make the application process available to the Local Education Agencies (LEAs)The SEA usually provides technical assistance to the school districts in completing the grant application packageThe grant will usually have a list of assurances with which the local school district must comply to obtain the funds
26Federal, State, & Local Funding The SEA collects LEA grant applications & assures the Federal Department of Education that they have met grant provisionsThe Federal Department of Education reviews applications and awards grants to the statesThe SEA, in turn, is allowed to take a percentage of the grant for administration and divides remaining funds to the localitiesOccasionally, the states audits local funds and the federal office audits state funds.
27Advantages of “Layered” School Financing Equalization due to fiscal capacity of the states and the localitiesEquitable & adequate distribution of educational servicesEfficient provision of educational servicesMore decentralized decision-making authority to meet the states and localities’ needs Rosen, Harvey Public Finance (6th Edition). Boston: Irwin/McGraw Hill.
281st Advantage of “Layered” School Financing Some school districts lack the local capacity to raise revenue and require a larger level of government to spread the fiscal effort over a larger baseThe “poor” locality can draw on outside resourcesThe resources available at the smallest level of government, therefore, do not determine the quality of education Rosen, Harvey Public Finance (6th Edition). Boston: Irwin/McGraw Hill.
292nd Advantage of “Layered” School Financing States can determine what level of adequate services will be mandated and at what levels this will occurWith the increased layers of government and funding that come from a broader tax base, states can devise different approaches to meeting needs within the state
303rd Advantage of “Layered” School Financing In the multiple layered approach to providing services, the state or the federal government may use its influence to consolidate school operations or the services delivery within school districtsBy encouraging efficiency, schools reap the economic and instructional benefits of increasing the achievement impact at a lower cost
314th Advantage of “Layered” School Financing Allowing individuals the opportunity to select the services that match what they feel they need and want is a powerful psychological phenomenon that ties the all three prior advantages togetherCommunities tend to coalesce around areas that offer public services matching their personal preferencesLocalities tend to grow where young families with school-aged children want quality education services and are willing to pay for such services. In communities with higher concentrations of retired individuals living on fixed incomes, the desire for services may be related to other factors.
32Advantages to Layered School Financing With fiscal layering & funding, the interplay of the federal, state, and local services provides distinct advantages for individuals to select the type of environment in which they wish to live and what services are important to them.
33Local EqualizationUsually, the local level does little to equalize for fundingStudies show that, within the same school district, schools in wealthier locations receive a greater funding share than poorer schoolsSchool demographic, achievement, & other data make it necessary to fund schools based on their individual needs for meeting district goals
34State EqualizationStates have a responsibility to equalize funding based on the localities’ capacity to pay for servicesStates use a formula to determine how the equalized funds are determinedThese formulae vary in complexity and effectiveness
351st - States Determine the Floor Level of Educational Services This is a basic, “no frills” level of services and not what most educators would consider as a program that “meets everyone’s needs”This floor level funding of services usually consists of computing a dollar figure for professional education positions for a given number of students, technology, special weightings for students, and the likeWhat states consider in this floor level of services varies
362nd - State Determines the Localities’ Fiscal Capacity States use a wide variety of factors in determining this wealth formulaEvery state uses a different formulaUsually, property values, income tax, and an estimate of locally generated business revenue become a proxy for determining the locality’s ability to fund servicesDesigning a workable funding formula becomes an increasingly difficult process
37Urban locations with a large business and industry tax bases tend to have more, different, and much more expensive social, economic, & educational problems than suburban or rural locations with fewer business and industry
38Rural areas have problems that other areas do not have, including isolation, difficulty attracting teachers, and too few students to afford many high quality educational offerings
39Coming to ConsensusComing to a consensus on community values for educational results, the relative weighing of various factors associated with wealth, and the weighing the varying needs within a state can “tax” even the brightest and most eloquent politicians
403rd – State Must Decide the Basis for Distributing Funds Some states believe that the poorest localities should pay nothing towards the floor level of educational servicesInstead, they believe the wealthiest localities should pay the entire cost of providing these basic servicesOther states believe that every locality should pay something towards the cost of providing these basic services
41An Example: Equalization in Virginia The poorest localities have a composite index of .2 and the richest have a composite index of .8A poor locality with a .2 composite index would be required to raise 20% of the funding for the Standards of Quality through local sources with the state funding 80%A mid-range locality with a composite index of .5 would fund 50% of the Standards of Quality with local funds and 50% state fundsA wealthy locality with a composite index of .8 would fund 80% of the Standards of Quality with the state paying only 20%
42Current School Finance Structures Forward-thinking individuals who saw the need for equalizing school funding, had the ability to “sell” their new ideas to progressive states and localitiesThese pioneers included Ellwood Cubberley, Robert Haig, Henry Morrison, Paul Mort, George Strayer, and Harlan Undegraff
43The Next School Finance Leaders A 2nd generation of school finance scholars, including Roe Johns and Edgar Morphet (around 1940), refined and extended the effort to establish state equalization formulae throughout the country
44The Next School Finance Leaders, cont. The 3rd generation of school finance scholars (late 1970’s through today) include Kern Alexander, Richard Salmon, Allan Odden, Lawrence Piccus, and othersThey keep working to implement the democratic ideals at the most basic level of education – its financing
45Current U.S. State School Finance Systems Flat grantsFoundation plansDistrict power equalizingFull state funding
46Flat GrantsThis program distributes state aid to localities based on a flat amount of money on a per-pupil basis or on a defined personnel basis (funding x number of teachers for y number of students)It does not factor in student attendance or how much additional funding the locality is able to raise independently above and beyond the flat grant
47Amount of state aid per pupil = Number of Pupils in the State Flat Grants ModelAmount of state aid per pupil =Total State RevenueNumber of Pupils in the State
48Example of Flat Grants School District Local Revenue Flat Grant Flat Grant % of TotalTotal SpendingA$1,00050%$2,000B$4,00020%$5,000C$7,00012.5%$8,000D$9,00010%$10,000E$11,5008%$12,500
49Flat Grant ComparisonIn School District A, the state provides 50% of the total per pupil expenditure or a 100% match to what the locality can afford to payIn School District E, the state provides only 8% of the locality’s total expenditureWhile this model does have a large %age impact on the poorest localities, it does very little to equalize revenueSchool District E spends more than six times what School District A spends on a per pupil basis
50Flat Grants Advantages It can be used in conjunctionwith other modelsEvery district receives a uniform per student appropriation. Wealthier localities can supplementIf the state provides sufficient funding in the flat grant for a truly adequate level of education, certain advantages exist for poorer localities
51Flat Grants Disadvantages Little provision for equalizing funding across the state because the grants are not based on the districts’ wealthUnrelated to fiscal capacity, and unrelated to effortAssumes, wrongly, that the grant is sufficient to cover adequate education costs expected within the state
52Foundation Plans Most states use some type of a foundation plan The concept affirms that the state has a responsibility & an interest in providing a minimum level of educationThe foundation program holds that the minimum education level can be costed-out, or financially apportioned in a rational manner
53Foundation Plans, cont.A foundation program requires that a state establish a minimum local tax rate and a minimum education spending level for school districts in the stateThis minimum spending level is known as the foundation amount
54Foundation Plans, cont.This minimum tax rate may – or may not –produce a sufficient tax yield to meet the minimum spending levelThe state aid makes up any shortfall in the required tax rate or yield and the spending level (the foundation amount)Localities can tax at higher rates than the state prescribes and provide even higher levels of education services
55Foundation Plans Formula State Funding Guarantee = # of Pupils X $ Guarantee of Plan (constant)Local Share = Required Local Tax Rate (constant) X Local Assessed ValuationState Aid = Total Foundation Guarantee – Local Share
56Calculation: Foundation Funding SchoolDistrictLocal Required Effort = Per Pupil Equalized Property Value times 10 millsState Share = Guaranteed Foundation minus Required Local EffortA$100,000 x = $1,000$5,000 - $1,000 = $4,000B$200,000 x = $2,000$5,000 - $2,000 = $3,000C$250,000 x = $2,500$5,000 - $2,500 = $2,500D$300,000 x = $3,000$5,000 - $3,000 = $2,000E$400,000 x = $4,000$5,000 - $4,000 = $1,000
57School District A (low capacity) has a per pupil property value of $100,000. If the constant required local effort is 10 mills, the School District A must come up with $1,000 of the foundation level of per pupil spending of $5,000. The state share will then be $4,000.School District E (high capacity) has $400,000 of equalized property value per student. This property value taxed at the required minimum of 10 mills produces revenue of $4,000 per pupil they must pay to meet the foundation level. The state’s share for School District E will be $1,000 per pupil.
58Foundation Program Allows Local Leeway Localities can raise more than the foundation figureFor the next example, let us assume that School District A cannot afford to raise additional revenue while School District E can afford to raise an additional $1,000 per student
59Summary of Foundation Formula SchoolDistrictLocal Required EffortState ShareFoundation Level SpendingLeeway FundingTotal Per Pupil SpendingA$1,000$4,000$5,000$0B$2,000$3,000$100$5,100C$2,500$250$5,250D$500$5,500E$6,000
60The equalization impact becomes obvious comparing the foundation plan with the flat grant model The local share for district with the least capacity, A, is only 20% of the foundation amount. The local share for the wealthiest district, E, is 80% of the foundation levelObviously, leeway funds are allowed, which in this example, provide School District E with 20% greater per pupil funding than with School District A
61Foundation Plan Advantages Equalizing impact towards a state-established minimum foundation level as poorer districts tend to receive more state fundingMinimum levels of locally-raised revenue requirements (taxation and spending levels) for the required local effortAllows additional spending (local leeway)
62Foundation Plan Disadvantages Foundation level may be set too low to support a realistic education planMinimum level must be adjusted periodically to reflect practice & cost changesFails to overcome the significant variances that exist in local capacity to raise revenueUses local fiscal capacity, not local effort as the variable for equalizing fundingMinimalist – not adequate or quality – education program
63District Power Equalizing District power equalizing (DPE) is virtually the same as:Guaranteed tax yield (GTY)andGuaranteed tax base (GTB) programs
64DPE Model ConceptsThe ability to generate revenue should be equalized among the districts in the state. The locality should determine how much.
65DPE Model Concepts, cont. Local variance in fiscal capacity is neutralized. Education quality is a function of state – not local – wealth. An equal yield for an equal effort.
66DPE Model Concepts, cont. 3. The state either establishes a schedule of tax rates that guarantee a given amount per pupil for the locality or the state provides a guaranteed tax base per pupil across the state for the localities.
67District Power Equalization Formula State Aid =Local Tax Rate XGuaranteed Yield –(Local Assessed Valuation X Local Tax Rate).
68District Power Equalization Formula Example (Equivalent to a $100,000 Guaranteed Tax Base) GuaranteedTax Rate Revenue Yield5 mills $10 mills $ 1,00015 mills $ 1,50020 mills $ 2,000
69Calculation of District Power Equalization SchoolDistrictFiscal Capacity per PupilMill Rate Imposed by LocalityLocal Amount GeneratedState AidTotal Per Pupil SpendingA$40,0008$320$3,680$4,000B9$360$4,140$4,500C$100,00010$1,000$5000D$150,000$1,350$3,150E$300,000$2,400$1,600
70In the DPE Program There is no single foundation level The districts are free to set their own mill rateThose districts electing to establish the mill rate at the maximum by the state qualify for the maximum per pupil fundingThose electing a lower mill rate qualify for reduced per pupil funding
71Comparison of DPE & Foundation Programs DPE ProgramsNo required local effortEstablishes minimum guarantee of revenue per pupil per mill of taxation for equalized property valueLocality can tax for leeway fundsEqualize for local capacityFoundation ProgramsRequired local effortEstablishes minimum per pupil spending levels based on required mill rate per equalized property valueLocality can tax for leeway fundsEqualize for local capacity
72DPE Model AdvantagesDPE tends to equalize for the ability to pay for education (not on spending, however). There is also a recapture provision for the state, sometimes called “negative state aid.” This allows the local school districts above some determined level of fiscal capacity to levy a minimum local tax and return a portion of the tax yield to localities with lower fiscal capacity.
73DPE Model Advantages, cont. 2. It allows for the locality to set its spending level.3. It provides for taxpayer equity allowing an equal yield for an equal effort.4. To some degree, the model keeps property values equal through the aid formula.
74DPE Model Disadvantages This model does not equalize for per pupil expenditures because the local districts have the autonomy to determine spending levels.If a wealthy locality exceeds the guarantee, a recapture of funds goes back to the state to help poorer localities. This serves as a disincentive for localities to exceed the guarantee.A locality loses a degree of autonomy because the state may establish minimums and maximums.
75 Full State FundingThe state collects all funding and is fully responsible for financing public educationState distributes funds to schools on an equal basisLocalities cannot supplement the state funding with locally-generated revenueThis model eliminates disparities and differences in funding the operation of schoolsThe formula appears similar to the flat grant model, but there are major differences.Under this plan, the state is fully responsible for funding the schools.
76 Full State Funding Formula State Aid = Total Education SpendingNumber of Pupils in the StateThe formula appears similar to the flat grant model, but there are major differences.Under this plan, the state is fully responsible for funding the schools.
77Comparison with Flat Grant Model Provides only the floor funding for school districtsAllows for differences in spendingDoes not imply that this is all the funding available to schoolsFull State Funding ModelProvides the ceiling of funding for the schoolsAllows only for the equal state funds for educationThis is all the funding available to public education
78Advantages to Full State Funding First, education is a state function and this model places the financial burden of paying for education squarely on the stateSecond, this model does eliminate all spending variance for schools and appears to be fair to taxpayers and students by NOT making school funding a factor of local wealth or poverty
79Advantages to Full State Funding, cont. Third, state funding virtually eliminates local property taxes to fund educationFinally, reduced overhead costs occur as the state takes over much control of schools from local superintendents, central office staff members, and school boards
80Advantages to Full State Funding, cont. Additionally, with local politics and fighting for local funding out of the way, more time may be allowed for curriculum, instruction, and professional development
81Disadvantages to Full State Funding Reduces the appearance of local control. Citizens may feel that they have little or no impact on the large state operation of schools.Minimizes the appearance of local fiscal control. Wealthy areas may think their schools are not receiving sufficient funding. Poorer communities may not feel as if they have any investment in the schools.
82Disadvantages to Full State Funding, cont. The state aid may not reflect schools’ diverse needs. Equal funding for a school with 5% of its students receiving special education services versus 20% of its students in special education programs may not provide what is actually needed.Finally, the state-set spending may not be sufficient to meet the needs of the entire educational system.
83As Deborah Verstegan states, “There have been no new approaches developed or used to distribute state aid to school systems since the 1920s and 1930s.”Verstegan, Deborah A. “Financing the New Adequacy: Towards New Models of State Education Finance Systems That Support Standards Based Reform.” Journal of Education Finance, 27 (Winter 2002), p. 755.
84In that time frame, fewer than one third of the eligible population attended high school – much less graduated. As late as 1950, only about one third of the population graduated from high school. The graduation rate for black males was 12.6% and 14.7% for black females.Verstegan, Deborah A. “Financing the New Adequacy: Towards New Models of State Education Finance Systems That Support Standards Based Reform.” Journal of Education Finance, 27 (Winter 2002), p. 755.
85Today, student performance accountability programs expect all students to achieve to high levels. Under the NCLB legislation, all sub-groups must make Adequate Yearly Progress.Nevertheless, our funding formulae to meet these expectations have not changed. The older funding models assumed a minimum education and not the high quality, high stakes testing programs that exist today.Verstegan, Deborah A. “Financing the New Adequacy: Towards New Models of State Education Finance Systems That Support Standards Based Reform.” Journal of Education Finance, 27 (Winter 2002), p. 755.
86Need for Education Finance Reform Economic competitiveness in aglobal marketplace – & sustainability of our Social Security & Medicare Programs require that all U.S. students receive an ADEQUATE – not minimum – education.