November 17, 1999

School Finance:
Slowly, the Burden Shifts
To the States

By Debra Viadero

With concerns on the rise about making school spending more equitable, state and federal governments will likely be asked to assume even greater shares of school costs.

In 1900, when the town of Stow in eastern Massachusetts was paying Josephine Newhall the less-than-princely sum of $323 to teach three grades for one semester, the townspeople more than likely picked up the tab.

At the time, schooling was largely considered a community responsibility, and Stow and towns and cities like it all across the United States shouldered nearly 80 percent of the costs of educating their young citizens. Massachusetts, chipping in a meager 15 percent on average, was no different from most states.

How times have changed.

Increasingly over the decades to follow, states began to bear a larger proportion of the costs of schooling. The shift has been so complete that, by 1978, state governments and their local counterparts shared equal portions of the costs of education. Each side now picks up roughly 45 percent of the tab. The federal government, a newcomer in the school funding mix, pays about 7 percent of K-12 education costs.

It's a trend, experts say, that is here to stay. With concerns on the rise about making school spending fairer and more equitable for all children, state and federal governments will likely be asked to assume even greater shares of school costs in the next century.

In Stow, as in most Massachusetts communities, citizens had assumed financial responsibility for their schools since the 1600s, according to Madelyn Holmes and Beverly J. Weiss, who document the town's educational history in their 1995 book Lives of Women Public Schoolteachers. And, as late as the 1870s, when Miss Newhall was just beginning her career, teachers boarded with townspeople and taught in one-room schoolhouses built with the sweat and the pooled resources of local families.

But education underwent dramatic changes as the 20th century dawned. Compulsory education laws in most states were drawing more students to schools. Families were moving from farms to cities, making it easier for children to attend school regularly. Established school systems were building high schools for the first time. And immigrant children were showing up at schoolhouse doors in record numbers.

Glaring Inequities

To meet the demand, state aid to schools increased 1½ times from 1900 to 1915, according to a 1960 school finance textbook. But local support outran it, more than doubling over the same period. And the story was much the same over the next 15 years.

It quickly became apparent, however, that rapid, uneven growth was leading to some striking inequities in school spending. Wealthier, more populated communities, able to generate more property-tax dollars, could afford to spend more to get better schools. Rural communities often just scraped by.

In Arkansas, for example, the highest-spending school districts were devoting 20 times more to education than the lowest- spending communities in 1940, according to one midcentury text. Such spending variances led many states to establish "minimum foundation programs," beginning in the early 1920s. Those were formulas that set basic funding levels for schools, resulting in some substantial increases in education spending.

But state governments did not decisively enter the funding picture until the 1960s and 1970s, when a string of lawsuits forced them to do so. The lawsuits argued that minimum school funding was not enough, and that to give every student an equal shot at schooling, districts had to spend equal amounts of money.

The precedent for those suits came in Serrano v. Priest, decided by the California Supreme Court in 1971. The decision, based on the equal- protection clauses in the federal and state constitutions, opened up new legal channels for equity advocates in many states.

The States Step In

A major side effect of that burgeoning equalization movement was a significant increase in state spending on schools. "The only way you could really start equalizing across districts with different levels of property wealth was to use states' larger revenue-raising capacity," says James W. Guthrie, a professor of education and public policy at Vanderbilt University.

At the same time, state governments, buoyed in part by new infusions of federal money, were just beginning to come of age, says Allan R. Odden, a professor of educational administration at the University of Wisconsin-Madison.

"The machinery of state government, which hadn't been able to handle the tough issues before, began tackling education, welfare reform, and health," he says. "The whole scope of government action expanded, and education was a frontal piece for a lot of that attention."

The federal role in that expansion was also crucial. Long a bystander in most education matters, the federal government in the mid-1960s, as part of President Lyndon B. Johnson's War on Poverty, enacted a wide range of programs requiring or pushing states to do more to serve their neediest, most challenging students.

Title I programs for poor children sprang up along with Head Start services for disadvantaged preschoolers. A new federal special education law passed in 1975 required schools to provide a "free, appropriate education" to children with disabilities.

While growing, federal dollars still subsidized only a small fraction of education costs. But federal mandates and financial incentives began to drive more and more state spending.

A new wave of finance lawsuits in the 1990s has forced yet another re-examination of school funding practices. "We're not satisfied with equal dollars now," says Guthrie. "The whole challenge now is to make them adequate." States are being forced to figure out how good is good enough when it comes to academic performance.

Each of these waves of equalization litigation has, in the end, resulted in progress. School finance experts say funding gaps within states have narrowed considerably since the turn of the century.

But while there has been improvement within states, "we haven't addressed the main problem, which is the vast disparities that are interstate,'' says Richard Rothstein, a research associate at the Economic Policy Institute, a Washington think tank.

In a forthcoming report prepared for the Century Foundation, a New York City-based philanthropic group, Rothstein points out that even after adjustments are made for regional cost differences, the richest district in the poorest state spends less than the poorest district in the richest state.

Some experts say that evening out those differences may, in the end, mean a greater role for the federal government. But the fierce tradition in the United States of local control of schools likely means that any greater federal control over school spending won't happen without strong opposition.

Review public elementary-secondary education finance data from the U.S. Census Bureau. (Requires Adobe Acrobat Reader.)

Status of School Finance Constitutional Litigation. School districts and systems in several states have sued for higher funding, citing implicit or explicit funding guarantees in their state constitutions. This "boxscore" page maintained by the College of Education at Illinois University provides a list of these cases, as of April 1997.

>"Redesigning School Finance: Moving the Money to the School." This briefing from Pathways to School Improvement notes that decision-making authority over the school budget is a key prerequisite to effective restructuring. Under the approach discussed here, the state would allocate most dollars in a lump sum directly to schools.

Funding Crisis Forces Action in Michigan. This report from Pathways to School Improvement chronicles how Michigan lawmakers created a $6.3 billion educational-spending shortfall in 1994 by eliminating property tax as a source of school funding--and how that forced the governor, the legislature, and the public to address the school finance issue head-on. Winter 1994.

Reinventing Teacher Compensation Systems. This September 1995 brief from the Consortium for Policy Research in Education presents a detailed argument about why and how teacher compensation should be restructured. The goal: wide worker acceptance, better employee morale, improved organizational performance, and higher individual salaries. See in particular "History of Teacher Pay Changes."

Published Abstracts. Abstracts of recent journal articles by University of Rochester Economics Professor Eric A. Hanushek, who argues that improvement of schools today depends more on better use of resources than on added funds.

© 1999 Editorial Projects in Education Vol. 19, number 12, page 31