Pressure Mounts for Overhauling Finance Systems

By Bess Keller — February 07, 2001 10 min read
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With hundreds of millions of dollars at stake, state lawmakers in any given year are more likely to talk about changing the way they distribute money to school districts than to actually do anything about it.

But as the 2001 legislative sessions gather steam, experts say that some states have never been more primed for school finance reform than right now.

In part, that’s due to the latest crop of court rulings mandating that states do right by students in disadvantaged districts. Compounding that pressure from the courts are continuing demands for tax relief, as well as the strain on school resources that has come from the national push for higher student achievement.

Legislators’ interest in changing the way they pay for education is also being helped along by the relatively sound condition of most states’ bank balances, even though the recent era of record state surpluses may be ending. With enough money, state leaders have the option of addressing the needs of poorer, usually less politically powerful districts, while at the same time helping wealthier districts—or at least easing the blow that may come from redistributing state revenue.

“There has been a relatively friendly environment for raising the worst-off school districts by raising everybody,” observed Nicholas W. Jenny, a fiscal analyst with the fiscal-studies program of the State University of New York’s Rockefeller Institute of Government. “You can do things like that because you can afford to.”

Still, national trends play out in local circumstances. If school finance lands near the top of a legislature’s to-do list, there’s usually a compelling reason why. For instance, at least two states—New York and Ohio—currently face strict court deadlines for devising new school finance systems. In another two, Illinois and New Hampshire, stopgap education funding measures are approaching their expiration dates, meaning that state leaders risk throwing districts into disarray unless the states come up with new funding plans.

A number of states—California, North Carolina, and West Virginia among them—are grappling with lawsuits charging that the state has shortchanged some students in low- wealth districts.

Meanwhile, some two dozen high-wealth Texas districts have agreed to file a suit challenging their state’s finance system on the grounds that it has unfairly and illegally helped poor districts at the expense of richer ones.

Governors in two states—Massachusetts and New York—have proposed simplifying their complicated aid formulas, while leaders in several other states, including Kansas, Maryland, and Texas, are calling for new information that they say is critical to any revamped formula: the bottom-line cost of a decent education.

Legal Angles

The issues of taxation, control, and distribution that swirl around state funding of public schools have always invited controversy. But some 30 years ago, advocates for poor children began taking to the courts, arguing that the school funding arrangements that prevailed in many states were unconstitutional. The advocates said that because property wealth—which is typically tapped for the support of schools—varied so much from district to district, children in some places ended up with far fewer educational opportunities.

In the past decade, proponents of school finance reform have generally downplayed the argument that children should have equal access to educational resources in favor of one that centers on the right to a constitutionally “adequate” education.

That reasoning has proved powerful in the courts. Reform forces prevailed in about two-thirds of the more than 25 major, high court rulings that came down in state school finance cases between 1989 and 1999, according to Michael A. Rebell, who heads a New York advocacy group that won a court ruling last month striking down that state’s finance system. (“N.Y. System of State Aid Thrown Out,” Jan. 17, 2001.)

Not coincidentally, the shift in legal strategy parallels the rise of the academic-standards movement. The standards that have been adopted by virtually every state in essence specify, for the first time, the level of achievement that school funding is expected to buy. And tests linked to the standards provide a clear indication of which students are furthest from meeting the standards.

With clearer academic goals, too, analysts began to devise formulas to link spending to achievement at the school and district levels. Suddenly, courts had more workable ways of directing change, experts say.

So too did lawmakers. “Legislators who used to say, ‘We’re not going to give more money till we know what we’re buying,’ now kind of know what they want,” said John H. Augenblick, a Denver-based consultant who advises state leaders on school finance issues. “The attempt to validate numbers characterizes a lot of the activity that’s going on out there.”

The enthusiasm among advocates for poor students for court-ordered remedies has not dimmed, virtually ensuring that school finance will remain on the front burner in some states for years to come. About 15 states are currently embroiled in major suits involving education finance, according to Stephen M. Smith, a policy specialist for the National Conference of State Legislatures in Denver.

The ruling handed down last month by a trial-level court in the nationally watched New York case has buoyed the hopes of finance-reform proponents in other states in part because the judge detailed the elements of an acceptable system of paying for schools. The New York decision held that the state’s way of doling out money had failed to provide the students of New York City with an adequate education and must be revamped. State officials have vowed to appeal the ruling.

“The decision in New York was wonderful,” said Karen Royster, the executive director of the Wisconsin Policy Research Institute in Milwaukee, who noted that her state has a funding structure similar to that of New York. “In the long term, people here are looking at a funding-adequacy model.”

Few Quick Fixes

But court decisions often only start a process that drags out over years, as cases wend their way through the appeals process and legislators’ fixes fail to pass muster with the courts.

Observers say that Gov. George E. Pataki’s decision to appeal the New York ruling, for example, will likely lead to several more years of litigation. Meanwhile, Mr. Pataki, a Republican, is working this legislative session to persuade lawmakers to go along with his own plan to revamp the state’s arcane finance formula by combining 11 funding mechanisms into one. The change would almost certainly not satisfy the recent court ruling, and it is expected to be a tough sell to the legislature besides.

In Ohio, Gov. Bob Taft and fellow Republican legislative leaders have advanced competing plans for fixing the school funding system. The Ohio Supreme Court, which in the past four years has twice declared the state’s system unconstitutional, in part because of its heavy reliance on local property taxes, has set a June 15 deadline for a new arrangement.

“It’s almost a pingpong match between the legislature and the state supreme court,” said Michael P. Griffith, a policy analyst with the Denver-based Education Commission of the States. “They get a little closer each time, but they are not there yet.”

Neither the governor’s nor the legislative leaders’ proposal calls for new taxes or for the infusion of money that a consultant’s study recommended, based on costs in successful Ohio schools. In 1998, voters overwhelmingly rejected a state ballot initiative that would have raised more than $500 million for the schools through a 1 percent sales tax.

Both New York and Ohio were among a handful of states that recently received failing grades for allowing wide disparities in school spending among districts. The grades came from Quality Counts2001, a report published last month by Education Week. In that listing, New Hampshire, where the state has shouldered less than 10 percent of the cost of financing the state’s schools, ranked dead last.

For more than three years, in response to a decision of the state supreme court, New Hampshire lawmakers have struggled to come up with a plan for paying a bigger share of the state’s school bill without introducing either a sales or an income tax.

In the saga’s latest twist, a state trial court last month declared an interim statewide property tax invalid because of problems with setting the rates fairly, and it ordered that the money be returned to towns. Gov. Jeanne Shaheen, a Democrat, has appealed the ruling. She is expected to soon put forward a proposal for a permanent solution to the finance problem, which now includes a $200 million shortfall in needed school funds.

“The ruling has cast doubt on a major source of revenue that the state has relied on for providing an adequate education,” said Dean Michener, the chief of government relations for the New Hampshire School Boards Association, adding that “the requirement has not gone away.”

If New Hampshire legislators fail to reach an agreement by this spring, school districts will have trouble drawing up their budgets, and the state’s bond rating is likely to falter.

In neighboring Vermont, the finance overhaul enacted with surprising swiftness in 1997 now faces challenges from a state House of Representatives that is newly controlled by Republicans. The arrangement uses a statewide property tax to equalize spending among districts; that method has had the effect of raising tax rates while reducing available funds in the state’s wealthiest districts.

Gov. Howard Dean and fellow Democratic leaders in the legislature have signaled an interest in a compromise, perhaps one that would no longer require towns that tax themselves at a higher rate than the state specifies to give up some of their extra revenue to a “sharing pool.” The lost amount might be made up with state money.

Texas Suit Planned

A similar debate has been percolating in Texas, where better-off districts have complained for some time about having to raise money locally for poorer ones.

By the end of last month, 22 districts had signed on as plaintiffs in a planned lawsuit challenging the state’s 1993 school finance system, which was approved by the legislature after a decade- long legal battle to improve the quality of schools that poor children attend. The Texas Constitution prohibits any statewide property tax, but under the finance plan, wealthier districts must give up part of their tax revenue to the state for poor districts.

Meanwhile, legislative leaders in the Lone Star State have shown an interest in appointing a commission that would examine the current finance law and report back in time for lawmakers to consider a possible overhaul in 2003, when the legislature next meets.

In Illinois, where spending disparities between districts remain among the greatest in the nation, the legislature must decide what to do about a 1997 school finance law set to expire this year. The law guarantees a minimum per-pupil amount of just over $4,400 across the state, and a panel appointed by Republican Gov. George H. Ryan to study education funding recommended modestly increasing that amount.

But a larger overhaul, such as the one sought unsuccessfully five years ago by former Gov. Jim Edgar, another Republican, almost certainly is not in the cards this year, analysts predict.

Gov. Bill Graves of Kansas also appointed a task force last year to examine that state’s method of paying for schools. In its December report, the group called for a study to determine the price tag of the “suitable” education guaranteed by the state constitution and the Republican governor has asked the legislature this year for money to fund the study.

“The only way to know what a ‘suitable’ education is, is to figure out the components and add up their costs,” said Bruce D. Baker, an education professor at the University of Kansas in Lawrence. Like a growing number of educators and policymakers around the country, he sees such a calculation as a good first step toward building a better finance formula.

State leaders in Maryland are taking a similar approach with a different methodology. There, a commission appointed by the legislature has hired Mr. Augenblick’s consulting firm, Augenblick & Myers, to derive the cost of an adequate education by looking at successful schools. The idea is to present lawmakers with a concrete model of school achievement and then ask them to pay for it, perhaps as soon as next year.

Yet even with all the attention being devoted to school finance around the country, how many state systems will be significantly different by year’s end remains an open question.

“I think there’s more-than-average activity,” Mr. Augenblick said. “But it’s hard to tell whether activity will result in real change.”

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A version of this article appeared in the February 07, 2001 edition of Education Week as Pressure Mounts for Overhauling Finance Systems


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