School Finance Equity: National Trends

Lindsey Luebchow — Tue, 29 Jan 2008 00:00:00 -0500

Little known is that since the No Child Left Behind Act (NCLB) was passed, the federal government has prioritized "school finance equity" as a goal for states to achieve. In fiscal year 2008, 21 percent of NCLB Title I funds will be distributed based on an Education Finance Incentive Grant formula, a funding stream that has been increasing since NCLB first passed. But few people understand why certain states are deemed more "equitable" than others. You hear a lot of praise and criticism about equitable school funding, but little explanation of what it means or what produced it.

School finance equity typically measures how much per-pupil expenditures vary across districts within a given state. Greater equity means less variation. Sounds simple, but there are many different formulas used to calculate it, and their specifics can be quite complicated (remember statistics and weighted coefficients of variation?). The federal government has its own definition of school finance equity, which you can read more about here from www.EdBudgetProject.org.

Some states are more equitable than others for two basic reasons: (1) decisions made at the state level about how to distribute funding, and (2) the size and number of school districts within a state.

Ed Money Watch will discuss the first reason at length in the future, as we’ll be looking at how different states choose to distribute their funding to districts (for example, in ways that minimize per-pupil expenditure variation and sometimes even take into account the additional needs of students in poor districts).

But there’s also the more basic, easily explained reason for school finance equity differences across states (as seen on this interactive map): the size and number of school districts. If a state has a large number of small school districts, it tends to have more variation in per-pupil expenditure. A smaller number of large school districts translates into less variation and more equity.

This makes sense intuitively—if you aggregate funding in large school districts, and then distribute it among a large number of students in a uniform fashion, local funding disparities are minimized. Small school districts, on the other hand, magnify the influence of local property taxes and thus disparities in local property wealth. Moreover, funding decisions are less centralized, leading to wider variation in per-pupil expenditure levels.

This is one of the reasons why, when you look at national trends in the federal school finance equity factor on this map, the Northeast and the Midwest fare so poorly. They have lots of small school districts. Southern and Western states generally do better because they have fewer, large school districts. In the South and the West, states have an average of 200 districts, with approximately 5,650 students per district in the South and 4,350 students per district in the West. The Northeast averages 330 districts per state, and the Midwest averages almost 430, with significantly fewer students per district (2,670 and 2,055 respectively).

The South is the most equitable region, with finance inequity between districts averaging 10.5%, or $769 (see explanation here). Among Northeast states, average inter-district inequities are much starker than in any other region—14.9%, or $1,618. Of states that rank in the top half of the country in the federal school finance equity factor, only one is in the Northeast and only four are in the Midwest. The other 20 most equitable states are located in the South or West.

Here’s a quick comparison: Florida and Illinois have approximately the same number of students. But Illinois has 881 school districts, with an average of 2,381 students per district, while Florida has 67 school districts, with an average of 39,761 students per district. Florida is ranked 3rd in the county on the federal school finance equity factor, while Illinois is ranked dead last.

Of course there are other reasons while Florida is equitable and Illinois is not—but at a basic level, the size and number of school districts definitely contributes. This isn’t necessarily to say that larger school districts are better. Local control of schools and funding is important in that taxpayers are more involved and stay more engaged in education (and thus are often more apt to agree to higher spending). But it’s a fact that the more localized the monetary decision-making, the wider the variation in school funding.

A similar analysis with more detail is available below this interactive map from www.EdBudgetProject.org. There are also additional maps and analyses that compare spending and achievement trends nationwide.

Fairness & Equity Hearing

Annette Nellen — Mon, 10 Sep 2007 01:00:00 -0400

On 9/6/07, the House Ways & Means Committee held a hearing on Fair and Equitable Tax Policy for America's Working Families. The emphasis was on the AMT, the future of the 2001 tax cuts, and carried interests.

What about these inequities?

Allowance of a mortgage interest deduction on up to two homes and on mortagages totaling up to $1.1 million. There is no reason to allow a mortgage interest deduction on a home other than one's principal residence and the debt amount is too high. Even in Silicon Valley, the median home price is not $1.1 million.
Fantastic benefits for employees who have employer-provided health insurance and health care. The benefit generally is not taxable to the employer and the employer gets to deduct the cost.

These are two examples of "tax expenditures." They cost the government in terms of lower tax collections. However, they are not direct spending so they do not show up on the budget expenditures. But, they are the equivalent of spending. Example: The government could give write a check to homeowners to help subsidize the debt on their home or they could give them a tax deduction of that would result in the equivalent amount.

These tax benefits are worth more to individuals in higher tax brackets - those with higher incomes.

Why not lower these (and other generous) tax provisions and use the freed up funds to reduce taxes for everyone or use the funds to help provide health insurance to more people or provide housing benefits to more people. The mortgage interest deduction "costs" the government about $80 billion per year and the non-taxable health insurance provision "costs" about $100 billion per year (per 2006 Joint Committee on Taxation report). That's a lot of money!

Where do you think greater equity and fairness can be brought to the federal tax law?

This post was originally published at http://21stcenturytaxation.blogspot.com.