Published Online: March 19, 1997

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Study Reveals Funding Gaps Across States

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Most states have failed to erase wide funding disparities between rich and poor school districts, one of the most comprehensive school finance studies ever conducted says.

The study by the U.S. General Accounting Office, released last week, ranks the states on their efforts to equalize school spending. It found that high-income districts outspent low-income systems by an average of 24 percent more per student in the 1991-92 school year. That is the most recent year for which comparable data are available across states.

The gaps occurred even though poor districts in 35 states taxed themselves more heavily than their wealthy counterparts.

The 320-page study also found that despite efforts to target state aid where it was needed most, wealthy communities in 37 states outspent low-income districts.

"This report graphically illustrates the fundamental problem with school finance in this country: Using local taxes to pay for schools produces vast inequities in resources," Sen. Carol Moseley-Braun, D-Ill., said in releasing the report in Chicago. She is one of three Democratic senators who requested the study from the GAO, the investigative arm of Congress.

Remedies Suggested

The study suggests that states can best address funding inequities by increasing the state share of school spending and targeting more dollars to low-income communities.

Nationwide, the state share of school spending in 1991-92 ranged from 8 percent in New Hampshire to 85 percent in New Mexico and nearly 98 percent in Hawaii, which has a single statewide school system.

But the report cautions that as long as funding remains based on local property taxes, spending disparities among districts are likely to continue.

The GAO does not advocate that all districts spend exactly the same amount, after differences in their students' needs are taken into account.

Instead, it argues that policymakers should guarantee districts a minimum level of funding, regardless of their wealth, based on an equal local tax effort. The approach does not rule out higher spending by rich communities.

Eleanor L. Johnson, the GAO assistant director for education and employment issues, explained it this way: "Everyone is entitled to the same level of services for the same sacrifices."

The new report--which includes detailed profiles of school funding for every state--has been praised and scrutinized by school finance experts.

"There's a wealth of information at the national level that I haven't seen in at least 10 years," said Martin Orland, the special assistant to the commissioner of the National Center for Education Statistics. "That's a major contribution."

But he and others questioned the GAO's reliance on income rather than property values to establish district wealth.

Property values are traditionally used to measure wealth in education because school budgets are tied so frequently to local property taxes. The GAO chose the alternative measure because of the availability of comparable data.

Critics also questioned the value of a study that relies on such outdated information.

According to the report, 24 states have changed their funding systems since 1991-92 to address inequities.

The GAO plans to release two follow-up studies in the coming year that will attempt to gather updated data directly from states that have changed their finance formulas, such as Michigan, Missouri, and Tennessee.

"We're doing a progression of more and more sophisticated work," Ms. Johnson said. "This kind of analysis does not exist on a national basis."

State Profiles

In ranking state efforts to equalize school funding, the data-rich document considered a state's share of spending, local income levels and tax contributions, and the cost of educating special-needs students.

The results produced some surprises. For example, while Nevada traditionally spends less per pupil than most states, it ranked first in the GAO report for equalizing funding across all of its districts.

Nevada was the only state in which every district was able to spend the state's per-pupil average of $3,597 while also making an average local tax contribution.

Douglas Thunder, the state's deputy superintendent for administrative and fiscal services, was not surprised at the ranking, however. "We've been told that we're doing quite well with equity among districts," he said.

This year, Nevada will allocate an average of $3,621 per student. But it will spend $7,084 on each of Esmeralda County's roughly 100 students to compensate the rural county for its low wealth and high costs.

When it comes to overall spending, however, Mr. Thunder said, "the whole level should be raised, but not all legislators agree." The GAO report did not attempt to assess the adequacy of a state's spending on education.

New Hampshire, South Dakota, and Oregon ranked lowest for their efforts to equalize school funding for the 1991-92 school year.

Oregon's poorest districts raised $2,972 locally per student, compared with $4,351 in affluent districts. Despite state help, the wealthy districts outspent the poorest ones by $1,050 per student--a 22 percent gap.

But since then, the state has moved closer to erasing that gap, mostly by increasing the state's share of school spending from about 30 percent seven years ago to 70 percent this year.

A statewide tax measure also capped local property taxes, so that all Oregon residents pay no more than $5 per $1,000 of property value.

"Basically, what we've done is bring the floor up $1,000 a student," said Terry Drake, a former research economist for the Oregon education department. "If we're not in the top 10 percent now, I'd be shocked out of my socks."

Maryland Surprised

In another ranking, Maryland and Massachusetts garnered the dubious distinction of being the states where school funding was most closely linked to district wealth.

Maryland's poor districts, for example, spent $2,353 per pupil below the state average of $6,039 in 1991-92. In contrast, the richest districts relied on higher local tax efforts to generate $7,728 per student.

Maryland's finish caught officials there a little off guard because the state usually fares well on barometers of financial equity when each district's spending is compared with the average across all districts.

They noted that the GAO data missed a $173 million increase in school spending, effective in 1993, to address equity concerns. The same year, the state cut $200 million in funding that was not equity based.

"There have been some significant changes," said Raymond H. Brown, the assistant superintendent of business services for the Maryland education department. "There was a huge jump in school spending."

Novel Approach

Finance experts last week praised the GAO for its novel approach to measuring equity, which encourages states to ensure that all districts have a minimum level of per-pupil funding as long as they make an equal local tax contribution. The report calls this benchmark the "implicit foundation level."

"It's a nice conceptual way of looking at this that I haven't seen in other literature," Mr. Orland of the NCES said.

"It says that not everybody has to spend the same, but everybody with the same tax effort should have access to the same minimum funding level," said Lawrence O. Picus, the director of the Center for Research in Education Finance at the University of Southern California.

Sen. Moseley-Braun also called the study and its methodology "valuable guidance to Illinois policymakers as they grapple with ways to reform school funding."

At 33 percent, Illinois' state share of school costs was the seventh lowest in the nation, the report found.

Rating Equity

Some of the highlights from the U.S. General Accounting Office's new report, "School Finance: State Efforts To Reduce Funding Gaps Between Poor and Wealthy Districts.''

  • A state's share of school spending may have a bigger impact on equity than targeting state aid to low-income districts. Washington state did little targeting, but contributed 75 percent of all school funds in 1991-92. As a result, its poorest districts had just $225 less per pupil than wealthy ones.
  • Targeting state aid can move districts closer to parity, but it does not close the equity gap. Connecticut provided three times more state aid to poor than wealthy districts in 1991-92. But well-to-do districts raised three times more revenue than impoverished ones and spent 34 percent more per student.
  • Twenty-nine states would have had to "significantly shift their funding away from wealthy districts to poor or middle-income districts or both,'' the study found, to enable all districts to spend the state average per pupil while also charging the average tax rate.
  • The top five states where school funding was most closely related to local income wealth were Maryland, Massachusetts, Montana, New York, and Virginia. The five states where funding was least related to income wealth were Alaska, Nevada, Oklahoma, Texas, and Wyoming.

For a free copy of the report, which is numbered HEHS-97-31, send requests to: U.S. General Accounting Office, P.O. Box 6015, Gaithersburg, Md. 20884-6015; or call (202) 512-6000; fax: (301) 258-4066; TDD

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