Appendix 2

FROM JOEL B. BERKE

or some time we have been warned of an impending fiscal

of the last school year demonstrate that the crisis has now arrived. In many communities teacher layoffs, school shutdowns, and reduction of services have passed from public relations threats to facts of educational life. In other school districts the fiscal sleight of hand that has kept the schools open and the teachers paid has been nothing short of wondrous. After surveying the financial prospects of

JOEL S. BERKE is director, Educational Finance and Governance Program, Policy Institute, Syracuse University Research Corporation, and adjunct professor of political science, Maxwell School, Syracuse University. He is currently directing studies related to educational finance for the New York State Commission on Quality, Cost, and Fi

nancing of Elementary and Secondary Education and for the President's Commission on School Finance. In the

preparation of this article he had the assistance of Barrie L. Goldstein, a student at George Washington University School of Law.

public education for the next few years, one of the nation's leading

gested that experts in school finance could perform a signal service by producing a primer on decremental budgeting for school administrators.1

General recognition of the educational fiscal crisis has been slow to come. Ironically, it has probably been the very bulk of the educational enterprise that has hidden its problems from public view. How, the public might ask, can education be in straitened circumstances when 1) it receives the largest proportion of public support of all domestic governmental services, more than twice as high a percentage as either highways or public welfare, or 2) when state and local governments devote nearly 35% of their expenditures to education, or 3) when the richest nation on earth allocates a larger proportion of its income to education than any of the other large industrialized states of the world?

Yet the signs are unmistakable that the squeeze between rising costs and lagging revenues has finally caught up with the public elementary and secondary schools: Growth in expenditures, for example, has outrun the growth in the economy as a whole; during the last decade, education has averaged a 9.7% annual growth in expenditures while the Gross Na

tional Product was averaging a 6.8% annual increase. When measured

personal income, per pupil educational expenditures were nearly three times greater. Raising the revenues to cover these expenditures has required increasingly more effort on the part of taxpayers. In 1961, state and local revenues as a percentage of total personal income averaged 4.0%. In 1970-71, the effort average was 4.9%. As a result of these trends, rates of expenditure increase are no longer automatically matched by concomitant growth in revenue.2

What makes this fiscal situation most alarming, however, is that even if enlightened citizens groups, voters, and politicians succeed in raising more money for the schools, a crisis will still exist. For we are faced with far more than a failure to provide sufficient funds to support our schools in the style to which they have become accustomed. In virtually every state in the union, systems of finance do not allocate resources in proportion to need, and they frequently provide the least money to schools which face society's most costly and challenging educational tasks. In short we face a double-edged dilemma: first, a failure to raise adequate revenues through equitable means and, second, an inability to allocate revenues in an effective and equitable manner.

PHI DELTA KAPPAN

Adequate Revenues, Equitable Means

Public education is supported by all three levels of government. Local education agencies make the largest contribution, providing better than half the nation's public elementary and secondary school revenues. States follow with 41% of the total, trailed by the national government, which raises less than 7%. Over the past decade these relative shares have changed but slightly. The small decrease in the local revenue proportion has been taken up by increased state and federal aid.

In

Local Taxpayers' Revolt creased resistance to school support and its results are evident at each level of government, but the taxpayers' revolt is particularly acute at the local level this past school year. Examples abound. In California, 30 districts went bankrupt and 60% of proposed increases in school taxes and new bond issues were rejected by voters. In Michigan, 20 of 25 requests for higher property taxes were rejected and 36 of 91 requests to continue current rates also failed to pass. New Jersey suffered its highest rate of budget defeats in history. New York in 1970 fell just one short of equaling its 1969 all-time high of 120 budget defeats. These actions have had a serious impact on school programs. In California, the number of teachers employed dropped by 9,000 while enrollment climbed by 100,000. In Michigan, 4,480 teachers and 248 administrators were notified that they will not be rehired this month. In New York State, a study of budgetary adjustments in 1969-70 showed a net reduction in staff in such important areas as English, foreign languages, guidance, psychological services, art, and music, among others.

Individual districts utilize a bevy of administrative practices that were

never taught in educational administration courses. In Champaign, Ill., two years ago teachers were paid with vouchers which local banks agreed to cash on the understanding that bonds could be sold to redeem the scrip. In big city districts where the crisis was most acutely felt this past school year, teachers have been laid off (Cincinnati, New York, Chicago, Los Angeles, and Detroit), schools have seriously considered closing early (Philadelphia), class size has been increased (Detroit and New York City), experimental programs have been eliminated (Detroit and New York City), school hours have been shortened (Los Angeles and Cincinnati), libraries shut (Cincinnati), and next year's funds used for this year's payrolls (New York City.)3

The Local Property Tax Two structural factors contribute to the fiscal problems at the school district level. First, the availability of referenda on school budgets and bond issues makes education questions one of the few opportunities voters have to register their dislike of higher taxes explicitly and directly. And voters have been doing just that with increasing gusto. According to the Investment Bankers Association, voters in 1960 rejected 11% of the school bond issues put before them; in 1965 the rejection rate was 33%; last year the rate had rocketed to 52%.

Second, the property tax continues to be the mainstay of local government, providing a stable and substantial source of local revenue. This is particularly true for education, for fully 98% of revenues raised by independent school districts come from that levy. As a result of this heavy reliance, however, the defects of the property tax have immense implications for education. Those defects are

several, serious, and sharply felt. Inept, arbitrary, and sometimes discriminatory assessment practices are not uncommon. In a report on state and local finances during the 1966-69 period, the authoritative Advisory Commission on Intergovernmental Relations notes: "While important gains can be observed, it is also clear that much more action toward improved administration of the property tax is still urgently needed."4

A more fundamental criticism of the tax is that its pinch is frequently sharper on the poorer property owner than it is on the more wealthy. While there are some communities where individual housing values and family income are in a fairly constant ratio across all income classes, in most instances those with lower incomes must devote a higher proportion of their expenditures to housing than do those earning more. Thus the tax on property tends to take a higher percentage of income from those lower on the income scale. This regressive nature of the property tax is felt particularly by homeowners whose incomes are fixed or rise more slowly than the average, and educators can count upon fairly constant pockets of opposition to increased school expenditures from such groups.

The feature of the local property tax, however, which contributes most to the fiscal crisis is the uneven distribution of amounts and types of property among school districts. A lower middle-income bedroom community may house the workers of a factory located in a neighboring school district. The high property valuation of the factory, available for taxation in the district of its location, is unavailable to the community responsible for educating the children of its workers in our simplified, but not atypical, example. Variations in property tax base per pupil are immense. Ratios of four or five to one among areas in the amount of property per pupil are not at all unusual. The local property tax, therefore, makes it four or five times easier for some districts to raise a given amount of money from their own resources than it is for others. While it is theoretically possible for the poorer districts to raise equal amounts of revenue by taxing themselves at higher rates than richer districts, what usually occurs in practice is that, even

September, 1971

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