**Equity: Interpretation**

# Equity: Interpretation

**State-equalization effort:** *Education Week* changed the way we graded the states on equity this year, based on the advice of the *Quality Counts 2005* advisory board. We decided to focus our efforts in this section on outcome measures only. Thus, we no longer use the state-equalization effort to measure the equity of school finance systems. The wealth-neutrality score, the McLoone Index, and the coefficient of variation now each count for one-third of the grade.

**Wealth-neutrality score:** This score shows the degree to which state and local revenues are related to the property wealth of districts. This year, wealth-neutrality scores range from minus .251 to .312. A negative score means that, on average, poorer districts actually have more funding per weighted pupil than wealthy districts do. A positive score means the opposite: Wealthy districts have more funding per weighted pupil than poor districts do. Only 10 states have negative wealth-neutrality scores for the 2001-02 school year.

**McLoone Index:** The index is based on the assumption that if all students in the state were lined up according to the amount their districts spent on them, perfect equity would be achieved if every district spent at least as much as that spent on the pupil in the middle of the distribution, or the median. The McLoone Index is the ratio of the total amount spent on pupils below the median to the amount that would be needed to raise all students to the median per-pupil expenditure in the state.

For example, the median-level expenditure per pupil (adjusted to reflect student needs) in Michigan is approximately $6,909. The total amount spent on students who are below that mark is about $5.26 billion. To spend $6,909 on each of those pupils below the median, the state would need to spend $5.73 billion.

McLoone Index = Amount spent on pupils below the median / Amount needed to be spent to achieve "equity"

= $5.26 billion / $5.73 billion

= 91.80 percent

This indicates that Michigan is spending about 92 percent of what is needed to raise all students to the median expenditure. McLoone Index values range this year from 84.5 percent to 100 percent, where perfect equity is represented by 100 percent and the greatest inequity by zero percent.

**Coefficient of variation:** The coefficient of variation is a measure of the disparity in funding across school districts in a state. The value is calculated by dividing the standard deviation of adjusted spending per pupil (adjusted to reflect cost differences and student needs) by the state's average spending per pupil. The standard deviation is a measure of dispersion (i.e., how spread out spending levels are across a state's districts).

For example, the standard deviation for spending in Maryland is about $648. The average per-pupil spending for Maryland is $7,493.

Coefficient of variation = Standard deviation of adjusted spending per pupil / Average spending per pupil

= $648 / $7,493

= 8.65 percent

This year, the range of values for the coefficient of variation is 5.7 percent to 34.6 percent. If all districts in a state spent exactly the same amount per pupil, its coefficient of variation would be zero. As the coefficient gets higher, the variation in the amounts spent across districts also gets higher. As the coefficient gets lower, it indicates greater equity.

**Finance-equity policies:** This year, *Education Week* conducted a survey of state departments of education on K-12 school finance policies and funding systems. The following are definitions for the labels used to describe the basis of each state's funding formula.

**Foundation:** Foundation formulas are based on a set amount of funding that the state deems necessary for a basic education. Responsibility for providing this funding is shared between the state and its local districts, and the level of local effort that is required or assumed varies from state to state. In some states, local districts can levy additional taxes to generate more revenue than the foundation level set by the state.

**Flat grant:** A flat-grant program is based on a uniform allocation of money per student or instructional unit. No adjustment is made based on local fiscal capacity or tax effort.

**Equalization:** States with equalization programs allow school districts to set the amount of taxation or revenue they deem necessary for education, and then ensure that each district has the same ability to raise the revenue. There are three different types of equalization formulas: percentage equalizing, guaranteed tax base, and guaranteed tax yield. *Percentage equalizing:* Such formulas rely on a state-aid ratio, which is the proportion of district wealth to average state wealth. The ratio is used to determine the state and local shares of funding. *Guaranteed tax base/yield:* These formulas equalize revenue through a guaranteed tax base or yield to ensure that districts have equal ability to raise revenues based on similar tax efforts.

**Full state funding:** States with such policies take responsibility for providing all money necessary for a basic education in each district. Districts may levy taxes to spend more than the amount provided by the state.

**General aid:** See individual state footnotes.

**Local-effort equalization:** States with such policies have an additional level of state aid that rewards districts for efforts to raise revenue through local taxes.

Vol. 24, Issue 17, Page 101