FINANCIAL SUPPORT OF SCHOOLS

HISTORY
Jason L. Walton

CAPITAL OUTLAY IN LOCAL SCHOOL SYSTEMS
John G. Augenblick
Anne K. Barkis
Justin R. Silverstein

STATE SUPPORT
Lawrence O. Picus

HISTORY

School finance history is characterized by varying degrees of local, state, and federal support. Throughout history, local support of schools has suffered from glaringly inequitable tax structures resulting in wide variations in funding. State intercession has reduced local control but increased equalization in funding through regulations based on conditions associated with state aid. Federal financial activity evolved rapidly in the latter half of the twentieth century with contributions reaching their highest levels in the 1970s and again in the late 1990s. Federallevel rhetoric about support of education reemerged at the beginning of the twenty-first century, but the levels of funding and programmatic efforts were fractured along political divisions. These trends may be viewed within a historical perspective that encompasses five periods, beginning in 1607.

The Colonial Period

The colonial period began with the establishment of the permanent settlement at Jamestown and ended with the conclusion of the Revolutionary War in 1783. During this period, support and control of schooling were exclusively a local matter. Local support, grounded in either the church or the home, grew from limited support of European investors. Monies that were earmarked for education were often redirected to other community needs, such as the building of hospitals. Schooling in the southern colonies was based on apprenticeships or the use of pauper schools. Wealthier areas in the Northeast supported community-financed grammar schools. The wide disparity in a revenue base for schooling mirrored similar disparities in quality of teaching, buildings, and curricula.

Once agreement had been reached to build and finance a school, local communities identified revenue sources that included subscriptions (specified amounts paid by townspeople), rents, donations, bequests, land grants from the British Crown, and other efforts made from the resources of the town. Puritan-Calvinist New England supported taxation to support an education system of common schools for all students, Latin schools for upper grades, and a college for ministerial preparation. A different system evolved in the mid-Atlantic colonies because these colonies did not have a church majority. Parochial schools dominated, despite their inevitable decline because of a lack of state regulation. State interference was resented and opposed. The state had no role or obligation to support such schools. The dominant trend emerging from the colonial period was that public education should not be limited to poor children or require tuition.

The National Period

The national period began with the close of the Revolutionary War and extended through the end of the Civil War. Publicly supported and controlled education was implemented slowly. Financing of schools suffered because of needs associated with national security, the economy, and a significantly rapid increase in population. Local schools became less accessible due to westward expansion. Greater dispersion of the general population resulted in town decentralization and the establishment of the school district. Creating districts extended the concept of local control but resulted in poorer financing and reduced quality. Despite such limitations, the idea of the common school prospered between 1830 and 1865. The idea of tax-supported schools for all children also prospered. The driving mechanism for the common school movement was an expanding national economy based on manufacturing, trade, and industry.

Tax support during this period took a tremendous step forward. The designation in the western territories of sixteenth section township revenue increased support to common schools. (Revenue from the sixteenth section of each township was earmarked for the support of the township's common school.) Revenue obtained from two other sections within each township was also set aside to endow a university. States from the original colonies that did not have township revenue looked to other methods of tax support including literary funds (New York, Maryland, and New Jersey); liquor-license fees (Connecticut); and state lotteries (New York). Bank taxes were also used between 1825 and 1860. States that did not use direct taxation looked to the property tax, but widespread use of this form of taxation was hard-won. Critics of pauper schools argued that the segregation of the poor into special schools did not represent the American ideal of an egalitarian democracy. Free schools also came under attack, because many were not actually free. In many cases, these schools were supported by rate bills that required a family to pay a tuition based on the number of children attending the school.

One of the main outcomes of the national period was an increase in state supervision with accompanying state requirements. Both outcomes were based on conditional state aid, a tactic also followed by the federal government. Government aid through land endowments to church schools was effectively ended. An outcome of the increase of sectarian control (loss of church dominance) over education was a decrease in the quality of local education and school attendance. This condition continued until state supervision over local outcomes began to increase.

The Post–Civil War Period

The post–Civil War period began with the Reconstruction era and continued until 1905. The Civil War slowed educational expansion in the North, and completely stalled it in the South. Not until 1900 did southern educational standards come to meet the standards of 1860. In the South, education was in such a dilapidated state that the average value of a school building in 1900 was about $100. The South was the last region to establish tax support because of slow improvement in the southern economy and it took the South a much longer time to generate a sufficient revenue stream to meet the needs of a public education system. The North, on the other hand, benefited from rapid urbanization, a vigorous economy, and an increased demand for skilled workers. Taxation reflected earlier trends, with nontax revenues used when possible and the property tax serving as the foundation for securing local support. State funding, when available, was characterized by a wide disparity in levels of aid to wealthy and poor areas.

The Early Reform Period

Beginning in 1905, the early reform period witnessed increases in the general population, the number of students attending school, average daily attendance (ADA), the number of teachers, and programs for handicapped children. Greater revenue was available for maintenance, operations, capital outlay, and transportation. Competition for tax dollars increased due to the growing number of lobbyists for special interest groups. Taxes, while more acceptable, were no more popular, and tax dollars were not automatically available for school support. Of great concern during this time was the idea of finding a fair and equitable means of distributing school funds and of maintaining local control.

This was also the era that witnessed the birth of school finance theory. The evolution of school finance theory can be traced through the work of a handful of scholars. As early as 1905, Ellwood Cubberly argued that the states should be responsible for ensuring that local communities establish and maintain local schools, for requiring employment of qualified teachers for a minimum annual period of time, and for setting requirements for educational outcomes. In 1922 Harlen Updegraff promoted the idea of rewards for local effort, incentive grants, equalization aid, and a variable level foundation program of state assistance based on local tax effort. George Sturgis followed in 1923 with proposed penalties for noncompliance with minimum state standards. Sturgis used a minimum, uniform tax levied for each school district and a level of state aid based on the difference between revenue acquired by a wealthy and a poor district. In 1924 Paul Mort defined a satisfactory minimum program and developed a measure of financial need based on a weighted pupil-typical teacher method that used such factors as ADA, educational level, and size of district. Henry Morrison argued that earlier efforts had failed and proposed a full state support model based on the fact that under law education is a state responsibility. The practical foundation for establishing state support through various aid formulations was created through the work of such theorists.

The Modern Reform Period

The modern reform period began in 1965 when President Lyndon B. Johnson signed the Elementary and Secondary Education Act (ESEA) as part of his War on Poverty. Although this period is known for a diversity of finance-related reforms such as improved property assessment and inclusion of income in district wealth determination, ESEA was the signal event in the evolution of federal financial activity. ESEA enacted a wide range of programs such as Title I, which pushed states to do more to serve their most needy students. Separately, Head Start services were provided for underprivileged preschoolers. Many laws followed ESEA targeting special needs groups including the Bilingual Education Act, the Native American Education Act, and the Education for All Handicapped Children Act (later renamed the Individuals with Disabilities Education Act). Federal aid reached a twentieth-century zenith under the Carter administration (adjusting for inflation), dropped slightly during the Reagan administrations, and resurged again during the two Clinton administrations. Education funding remains a key political issue in the twenty-first century for both Republicans and Democrats, despite their parties' very different views on the funding priorities.

See also: Financial Support of Schools, subentries on Capital Outlay in Local School Systems, State Support.

bibliography

Robelen, Erik W. 2000. "The Evolving Federal Role." In Lessons of a Century: A Nation's Schools Come of Age, ed. Virginia B. Edwards. Bethesda, MD: Editorial Projects in Education.

Viadero, Debbie. 2000. "Financial Burden Shifts." In Lessons of a Century: A Nation's Schools Come of Age, ed. Virginia B. Edwards. Bethesda, MD: Editorial Projects in Education.

Webb, L. Dean; McCarthy, Martha M.; and Thomas, Stephen B. 1988. "History and Background of School Finance." In Financing Elementary and Secondary Education. Columbus, OH: Merrill Publishing Company.

Jason L. Walton

CAPITAL OUTLAY IN LOCAL SCHOOL SYSTEMS

Construction of facilities, including major renovation, additions, and upgrades for technology, is a major expenditure for public schools. Historically these expenses were borne primarily by local school districts, through the issuance of municipal bonds. In the last decade of the twentieth century, states took on a greater role in paying for capital and debt service costs of school districts. The federal government, in a departure from its traditional role, has begun to consider providing a significant amount of support for facilities. This change is stimulated by growing enrollment, the deteriorating condition of buildings, litigation over state funding for facilities, and a desire by lawmakers to equalize funding for facilities as they have done for operating expenditures. States use a variety of approaches to distribute aid for capital, with some states providing a fixed amount per student, some reimbursing districts for a portion of their costs, and some providing support based on a review of the districts' needs. Few components of the school finance system are changing as rapidly as the one focused on facilities.

The Magnitude of Capital Costs

Public elementary and secondary education is provided in more than 91,000 schools nationwide. The majority are elementary schools with enrollments of less than 500 pupils. With the median cost of building a school between $12,500 and $17,000 per student, or $11 million to $26 million per building depending on the school's grade-span, the cost of constructing facilities is a significant component of public school expenditures. In 1997–1998, school districts spent nearly $36.2 billion in capital outlay and debt service, about 9 percent of all expenditures.

Growth in Student Population

Although enrollment in public schools declined in the 1970s and 1980s, from 45.6 million in 1969 to 40.5 million in 1989, enrollment rose in the 1990s and was expected to continue to rise for long into the future. By 1999, enrollment was 46.8 million and projected enrollment for 2009 is 47.1 million. This growth varies from state to state and, more importantly, within states, placing a dramatically different burden on different school districts.

The buildings constructed to accommodate the last wave of enrollment growth have reached the end of their useful lives. Because of the location of population growth and the cost of renovating existing facilities, many new buildings are needed while older buildings are likely to be torn down or used for other purposes.

The Condition of Buildings

Nationally, 76 percent of all public schools require work to bring all school features into good overall condition. Fifty percent have at least one building feature rated less than adequate, and 43 percent of the buildings rate at least one environmental feature less than adequate. Between 1999 and 2001, 51 percent of all U.S. public schools had at least one major repair, renovation or replacement planned. In 1999, 20 percent of public schools had life safety features that rated less than adequate.

More than $5.8 billion in renovations and an additional $5.5 billion in school building additions were scheduled to be completed in 2001. New projects started in 2001 decreased slightly, with $4.6 billion in renovations planned and $5.4 billion in additions. More than 50 percent of all building upgrades planned for 2001 involved electrical overhaul, accommodating new demands for educational technology needs. Of the new middle and high schools constructed in 2001, 100 percent included security equipment. Of all renovations undertaken, more than 89 percent were changes designed to put buildings in compliance with the Americans with Disabilities Act of 1990.

Many studies have been conducted regarding how the atmosphere and environment of buildings affect student learning. These studies examined furniture arrangement, classroom density, noise, and effect of renovation. Furniture arrangement and floor plan reportedly influences student behavior and attitudes toward school. Studies demonstrate that students in high-density classrooms tend to be more aggressive and less socially integrated. Continued exposure to high noise from external sources, such as airports or traffic, correlates with lower reading scores. Children in classrooms with external noise also exhibit greater distractibility, lack of task persistence, and have significantly higher blood pressure than children in quieter settings. Another study showed that elementary school children exposed to noise had lower reading scores and poorer language acquisition. A study comparing performance of children in newly remodeled facilities to those in facilities that had not been renovated reported a positive correlation between parental involvement and condition of school building, and between upgraded school facilities and math achievement.

Litigation

In some states, lawsuits have led to an increase in state funding for capital. A case in Colorado, Giardino v. State Board of Education, resulted in a settlement whereby the state agreed to increase assistance to local districts. This case argued that requiring students to attend less than adequate facilities violated their right to due process, and that the funding system in place created too much variation among public schools, denying a thorough and uniform educational opportunity required by the Colorado Constitution. Roosevelt v. Bishop, an Arizona case, led the state supreme court to require state funding of all facilities to a minimum standard. The court there determined that the state school facilities board must set "minimum adequacy requirements," which every school facility must meet. In response to this decision, three funds were established, providing approximately $1.3 billion in capital funding. The court also set a date by which facilities must achieve the standard. A 2001 Wyoming state supreme court decision, State of Wyoming v. Campbell County School District, found the entire school finance system unconstitutional, but spoke specifically of capital construction, stating that "all facilities must be safe and efficient." It went on to provide a specific definition of safe and efficient, and provided that "the legislature must fund the facilities deemed required by the state" for all students in Wyoming.

State Aid for Capital Purposes

Historically, states played a limited role in paying for school construction. Until the 1980s, the primary role of the state was facilitating the use of bonds by school districts to incur debt for construction; states placed limits on the extent of debt districts could have, typically a proportion of their property value, and required that a supermajority of voters approve the issuance of debt. Some states provide an amount per pupil for capital purposes, others provide loans to school districts, reimburse a fixed percentage of annual debt service, or attempt to pay all capital costs. Some states provide no state aid for school facilities. However, an increasing number of states have implemented new forms of state assistance to supplement local funds. In at least four states, lottery ticket sales are put toward capital expenditures. Florida school districts receive funds from a tax on automobile licensing. California taxes new development to help pay for school construction. Other states have loan, reimbursement, or grant programs that allow local districts to supplement or replace money from local budgets with funds from the state. The state of Arizona, in response to the court ruling, pays for nearly all capital construction in order to ensure a uniform, minimal standard of quality.

The Federal Role

The federal government has provided little support for the capital needs of school districts. During World War II the government provided support to school districts with military installations. This program has continued into the twenty-first century and expanded to include other districts impacted by federal interests. As federal aid for pupils with disabilities expanded after 1965, the government restricted most of its funds to assure that resources were focused on the instructional needs of students. Since the closing years of the twentieth century, attention has been devoted to developing new ways federal aid might be distributed to assist school districts in meeting facilities needs. These include the use of the tax system, through tax credits and tax waivers, to stimulate investment while avoiding direct expenditures. While the federal government is concerned about the condition of buildings and the need for new facilities, it may need to recognize that some of the other policies it promotes, from expanded use of technology to smaller class size, have implications for facilities.

Other Capital Issues

A variety of other issues have implications for capital funding in the future. One issue is class size. Many states are considering requiring smaller class sizes, particularly in early grades, in light of the literature that supports such a policy. If states do require smaller classes, not only would more teachers be needed but more classrooms would be required as well, creating a major impact on elementary schools. Another issue is the expanding use of schools for preschool as well as for learning opportunities for parents. As more states consider moving to full-day kindergarten or providing preschool activities, the demand for space will increase. Schools may respond to this demand in the same way that some have dealt with playgrounds, athletic facilities, and libraries: by sharing their use with municipalities, which allows costs to be shared.

Another issue is technology. As more schools invest in hardware and software, several issues emerge:(1) the capacity to handle the telecommunications wiring and space needs for technology; (2) sufficient equipment to assure access to technology for all students; and (3) the frequency of upgrading technology. This last issue raises the distinction between current operating expenditures–costs consumed in one year–and capital expenditures, which typically have a period of use over which costs may be depreciated. Many technological supplies and materials might be expected to last three to five years, creating a new category of expenditures.

A final issue is emerging from both the states' use of new accountability systems, and the expanding use of technology. As more students can fulfill graduation requirements without actually attending school, and more students use technology to take courses and do homework, the concept of a school may change. If schools serve as a place where students meet with teachers periodically, rather than a place they spend a specific amount of time each day, school buildings, particularly high schools, could take on a new look and become smaller than they are now. The cost of these buildings could decrease substantially. At a minimum, the internal organization of schools might change, reducing the need for libraries, laboratories, and auditoriums, which would lower their cost in communities that had those facilities available in other buildings.

See also: Financial Support of Schools, subentries on History, State Support; School Facilities.

bibliography

Gerald, Debra E., and Hussar, William J. 2000. Projections of Education Statistics to 2010. Washington, DC: U.S. Department of Education, National Center for Education Statistics.

Lewis, Laurie, et al. 2000. Condition of America's Public School Facilities: 1999. Washington, DC:U.S. Department of Education, National Center for Education Statistics.

Maxwell, Lorraine E. 1999. School Building Renovation and Student Performance: One District's Experience. Scottsdale, AZ: The Council of Educational Facility Planners International.

Snyder, Thomas D., and Hoffman, Charlene M. 1993. Digest of Education Statistics 1993. Washington, DC: U.S. Department of Education, National Center for Education Statistics.

Snyder, Thomas D., and Hoffman, Charlene M. 2000. Digest of Education Statistics 2000. Washington, DC: U.S. Department of Education, National Center for Education Statistics.

internet resources

Abramson, Paul. 2002. "2002 Construction Report." <www.peterli.com/spm/special/constrpt/2002/2000rpt.cfm>.

Sielke, Catherine C., et al. 2001. "Public School Finance Programs of the U.S. and Canada: 1998–1999." <http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2001309>.

John G. Augenblick

Anne K. Barkis

Justin R. Silverstein

STATE SUPPORT

School finance involves the interrelated issues of raising, distributing, allocating, and using revenues for the purpose of educating children. Early in the twentieth century, local school districts were primarily responsible for providing funds–mostly through property taxes–for schools. Considerable disparities in the per pupil property wealth of school districts led to dramatic differences in both local property tax rates and in the amount of money available for schools. It was not uncommon to find districts with very low tax rates and high expenditures as well as districts with high tax rates and low expenditures.

In 1968 plaintiffs in California filed the first successful legal challenge, known as the Serrano case, to such school funding systems. The California state supreme court held that such inequities were unconstitutional and ordered the state to equalize spending differences based on property wealth. Challenges have been filed in most other states and have been successful in about half of these cases. In the late 1980s, plaintiffs began to challenge state funding systems by arguing that they do not provide adequate resources for education. These cases have been successful in a number of states, most notably in Kentucky, Ohio, and Wyoming.

Faced with such court rulings, or in many cases simply faced with a legal challenge, states have increased the level of support for schools. Whereas in 1920, local property taxes accounted for nearly 90 percent of school district revenues, by 2001, the federal government provided about 6 percent of school revenues with the remaining 94 percent shared approximately equally between states and local school districts. Although these percentages vary considerably from state to state, the general pattern of increased state involvement in the funding of schools is clear.

States rely on two major types of intergovernmental grants to school districts and use a variety of distribution formulas to actually allocate funds to each district. The two major types of grants are general aid and categorical grants.

General Aid

General–or unrestricted–aid represents the largest source of state revenue for local school districts in all of the states. General aid is money distributed to school districts with relatively few strings attached. This money, combined with local resources, usually represents between 70 and 90 percent of a district's budget and is spent for such things as teacher salaries, administrators, operations, and maintenance, instructional support, and the general operations of the schools. Much of this money is distributed to school districts in inverse relation to the local property wealth per pupil, with the intended consequence of equalizing differences in revenue capacity. States use the following mechanisms to allocate general aid to school districts.

Flat grants. A flat grant is a fixed amount of money given to each school district regardless of need. Popular in the early twentieth century, flat grants, if they are used at all, are relatively small today. Flat grants have lost favor because of their disequalizing impact and the fact that they provide assistance to districts regardless of local property wealth.

Foundation programs. Under a foundation program, the state establishes a base–or foundation–level of revenue that each district should maintain. It also establishes a required tax rate that each district must levy. The state then provides resources to each school district to make up the difference between the foundation level and how much is raised by that school district though the required property tax rate. If a district raises more than the required amount some states take those additional funds and use them to finance the state's share in other districts. This process is known as recapture. A foundation program works well in states where the court has ruled that some minimum level of funding is necessary to insure adequate educational opportunities.

Guaranteed yield. Another approach is to guarantee each district the ability to raise money as if it had a specified level of property wealth. The state establishes a guaranteed wealth level and as under the foundation program, districts with per pupil property wealth below that guarantee are given state aid so that at any tax rate they can raise as much revenue as the district whose wealth is equal to the guarantee. As before, wealthy districts are able to raise more than the guarantee. Some states recapture this difference and others do not.

The principle difference between foundation programs and guaranteed yield programs is that under a foundation program all districts are required to level a fixed tax rate and have the same revenue guarantee. This provides for considerable equity across districts, but limits local choices over how much to spend. Districts seeking to spend more than the foundation guarantee must do so with unequalized local property taxes. To the extent that the foundation level defined by the state does not grow as fast as school district revenue needs, larger portions of total revenue will become unequalized. This problem occurred in many states in the last half of the twentieth century.

Guaranteed yield programs specify a wealth guarantee. This gives districts more flexibility in determining how much they wish to spend, and insures that all districts (whose wealth is less than or equal to the guaranteed level) have access to the same level of per pupil revenue with equal tax rates. This approach allows for more local choice, but if the wealth guarantee does not keep up with growth in property values in the state, it too can lead to substantial portions of local revenue not being equalized.

A common solution to this problem is a twotiered approach to distributing general aid to school districts. The first tier is a traditional foundation program requiring all districts to levy a minimum property tax and guaranteeing funding at a minimum level. The second tier relies on a guaranteed yield system, offering districts an equal amount of revenue per pupil for each increment in property tax rate above the foundation required tax rate. This guarantee often is capped at some level. Some states even allow districts an unequalized property tax above the second tier.

Categorical Grants

Not all students have the same needs. Some children have disabilities that require special assistance to help them learn. There is also considerable evidence that children from low-income homes are at a disadvantage in learning compared to children from higher-income families. Therefore, simply providing an equal level of revenue for each child may not offer equal educational opportunities. In addition, the characteristics of school districts may lead to differences in cost structures that must be compensated for if all children are to have equal access to educational services. Categorical grants are generally used by states to compensate for these differences in student and district characteristics. Among the categorical approaches most frequently in place are the following.

Pupil weighting. Something of a hybrid between general and categorical aid, the practice of pupil weighting counts students with special needs more than once before general state aid is distributed to school districts. For example, a child with a learning disability may receive an additional weight of one, meaning he or she is counted as two students for the purpose of state aid distribution. This has the effect of reducing the districts per pupil property wealth and hence increasing the state aid per pupil, and of providing that state aid for that child twice. It is assumed that the additional revenues will be used to meet the needs of the children who generate the funds, although not all states actually require that.

Program-specific grants. An alternative approach, program-specific grants give districts additional money based on child or district characteristics. For example, grants could be provided to help fund the special educational needs of children with disabilities. This can come in the form of direct reimbursements, or paying a fixed amount of money for each child so identified. In the case of compensatory education (money for children from low-income homes), additional revenue is often provided to enhance educational opportunities. Generally it is required that the funds be spent on the children who generated the funds in the first place.

States also provide categorical funds to assist districts with programs where costs may vary for reasons that are out of the control of the district. For example, geographically large but sparsely populated districts generally have higher transportation costs per pupil than do more densely populated urban districts. Many states provide separate transportation assistance to districts to compensate for these differences.

Geographic cost differences. In addition to the cost differences that school districts experience described above, across most states there are substantial differences in the costs of the personnel, supplies and materials that schools purchase. Some states have begun to make adjustments to state aid formulas to accommodate these differences. For example, the costs of housing may be higher in large urban areas of a state compared to rural areas. In addition, there may be more competition for individuals with high levels of education and training (such as teachers) in some areas of a state. As a result, it may cost a district more to provide exactly the same services different parts of any state. Therefore, a geographic cost adjustment could be included in the state aid formula to adjust for those differences. These adjustments are often controversial and frequently poorly understood by state policy makers. Their intent is to equalize differences in costs faced by school districts that are out of their control. But legislators faced with allocating more money to other parts of the state often have difficulty supporting such adjustments and as a result they are only infrequently used today.

It is likely that over time, as lawsuits focused on school funding adequacy grow in importance, the state share of support for public education will grow. How states elect to distribute funds to local school districts will not only continue to be an important policy issue, but its importance will grow over time.

See also: Financial Support of Schools, subentries on History, Capital Outlay in Local School Systems; School Facilities; States and Education.

bibliography

Odden, Allan R., and Picus, Lawrence O. 2000. School Finance: A Policy Perspective, 2nd edition. New York: McGraw Hill.

Ladd, Helen F. ; Chalk, Rosemary; and Hansen, Janet S. 1999. Equity and Adequacy in Education Finance: Issues and Perspectives. Washington, DC: National Academy Press.

Lawrence O. Picus