Application for Education

CHAPTER

HEADLINES

The last chapter does not involve specific services or expenditures, but

rather focuses on the overall economic and fiscal effects of individual state

and local government fiscal behavior. Although economic conditions in a

jurisdiction are different and separate from fiscal conditions of the govern-

ment for that jurisdiction, it is important to consider the relationship

between economic and fiscal conditions. That states compete for economic

activity is obvious; whether that competition is effective in increasing
welfare is not.

EDUCATION

An Act
To close the achievement gap with accountability, flexibility, and choice, so that
no child is left behind. . . . Each State plan shall demonstrate that the State has

adopted challenging academic content standards and challenging student acade-
mic achievement standards . . . Each State plan shall demonstrate that the State
educational agency, in consultation with local educational agencies, has imple-

mented a set of high-quality, yearly student academic assessments . . 1
—NO CHILD LEFT BEHIND ACT OF 2001

494

“A STATE JUDGE RULED LAST NIGHT THAT AN ADDITIONAL $5.6 BILLION MUST BE SPENT ON

[NEW YORK CITY’S] PUBLIC SCHOOLCHILDREN EVERY YEAR TO ENSURE THEM THE OPPORTUNITY

FOR A SOUND BASIC EDUCATION THAT THEY ARE GUARANTEED UNDER THE STATE CONSTITUTION,

BEYOND THAT, ANOTHER $9.2 BILLION MUST BE SPENT OVER THE NEXT FIVE YEARS TO

SHRINK CLASS SIZES, RELIEVE. OVERCROWDING, AND PROVIDE THE CITY’S 1.1 MILLION STUDENTS

WITH ENOUGH LABORATORIES, LIBRARIES, AND OTHER PLACES IN WHICH TO LEARN,

TILE DECISION IS A LANDMARK IN ONE OF THE NATIONS BIGGEST SCHOOL-FINANCE

CASES. . . THOUGH VIRTUALLY EVERY STATE IN THE NATION HAS BEEN EMBROILED IN LAWSUITS

OVER SCHOOL SPENDING, THE NEW YORK SUIT HAS BEEN MORE CLOSELY WATCHED, IN PART

BECAUSE OF THE NUMBER OF STUDENTS AND THE DOLLAR FIGURES AT STAKE. 2 ”

‘U.S. Department of ‘Education. Public print of I’L 197-110, the No Child left hint Ad Of 2007,
http: // www.eclgov /policy/elsealeg/esea02/inciex.html.

`Winter, Greg, “Judge Orders Billions ut Aid to City Schools.” The New York Tin http://nytimes.com ,

Febrvaty 15, 2005.

495

PART V ■
APPLICATIONS AND POLICY ANALYSIS

ER NINETEEN ■ EDUCATION

816 2,162 19:1
375

3,849 2,055 22:1 2,275
‘Total enrollment in fall of that school year.

‘Current expenditures per pupil in average daily attendance.

SOURCE: U.S. Department of Education.
Digest of Education ,

2003, 2004.

Education is, by almost any measure, thepr
rn primary se rvice p by state-local

governments in the United States. You have already learned rovided

that expenditures on
elementary and secondary education represent the single largest category of
state-local government spending, equal to nearly a quarter of aggregate subna-
tional government direct general expenditure in 2003. Elementary and secondary
education is an even larger fraction of local government spending, nearly 41 per-
cent in 2003. This is five times as great as local spending for police and fire protec-
tion and about nine times as great as local spending on roads. Public elementary
and secondary education teachers represent about 15 percent of total state-local
employees and about 25 percent of local government employees.

In the 2001-2002 academic year, expenditures for public elementary and
secondary schools were nearly $431 billion, equal to about 4.3 percent of GNP and
$8,203 per student in average daily attendance at those schools, as shown in
Table 19.1. Public-school expenditures have increased substantially over this
period–by more than 100 percent just since 1990-but generally remained
between 3.5 and 4.0 percent of GDP during this time. Expenditures per pupil also
have increased substantially over the past 40 years, even in real terms (after
adjustment for inflation). In fact, real expenditures per pupil by public elementary

in 1960 (see Figure 19.1). and secondary schools were about three and one-half times as great in 2002 than

In Fall of 2001, 47.7 million students were enrolled in these public schools.
Public-school enrollment generally increased in the 1950s and

1960s-peaking in elementary schools in the late 1960s and in secondary schools in the mid-1970s, as
shown in Figure 19.2. After that time, public- (and private-) school enrollment
decreased, largely because of demographic factors, until the mid-1980s. Elemen-
tary school enrollment began to increase again in 1985 and secondary school
enrollment increased starting in 1991. Even more importantly, the fraction of the

2002 $430.6
2000 381.8
1995 279.0
1990 212.8
1985 137.0

Spending as a Percentage per Pupilb Pupil- Year (billion $) (thousands) of GDP Teachers per Pupil
Teacher

Pupils
Spending Spending Spending Puil’

Overview Ot Public Elementary and Secondary Education, Various years

47,688 4.3%
46,857 4.1
44,111 4.0
40,543 3.9
39,208 3.5
41,651 3.7
45,550
35,182

4.1
3.1

(current $) (2001–2002$)b (thousands)
Ratio

$8,203 $8,203

7,394 2,998 16:1

5,989
7,782 2,911 17:1

4,980
7,095 2,552 18:1

3,470
6,988 2,357 17:1

2,272 5,214
5,847 2,168 18:1

7,000

8,000
Constant 2001-02 dollars

……….._____…-4-” 5,000 -• – • • •- •- -• • •- –

4,000

1,408 26:1
3,000

2,000

1,000

Current dollars

1970-71 1975-76 1980-81
0 i . 1 t

1985-86 1990-91 1995-96 2001-02

School year

souRcE: U.S. Department of Education. Digest of Education , 2004.

u. 10

E 20 c

40

8 30 –

50

………

Elementary ——
——-

Total

Secondary

0
1960 1965 1970 1975 1980 1985 1990 1995 2002

School year beginning

T
ea

ch
er

s,
in

m
ill

io
ns

2-

0 • I.

3-

1960

……. __

1965 1970 1975 1980 1985

School year beginning

Number of teachers

————– 7 ————- Pupil/teacher ratio —–

– 35

• 30 o

– 25 2

20

-15 w

– 10 7f5.

-5

0
1990 1995 2002

SOURCE: U.S. Department of Education. Digest of Education , 2004.

497

496

9,000

8,000

1970 40.7
I 1980 96.0

1960 15.6

Figure 19. 1

Current expendi-

ture per pupil in

average daily

attendance in

public elementary

and secondary

schools:

1970-1971 to

2001-2002

Figure 19.2

Enrollment,

number of

teachers, and

pupil/teacher ratio

in public schools:

1960-1961 to

2002-2003

498

able • .2

Governmental Organization of Public Schoolai

Number of

Percent of Public

Independent Elementary

Districts’ Schools

Number of
Public

Secondary
Schools

ER NINETEEN ■ EDUCATION

90.0% 65,228 22,180
90.4 64,601 21,994
91.1 60,808 20,904
90.8 59,015 21,135
90.6 58,827 23,916
91.7 59,326 22,619
91.5 65,800 25,352
93.7 91,853 25,784

1992, 1997, 2002.

strictly comparable to earlier years; different survey coverage.

SOURCES: U.S. Department of Education, Digest of Education , various years; U.S. Bureau of the Census, Governmental Organization, various years.

population aged five and under began to rise in 1988, suggesting that the number
of students enrolled in elementary schools would continue to rise. Importantly,
total expenditures by these schools, per-pupil expenditures, and even real per-
pupil expenditures continued to increase in the 1970 to 1985 period when school
enrollment was declining.

Salaries for teachers and other workers (administrators, librarians, counselors,
maintenance persons, bus drivers) comprise the bulk of the expenditures by pub-
lic schools. Recall from Chapter 7 that employee compensation represented about
63 percent of the noncapital direct expenditure of school districts in 2002. The
number of public elementary and secondary school teachers also has increased
over the past 40 years, including the period between 1970 and 1985 when the num-
ber of students was decreasing. As a consequence, the pupil-teacher ratio also
decreased over the past 40 years, from nearly 26 students per teacher in 1960 to
about 16 in 2002, a decrease of about 40 percent (see Figure 19.2).

Public-school services in the United States are provided both by independent
school districts and by dependent school systems that are part of general-
purpose local governments such as cities, townships, or counties. The number of
school districts decreased substantially over the past 40 years and particularly
between 1960 and 1970, as shown in Table 19.2. 3 Also, substantial decreases
occurred in the number of public elementary schools until 1980. At the same
time, the number of public secondary schools decreased slightly. Since 1995, the

3
The decreases in the 1960s were a continuation of the trend operating at least since 1930. See US. Department of Education (May 1987).

499

ber of secondary schools has been increasing again, reflecting growth in the

ber of students. Thus, the picture that emerges of the provision of public

c
ation since 1960 is one of increasing spending per pupil, largely because of
ases in class sizes and consolidation of both school districts and elementary

Dols within districts.
udgetary data about education spending really do not capture the impor-
ce placed on public education and state-local government educational insti-

. 0xis . Education has been identified as an important means of altering the

co
me distribution, generating social mobility, improving economic growth,
easing the “international competitiveness” of firms in the United States, and

yert improvirig the operation of the political public-choice system in a democ-
itic society. A substantial economic literature shows that the perception of local

schools is an important factor influencing locational choices of both individuals
and firms, and through that, perception also influences property values in

“specific jurisdictions. And perhaps no local government fiscal or political issue
generates as much or as intense public interest and comment as consideration

o
f closing or consolidating local public schools or the results of educational

assessment tests.
State and local governments continue to debate and experiment with three

broad and important public policy issues regarding education: (1) How should
public education be financed, including the relative role for state as opposed to
local governments, the appropriate structure for state aid to local schools, and the
relative roles for various taxes and charges; (2) How can education be produced
most effectively and efficiently, including questions about school and class size,
teacher compensation and training, and the role of technology; and (3) How to
measure and assess educational results and enforce accountability, including
issues about the appropriate structure and uses for student testing, the use of
incentives or penalties for school systems, and the role of the federal as opposed to

state-local government.

FINANCING EDUCATION

Current Practice
Nearly half of the revenue for financing public elementary and secondary schools
in 2002 was provided by state governments, on average; local governments—the
school districts—generated a slightly smaller share from their own sources at
about 43 percent of public-school spending. The federal government has a rela-
tively minor role in financing elementary and secondary education, providing only
8.4 percent of public school spending in 2002, and even private sources of spend-
ing (for private schools) represented only about 8 percent of total school spending
in that year. This division of revenue sources for 2002-2003 is shown in Fig-
ure 19.3a. Importantly, local taxes (mostly property taxes) constitute the bulk of
local revenue for schools and amount to 37 percent of total revenue. Also, fees and
charges represent a very small fraction of revenue for public education. As shown

Year

Number of
School

District?
2001 15,014
2000 15,178
1995 15,834
1990b 15,367
1985 15,747
1980 15,912
1970 17,995
1960 40,520

‘For the Census of Governments years: 1962, 1972, 1977, 1982, 1987,

‘Data since 1990 are not

■ APPLICATIONS AND POLICY ANALYSIS

50 1
500

00 1.01 NINETEEN ■ EDUCATION
PART V ■ APPLICATIONS AND POLICY ANALYSIS

Local

40.1
40.1
42.8
40.7
40.7
40.3
47.5
52.8

Private

7.0
7.2
7.7

10.1
8.6
7.3

10.5
12.3

7.3
6.8
6.1
6.6
9.8
7.2
3.7

43.2
46.4
46.6
44.4
43.4
51.8
56.8

495
46.8
47.3
48.9
46.8
40.9
39.5

………….

Local governments

……………………
_„••- …..

.State governments

1995-96 2001-02
0

1970-71 1975-76 1980-81 1985-86 1990-91

School year

Federal State

6.8 46.2

6.8 45.9
6.2 43.2
5.6 43.5
6.1 44.7
9.1 433
7.4 34.6
3.9 31.1

Table 1J.3

Public Schools
Percent d By

Federal State Local
73 49.7 43.1

Figure t9.4

Sources of

revenue for public

elementary and

secondary schools:

1970-1971 to

2001-2002

All Schools
Percent d By

Capital outlay 11.1%

(b) Expenditure

SOURCE: U.S. Census Bureau.

by the data in Table 19.3, the federal government’s role has always been relatively
small, increasing a bit from 1960 to 1980 but relatively constant since.

The relative roles of state compared to local governments in financing educa-
tion changed dramatically in the 1970s, with the two levels of government effec-
tively switching positions, as shown in Figure 19.4. Prior to the 1970s, state
governments provided about 40 percent of school revenue, on average, and local

SOURCE: U.S. Department of Education. Digest of Education , 2004.

governments provided more than 50 percent. Responding to a number of forces,
state governments attempted to equalize educational opportunity across districts
In the 1970s, which resulted in increased state financial commitments and corre-
sponding decreases in local financial responsibility. The increased state share was
accomplished both by changing the magnitude and type of state grants to school
districts, discussed in detail later. Because the primary local revenue source for
schools (and only source in many states) is the property tax, the increased state

Figure 19.3

Distribution of

public elementary-

secondary

education revenue

and expenditure,

2002-2003

Total: $440.3 billion

State sources
49.0%

Taxes and appropriations
37.2%

Current charges 2.6%

Other local sources 3.0%

Federal sources
8.4%

(a) Revenue

Total: $453.6 billion

Other expenditure 2.9%

Instruction
52.0%

Support services
29.3%

Other 4.6%

Year

2001
2000

1995
1990

198 5
1980

1970
1960

S o
urces of Elementary and Secondary School Funding

SOURCE: U.S. Department of Education, Digest of Education , various years.

Federal government
…………….. ———————————

100

80

; 60

0

C 40

a.

20

U.S. average = 49.0 %

Median states are New Hampshire (49.0) and Georgia (48.5)

SOURCE: U.S. Census Bureau. 2003 Public Elementary-Secondary Education Data.

role in financing education reduced the demand for property tax increases in
these years and, in some cases, resulted in property tax reductions. For a number
of years, the state government share of school finance was a bit larger than the
local share. After being about equal in the first half of the 1990s, the state share has
again exceeded the local share since.

Great diversity exists among states in the relative role of the state government in
financing education. In fact, the varied roles that state governments play in educa-
tion are even greater than for most other services. The distribution of states by
the state government’s share of public-school expenditures in 2002 is shown in
Table 19.4. State government provides more than 60 percent of revenue in ten states
and less than 40 percent in another nine states. At the opposite extreme, the public
schools are substantially financed by local governments in South Dakota (the state
share is 34.1 percent of revenue), Nebraska (34.5 percent), Illinois (35.6 percent),
Connecticut (36.3 percent), North Dakota (36.5 percent), and Pennsylvania
(36.7 percent). In contrast, elementary and secondary education is a state govern-
ment function in Hawaii where local school districts do not exist, and the state
generates 90.1 percent of revenue for school expenditures (the federal share is rel-
atively large in Hawaii because of the substantial U.S. military presence in the
state). Other states with a substantial state share include Arkansas (74.2 percent),
Minnesota (73.7 percent), and New Mexico (72.6 percent). The U.S. average is
49.0 percent, and the median states are Georgia (48.5 percent) and New Hampshire
(49.0 percent).

State Government Percentage of Public Elementary-Secondary

South Dakota
Nebraska

34.1
34.5

Massachusetts
Rhode Island

41.4
41.5

Wyoming
Oregon

50.9
513

North Carolina
West Virginia

60.3
60.9

New Mexico
Minnesota

72.6
73.7

Hawaii 90.1

Illinois 35.6 Maine 42.1 Oklahoma. 51.4 Washington 62.4 Arkansas 74.2
Connecticut 363 New Jersey 42.5 Mississippi 53.9 Michigan 63.2
North Dakota 36.5 Colorado 43.4 Wisconsin 54.8 Delaware 65.8
Pennsylvania 36.7 Ohio 44.1 Utah 55.9 Vermont 69.3
Maryland 38.2 Tennessee 44.4 Alaska 57.0
Texas 39.1 Florida 44.5 Alabama 57.1
Virginia 39.6 Arizona 44.9 Indiana 57.1

Missouri 45.4 California 58.0
Montana 46.2 Idaho 59.0
New York 46.2 Kansas 59.0
Iowa 46.8 Kentucky 59.6
Louisiana 48.2 Nevada 59.9
South Carolina 48.4
Georgia 48.5
New Hampshire 49.0

l
School Revenue, 2002-03

PART V ■ APPLICATIONS AND POLICY ANALYSIS pTER NINETEEN ■ EDUCATION
503

States that are considered similar in many other ways have a number of
vesting differences in the state government role in financing education.
michigan, the state share of school revenue is 63.2 percent, but only 35.6 percent

neighboring Illinois. Texas has a low state share (at 39.1 percent), and Louisiana
d Oklahoma are about at the national average (48.2 and 51.4), however,
kansas has the second highest state share (74.2). Vermont is another state with a

e state share (69.3), whereas Connecticut has one of the lowest state shares

.3). Major changes have occurred over time in the role of state governments in
ninny of these states as new financing systems were put in place. For instance, in

1992, Michigan had among the lowest state shares (at 26.6 percent), but had the
seventh highest in 2002 (at 63.2 percent). Similarly, New Hampshire had the low-

est state share at only 8.5 percent in 1992; by 2002, New Hampshire was at the
national average. The obvious conclusion is that there is no one or even typical
way that states finance elementary and secondary education. As you will discover
in this chapter, the economic, political, and social factors that underlie these finan-

cial differences extend as well to the states’ role in regulating education.
Just as differences exist among states in how elementary and secondary educa-

tion is financed, substantial differences also exist among the states in the level of
educational spending, as demonstrated in Figure 19.5. Per-pupil spending on cur-
rent services by all public schools in aggregate was $8,019 in the 2002-2003 school
year, but per-pupil spending averaged less than $6,500 in ten states and more than
$9,500 in seven states and the District of Columbia. At the extremes, per-pupil
spending was $4,840 in Utah but $12,202 in New Jersey. The coefficient of varia-
tion, a comparative measure of variation in distributions equal to the standard
deviation divided by the mean, was .22 for 2002-2003, meaning that among the
states, there was an average of about 22 percent variation in per-pupil spending
around the mean. There has been little long run change in the degree of difference
among states in the level of education spending over the past 40 years, as the inter-
state coefficient of variation for per-pupil spending was .25 in 1992 and 1980, .21 in
1970, and .22 in 1960.

The differences in per-pupil spending among different school districts within
states appear to be about as large as the differences among states. Wayne
Riddle and Liane White (1994, p. 358-62) report, for example, that the ratio of
per-pupil expenditures for districts at the 95th percentile to those at the 5th
percentile had a median value of about 1.5 in 1990 for those states with local
school districts and varied from 3.1 to 1.3. (The ratio is 1 in Hawaii, which has
a state school system.) Similarly, Linda Hertent et al. (1994) report the coeffi-
cient of variation for per-pupil revenues among districts within states varied
from .07 (West Virginia) to .35 (Montana) in 1990, with a median of about .175.
Seventeen states had coefficients exceeding .20. Recall from Chapter 7 that dif-
ferences in expenditures can result from differences in input prices and envi-
ronmental conditions as well as from differences in demand, so that these
differences in per-pupil spending may not correspond to equivalent differences
in educational results.

Eighty-six percent of spending by public elementary and secondary schools in
2002-2003 was for current services to students, as shown earlier in Figure 19.3b.

Figure 19.5

Current spending

per pupil in public

elementary and

secondary schools,

2002-2003

0 0 0
0

0
0

0
0
0

0
0 0

0

0 0 0
0 0 0
‘1,

0 0
0

01
0
0 0

0

0 0
os

00
o a in
LA . se rsi rsi

0 0
0 0

0
0
0

N.

0

us

0
0
In
ct■

PART V ■ APPLICATIONS AND POLICY ANALYSIS copTE• NINETEEN ■ EDUCATION

505

NJ _
NY
CT

MA –
AK
DE
PA _11
RI

MD
ME –
MI

OH
IL

NH

HI
MN

United States
IN

NE
GA —
CA
IA

OR

CO
K5

MO –
ND
WA
TX
SC

NM
LA
KY
NC
SD
FL

– AR
AL
TN
OK
NV
ID

MS
AZ

I
12,202

12,140

.•

13,328

Types oil State Aid
Unless state governments want to operate the public-school system directly (as in
Hawaii), states have to rely on intergovernmental grants to assist local govern-
ments in financing public education, and those grants must be one of the two gen-
eral forms-lump-sum or matching-as described in Chapter 9.

foundation Aid

Lump-sum school grants are usually referred to as foundation aid because the per-
pupil grant represents a minimum expenditure level; the state aid is thought of as pro-
viding a basic foundation on top of which local revenue supplements may be
added. Prior to the 1970s and then starting again in the 1990s, states generally used

lump-sum per-pupil grants to support local education. Those grants were some-
times equal per-pupil amounts provided to all school districts, but more commonly
the amount of the per-pupil grant for each district was directly related to educa-
tional costs in the district or inversely related to some measure of district wealth.
still, the grant is lump-sum because the size of the grant (per pupil) is independent
of the district’s choice about the level of spending (and thus taxes).

In general, a foundation aid program requires a basic grant per pupil and per-
haps a way of reducing the grant for richer districts. A generic formula for a foun-
dation aid grant is

G i = F[1 + Ci] – [RI[V M ]

where

Gi = per-pupil grant to district i

F = basic per-pupil grant or foundation level

C, = cost index for district i

R’ = basic property tax rate set in the formula

Vi = per-pupil property tax base in district i

Suppose, for instance, that a state establishes such a program with F = $5,000
and R’ = $10 per $1,000 of taxable property value (assuming all C, = 1 for a
moment). The largest (per-pupil) grant any district could receive is $5,000, but only
if V, is zero. Compare two school districts, one with per-pupil property value of
$50,000 and the other $100,000. The first would receive a per-pupil grant of $4,500
[$5,000 – ($10 X 50)] and the second $4,000 [$5,000 – ($10 X 100)]. Because the
only district-specific factor in the formula is the property tax base per pupil, which
is outside the direct control of the district, these are lump-sum grants. If both dis-
tricts had identical property tax rates equal to the basic rate in the formula ($10),
both would end up with $5,000 per student to spend. The first would collect $500
in property taxes per pupil and receive $4,500 in grant funds; the second would
generate $1,000 from property taxes and $4,000 from the grant program. Thus, all
districts are guaranteed $5,000 per pupil, which is the foundation amount. If dis-
tricts want to spend more than the guaranteed $5,000 per pupil, they must collect
local taxes to finance all the additional spending.

4,860

7,047
6,8701
6,8681
1 6,647 =

‘ 6,635
6,532

6,450
6,4081
6,395;

6,201
■ 6,127

6,084
16,034

5,816
5,672

.•

10,372
10,322

10,223
9,919

9,669
9,36
9,315

1 9,202
8,99

18,921
8,847

8,588
8,555
8,

8,285
8,218

8,100
8,073

18,019
7,948

17,832
7,743
7,724
7,691

7,534
7,460

‘ 7,449
7,316 I

‘ 7,292
7,262
7,153

‘ 7 101
7,076

SOURCE: U.S. Census Bureau.

The bulk of current spending was for direct instructional expenses, which repre-
sented 52 percent of total spending, while support services accounted for another
30 percent of total spending. In contrast, capital expenditure on such things
as buildings, technology, and transportation equipment represented only about
11 percent of total spending by public elementary and secondary schools.

PART V ■ APPLICATIONS AND POLICY ANALYSIS

In states where costs among districts are substantially different, the nominal
foundation level must be greater in districts with relatively higher costs to ensure
equal real foundation spending. For instance, if costs are 10 percent greater than
average in one district (so C, = .10), and that district has a per-pupil property value
of $100,000, the district’s per-pupil grant would be $4,500 [(1.1 x $5,000) – ($10 x
100)]. This grant, combined with $1,000 of local property tax, would provide $5,500
per student to spend. A similar-wealth district with average costs would receive
only $4,000 in grants. When combined with $1,000 of local property tax, this dis-
trict has $5,000 per student to spend. Per-student spending is 10 percent greater
in the first case because costs are 10 percent greater. In implementing such a for-
mula, one might adjust for two types of cost differences-differences in input
prices (especially for labor) and differences in environment (such as the nature of
the students who are to be educated), as discussed in Chapter 7. 4

Under what conditions would a district’s grant be $0? A district gets no grant if
its per-pupil property tax base is equal to or greater than (F /R .)/ (1 + C1 ). If a dis-
trict’s per-pupil property value is $500,000 and C, = 1 for the example, then the per-
pupil grant is $0 ($5,000 – ($10 x 500)]. The reason is simple: With a per-pupil tax
base of at least $500,000 and standard costs, the basic tax rate of $10 would gener-
ate the full foundation amount in taxes; no grant is required to bring such a district
up to the foundation level. 5

Under foundation aid programs, however, districts often may choose tax rates
greater (but often not less) than the basic rate in the formula. Again, compare two
districts with $50,000 and $100,000 property tax bases per pupil. If they both select
property tax rates of $40 per $1,000 of taxable value, the first collects $2,000 of
property taxes per pupil and receives a grant of $4,500, allowing spending equal to
$6,500 per pupil. The second collects $4,000 per pupil in property taxes and
receives a grant of $4,000, allowing spending of $8,000 per pupil. The difference in
grant amounts does not fully offset the difference in property taxes. Equal property
tax rates do not generate equal amounts of per-pupil spending if those tax rates are
greater than the basic rate in the aid formula. These two districts are not required
or expected to select equal tax rates. In fact, the wealthier district might even select
a higher tax rate.

Guaranteed Tax Ba6e Aid

An entirely different type of state aid to education, called the Guaranteed Tax Base
(GTB) or District Power Equalizing plan, is intended to provide an equal, basic
per-pupil property tax base to each district, rather than basic per-pupil minimum
expenditure level of the foundation program. Per-pupil spending may still differ
among school districts if they choose different property tax rates, but the aid pro-
gram effectively provides the same basic tax base to which the selected rate is

4 But the “costs” must not be determined solely by the recipient government. With respect to labor, for instance, the
index might be based upon average wages for all jobs in the region of the school district.

Note that districts with per-pupil tax bases greater than (F /R1/ (1 + CO will generate more than $5,000 per-pupil in
real revenue and will be able to spend more than the foundation.

AFTER NINETEEN ■ EDUCATION

applied. A GTB plan involves matching grants that reduce the price of education
to the school districts, which is the important economic difference …