THE FISCAL ROOTS OF INEQUALITY IN EDUCATIONAL OPPORTUNITY

PART III: REASONS FOR INEQUITY IN FINANCE

The American public school has come a long way from the days of simple one-room school houses. Designed to educate all children through age sixteen and most well beyond that point, public schools enrolled 47,238,087 students in 1969-70, more than a three-fold increase from the 15,500,000 enrolled in 1900. To teach this army of youth schools employed 2,219,015 professional staff in 1960-70 and spent $39.5 billion dollars. Almost fifty million Americans were thus involved in a full-time basis in public education. More persons than are found in any other segment of American life.

Total expenditures for public education in America have risen dramatically in the past half century and particularly during the decade of the 1960's. Between 1960 and 1970 total expenditures increased by 153% from $15.6 billion to $39.5 billion. During the same period enrollment increased from 36.1 million to 47.2 million, or just 30%.

Expenditures for public education have risen more rapidly than general indexes of the nation's wealth. Public school spending absorbed 2.3% of the gross national product (GNP) in 1949, but by 1967 schools spent 4.0% of GNP. During those eighteen years GNP increased at an average annual rate of 6.4% while school expenditures rose at an annual rate of 9.8%.

These data demonstrate that the direct costs of public education are very large indeed, but they do not include other educational costs which are quite sigificant in magnitude. For example, public school expenditure data exclude the costs of non-public school education, and about 12% of the nation's school children attend non-public elementary or secondary schools. Many youth participate in on-the-job training programs in industry and government, and training and education programs in the armed forces; costs of these activities are not reflected in public education data.

Perhaps the largest single indirect cost of public education, a cost frequently ignored by writers in the school finance field, is the earnings foregone by students who attend school rather than obtain employment. Foregone earnings of students, aged sixteen and above, were estimated at between $20 and $30 billion dollars in 1967, assuming that approximately 75% of them could have been employed if they so desired.

In the absence of explicit Constitutional assignment of educational responsibilities to the Federal Government, plenary power over education rests with state governments. In virtually every state, the legislature is required by the state's constitution to establish and maintain some kind of system of public education. States have traditionally delegated much of their inherent control over education to local school districts, 90% of which are independent of local government but dependent upon the state legislature for their powers. Thus has emerged the system of mixed, or shared, power that characterizes statelocal relationships in public education.

The tradition of delegating state powers to local school districts has the most profound implications for school finance. States usually allow local school districts access to certain taxable resources, typically real property taxes, from which school districts are expected to obtain a considerable portion of their revenues. These local revenues are supplemented with funds derived from state taxes. In 1967 states provided 38% of the funds used for public education, while local school district revenues, mainly from the property tax, provided 54%. These proportions have remained remarkably stable over time. Federal revenues the same year accounted for only 8% of school revenues.

In the early 1930's there were approximately 130,000 local school districts in America, including thousands of one-room, one-teacher districts. The number of districts steadily declined during the 1940's, 1950's, and the 1960's until in 1969-70 there were only 18,904.* The delegation of taxing powers to a vast and changing array of local districts has resulted in two cardinal facts: local school districts are grossly unequal in their local fiscal resources per pupil, and the level of fiscal resources is unrelated to the types of educational programs needed by the pupils of a district. This arbitrary grant of unequal taxing power to local

*In 1969 only 1608 school districts were "dependent" on local town or county governments. Dependent districts are most frequently found in large cities and throughout New England; and in the States of Maryland, North Carolina and Virginia. N.E.A. Research Bulletin, Vol. 48, No. 2, May 1970. National Education Association, Washington, D.C., p. 38.

school districts not only distinguishes American schools from those in most other nations but is the most pervasive single determinant of the quality and level of educational services in local schools.

State governments thus have complete authority over arrangements for financing public schools. States exercise this authority by a variety of legislative actions specifying the conditions under which localities may levy taxes for schools, by appropriating state funds and determining how they shall be distributed among local districts, and by determining rules regarding school expenditures.

Since the 1920's the principle of equalization has been one of the principal rationales for state aid to local school districts. Equalization usually refers to equalization of the tax burden for education or equalization of the provision of educational services. If the universal state practice of delegating to school districts the power to tax implies a public policy that a better quality and quantity of public services should be provided to the rich than to the poor, then the presumed intent of state "equalization" programs is to nullify the fiscal and educational impact of the delegation of the property tax to local districts. Actually, as we have shown, states have succeeded in equalizing neither tax burdens nor educational services, and the result is a hodge-podge of irrationalities and inequities so confusing that it is obviously wrong to call the arrangement a "system" for financing schools.

The effect of a state decision to use locally levied property taxes as the base for school support was definitively explained in the landmark Serrano decision of the California State Supreme Court in August, 1971. In the majority opinion the Court carefully explained why they voted (6-1) that California's "funding scheme invidiously discriminates against the poor because it makes the quality of a child's education a function of the wealth of his parents and neighbors." The argument is so lucid and persuasive that we quote from it at length:

By far the major source of school revenue is the local real property tax. Pursuant to article IX, section 6 of the California Constitution, the Legislature has authorized the governing body of each county, and city and county, to levy taxes on the real property within a school district at a rate necessary to meet the district's annual education budget. The amount of revenue which a district can raise in this manner thus depends largely on its tax base-i.e., the assessed valuation of real property within its borders. Tax bases vary widely throughout the state; in 1969-1970, for example, the assessed valuation per unit of average daily attendance of elementary school children ranged from a low of $103 to a peak of $952,156—a ratio of nearly 1 to 10,000.

The other factor determining local school revenue is the rate of taxation within the district. Although the Legislature has placed ceilings on permissible district tax rates, these statutory maxima may be surpassed in a "tax override" election if a majority of the district's voters approve a higher rate. Nearly all districts have voted to override the statutory limits. Thus the locally raised funds which constitute the largest portion of school revenue are primarily a function of the value of the realty within a particular school district, coupled with the willingness of the district's residents to tax themselves for education.

Most of the remaining school revenue comes from the State School Fund pursuant to the "foundation program," through which the state undertakes to supplement local taxes in order to provide a " 'minimum' amount of guaranteed support to all districts. ." With certain minor exceptions, the foundation program ensures that each school district will receive annually, from state or local funds, $355 for each elementary school pupil and $488 for each high school student.

The state contribution is supplied in two principal forms. "Basic state aid" consists of a flat grant to each district of $125 per pupil per year, regardless of the relative wealth of the district. "Equalization aid" is distributed in inverse proportion to the wealth of the district. To compute the amount of equalization aid to which a district is entitled, the State Superintendent of Public Instruction first determines how much local property tax revenue would be generated if the district were to levy a hypothetical tax at a rate of $1 on each $100 of assessed valuation in elementary school districts and $.80 per $100 in high school districts. To that figure, he adds the $125 per pupil basic aid grant. If the sum of those two amounts is less than the foundation program mini

mum for that district, the state contributes the difference. Thus, equalization funds guarantee to the poorer districts a basic minimum revenue, while wealthier districts are ineligible for such assistance.

An additional state program of "supplemental aid" is available to subsidize particularly poor school districts which are willing to make an extra local tax effort. An elementary district with an assessed valuation of $12,500 or less per pupil may obtain up to $125 more for each child if it sets its local tax rate above a certain statutory level. A high school district whose assessed valuation does not exceed $24,500 per pupil is eligible for a supplement of up to $72 per child if its local tax is sufficiently high.

Although equalization aid and supplemental aid temper the disparities which result from the vast variations in real property assessed valuation, wide differentials remain in the revenue available to individual districts and, consequently, in the level of educational expenditures. For example, in Los Angeles County, where plaintiff children attend school, the Baldwin Park Unified School District expended only $577.49 to educate each of its pupils in 1968-1969; during the same year the Pasadena Unified School District spent $840.19 on every student; and the Beverly Hills Unified District paid out $1,231.72 per child.

The source of these disparities is unmistakable: in Baldwin Park the assessed valuation per child totaled only $3,706; in Pasadena, assessed valuation was $13,706; while in Beverly Hills, the corresponding figure was $50,885-a ratio of 1 to 4 to 13. Thus, the state grants are inadequate to offset the inequalities inherent in a financing system based on widely varying local tax bases.

Furthermore, basic aid, which constitutes about half of the state educational funds actually widens the gap between rich and poor districts. Such aid is distributed on a uniform per pupil basis to all districts, irrespective of a district's wealth. Beverly Hills, as well as Baldwin Park, receives $125 from the state for each of its students.

For Baldwin Park the basic grant is essentially meaningless. Under the foundation program the state must make up the difference between $355 per elementary child and $47.91, the amount of revenue per child which Baldwin Park could raise by levying a tax of $1 per 100 of assessed valuation. Although under present law, that difference is composed partly of basic aid and partly of equalization aid, if the basic aid grant did not exist, the district would still receive the same amount of state aid-all in equalizing funds.

For Beverly Hills, however, the $125 flat grant has real financial significance. Since a tax rate of $1 per $100 there would produce $870 per

*Statistics compiled by the legislative analyst show the following range of assessed valuations per pupil for the 1969-70 school year: a

PER PUPIL EXPENDITURES DURING THAT YEAR ALSO VARIED WIDELY b

NOTE.-Similar spending disparities have been noted throughout the country, particularly when suburban communities and urban ghettos are compared. (See, e.g., Report of the National Advisory Commission on Civil Disorders (Bantam ed. 1968) pp. 134-436; U.S. Commission on Civil Rights, Racial Isolation in the Public Schools (1967) pp. 25-31; Conant, Slumbs and Suburs (1961) pp. 2-3; Levi, The University, The Professions, and the Law (1968) 56 Cal. L. Rev. 251, 258-259.)

elementary student, Beverly Hills is far too rich to qualify for equalizing aid. Nevertheless, it still receives $125 per child from the state, thus enlarging the economic chasm between it and Baldwin Park.

THE PROBLEMS OF LOCALITIES: URBAN EDUCATION

Children from backgrounds of racial segregation and poverty-whether urban or rural-begin school handicapped. Their verbal skills may be severely limited; their motivation to do school work may be inadequate; their attitudes may be inappropriate to the traditional classroom context. Without the opportunity to overcome these initial disadvantages, the poor child or the child from a minority group is likely to be several grade levels below his peers in the acquisition of basic skills-reading, writing, and mathematics-skills vital to full participation in our society. These early differences in achievement level do not disappear or decrease but become greater as disadvantaged children continue through schools. Similarly, it is these same children who, later on in the education system, are high school dropouts or, having completed high school, do not continue their education. In some urban high schools the dropout rate for minority group children is three times that of their advantaged peers, a disparity tragically reflected in unemployment data.

Thus, disparities in educational achievement are real. Certainly, many factors are responsible for these disparities, some at home and some at school. But school programs are among the few parts to the puzzle that can be directly influenced in the near future by public policy. If the achievement of all children is to be maximized, urban school programs from preschool through college must be overhauled and expanded for many children whose home situation places them at a disadvantage when entering the school system.

The eventual result of this approach will never be equal achievement, because of differences in individual ability. But, actual achievement will be much less closely correlated with race and economic status than at present and presumably more closely correlated with individual ability. This is what equality of opportunity is all about.

This stress on the results of education also thrusts upon urban schools the responsibility for student achievement, not just for provision of educational services, a distinction which is at the heart of many current conflicts in urban education.

Therefore, we suggest that the most pressing concern on the agenda of American education today is to find and implement ways to reduce the high correlation between race and economic class, and school achievement. We hope that one result of this Committee's deliberations will be a renewed national determination to focus the nation's talent and energy on this great challenge of the 1970's.

The most obvious fiscal problem of urban education is that city schools do not have enough money. The aggregate level of resources currently being allocated to urban education by local, state, and national governments is inadequate when compared to requirements for expensive educational services.

But this seemingly simple problem of level of resources turns out, on closer examination, to be a combination of numerous overlapping and sometimes contradictory factors deeply imbedded in the intricate intergovernmental relations of our Federal system. For instance, some problems are primarily local in character, such as municipal overburden, shrinking assessment ratios, or decaying property tax base, matters we shall discuss later in this chapter.

But when such fiscal circumstances are combined with the steady flow of educated people out of cities (a trend that has now been observed for five decades), and their replacement in the city by less well educated persons requiring extensive public services such as education, city schools find themselves in a double bind so serious that the problems exceed the problem-solving capacity of local structures and resources.

Unfortunately, these problems are more often compounded than alleviated by state action. City schools are often hamstrung by state limitations on their taxing power, and by state aid formulas which favor rural and suburban districts. State school aid formulas do not take into account the fact that the central city tax base must be used in a much heavier proportion for non-educational purposes (e.g., police, fire, streets) than is true in suburbia. The result is that state aid, measured on a per student basis, is frequently higher to suburban districts than it is to city districts.

The fiscal problems of urban schools are further aggravated because urban schools feel more keenly than suburban and rural schools the effects of three

major sets of constraints on school board decisions about school revenues and expenditures. The three sets can be called legal, traditional, and socio-economic. First, federal, state, and local laws and rulings restrict the freedom to maneuver of local decision makers. Rights of citizenship under the U.S. Constitution, stipulations of federal statutes and administrative regulations and guide lines, court decisions on rights of property and rights of people, state constitutional and legislative mandates, and municipal policing power all take precedence over school board authority and thus restrict local discretionary authority for budgeting. Statutory restrictions from the state level are especially severe for city school districts; in seven of the fourteen largest cities, state definition of local school board taxing powers is more restricted for city school districts than for other school districts in the same state. Ironically, city schools deliberately sought much of this special law in attempts to insulate city schools from the rigors of city and state political machines.

Second, and perhaps as constraining as legal restrictions though not nearly so visible, is the tendency in big city school systems for their administrative arrangements to become so formal and inflexible that they may impair the functioning of the institution and reduce its potential for adaptability. An example is the tradition in most cities of the so-called "merit" systems for promotions into and within the administrative hierarchy; these systems are frequently devices to insure that no "outsider" can receive an appointment to administrative position, and also function to establish rigid and universalistic criteria for judging all candidates for administrative positions.

Third, a Stanford University study revealed that more than two-thirds of the variation in expenditures per pupil among 107 of the nation's largest districts was accounted for by the wealth of the district and the socio-economic level of its population. This means that local decision-making about urban school budgets must be viewed in the context of a number of de facto limitations on the decisionmakers' autonomy. Working within these limitations, school administrators and school boards tend to assume that existing programs will continue and focus their budget analysis, meager though it is in some cases, upon proposed changes in, or additions to, the existing programs. To simplify the budget process further formulas are frequently utilized to determine how much will be required for particular categories of expenditure. The formulas act to centralize decision-making within the school system and tend to create internally inflexible patterns for allocating school resources, both human and material, since the basic assumption underlying use of formulas is that educational services should be distributed equally.

Urban schools also suffer from the effects of reliance on the property tax as the major local source of school revenue. The property tax is the largest single source of revenue for all of state and local government and provides 51% of all public school revenues. Over 98% of public school revenues from local tax sources are property tax revenues. The yield of the property tax has increased throughout the 20th century, and particularly since World War II, whether that yield is measured in absolute dollars or in relation to the gross national product or population. Table 12-1 compares state and local government property tax yields in selected years.

TABLE 12-1

STATE AND LOCAL GOVERNMENT PROPERTY TAX REVENUE IN SELECTED YEARS, 1902-63 1

1 Source: Dick Netzer, Economics of the Property Tax. The Brookings Institution, Washington, D.C., 1966, p. 2.