Relationship between county local option sales tax ability and county fiscal capacity and effort to support the public s...

MISSING IMAGE

Material Information

Title:
Relationship between county local option sales tax ability and county fiscal capacity and effort to support the public schools of Tennessee
Physical Description:
x, 119 leaves : ; 28 cm.
Language:
English
Creator:
Brown, Benjamin Horace, 1940-
Publication Date:

Subjects

Subjects / Keywords:
Education -- Finance -- Tennessee   ( lcsh )
Genre:
bibliography   ( marcgt )
theses   ( marcgt )
non-fiction   ( marcgt )

Notes

Thesis:
Thesis--University of Florida.
Bibliography:
Includes bibliographical references (leaves 114-118).
Statement of Responsibility:
by Benjamin Horace Brown, Jr.
General Note:
Typescript.
General Note:
Vita.

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 000086121
notis - AAK1476
oclc - 05364902
System ID:
AA00003903:00001

Full Text













RELATIONSHIP BETWEEN COUNTY LOCAL OPTION SALES TAX
ABILITY AND COUNTY FISCAL CAPACITY AND EFFORT
TO SUPPORT THE PUBLIC SCHOOLS OF TENNESSEE











By

BENJAMIN HORACE BROWN, JR.


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY





UNIVERSITY OF FLORIDA

1978


S..

























To my wife, Sandy, my daughter, Ashley, and to
two wonderful parents all of whom have provided me
with faith, love, and encouragement.
















ACKNOWLEDGMENTS


The writer wishes to express appreciation to Dr. S.

Kern Alexander for his assistance during the preparation

of this study. Special appreciation is also due his

patience and understanding.

The writer is especially indebted to Dr. James Gibbs,

Dr. Carvin Brown, Dr. Frank Yates, and Dr. James Hale for

encouragement, expertise, and personal interest without

which this study would not have been completed.

Not to be overlooked is the writer's family. His

daughter, Ashley, sacrificed her father's companionship

over an extended period of time. The writer's wife,

Sandy, was through it all patient and understanding.


i i















TABLE OF CONTENTS


Page
ACKNOWLEDGMENTS . ...... iii

LIST OF TABLES. . . vii

ABSTRACT. .. . . viii

CHAPTER

I INTRODUCTION. .. . ... 1
Statement of Problem . 2
Delimitations .. . 3
Limitations . .. 4
Justification of the Study . 4
Assumptions . . 6
Definitions . 6
Procedures . 7
Formulation of Null Hypotheses. 8
Test of Significance .. 10
Measures of Capacity .. 11
County Property Wealth. .. 11
County Local Option Sales Tax Ability 13
Combined Property and Local Option
Sales Tax Ability . .. 14
Measures of Effort. .. ... 16

II REVIEW OF RELATED LITERATURE AND RESEARCH .. 18
Measures of Fiscal Capacity ... 19
Property Wealth as a Measure of
Capacity. . 21
Measures Based Upon Income Alone. 27
Uniform Tax Systems . 35
Development of Tennessee Capacity Measures. 39
Early Attempts at Equity and Adequacy .39
First Comprehensive Equalization Plan 42
Implementation of the Index of Taxpay-
ing Ability . 44
Tennessee Educational Finance Act of 1977 47
Summary . . 50










TABLE OF CONTENTS (continued)


CHAPTER Page

III PRESENTATION AND DISCUSSION OF THE DATA 53
Measures of County Fiscal Capacity ... 54
County Adjusted Property Valuations 54
County Potential Property Tax
Yields/ADA .. ... 56
County Adjusted Local Option Sales Tax
Ability .. . 56
County Potential Sales Tax Yields/ADA 61
Combined Property and Local Option Sales
Tax Ability . 66
Measures of County Effort .. ... 67
County Property Wealth Effort Indices .67
County Local Option Sales Tax Effort
Indices . ... 72
County Combined Ability Effort Indices 72

IV FINDINGS. ................. 74
Relationship Between Measures of Local
Option Sales Tax Ability and County Fiscal
Capacity to Support Programs of Education 75
Relationship Between County Adjusted
Local Option Sales Tax Ability and
County Adjusted Property Values 77
Relationship Between County Potential
Sales Tax Yields/ADA and Potential
Property Tax Yields/ADA . 78
Relationship Between County Adjusted
Property Values and Combined Property
and Local Retail Sales Ability Indices. 85
Relationship Between County PPTY/ADA
and Combined County Potential Property
and Sales Tax Yields/ADA. .. 86
Relationship Between Local Option Sales Tax
Ability and County Effort .. .... 87
Relationship Between County Potential
Sales Tax Yields/ADA and Local Option
Sales Tax Effort .. .... ... 88
Relationship Between County Potential
Sales Tax Yields/ADA and County
Property Wealth Effort/ADA 89
Relationship Between County Potential
Sales Tax Yields/ADA and Combined
County Local Option Sales and Property
Wealth Effort/ADA . ... 90










TABLE OF CONTENTS (continued)
CHAPTER Page

IV Relationship Between Combined (PSTY
and PPTY)/ADA and Combined (Local
Option Sales and Property Tax Effort)/
ADA . . 91
Summary . . 91

V SUMMARY, CONCLUSIONS, AND IMPLICATIONS. ... .93
Summary . . 93
Conclusions . 97
Implications . 103

APPENDIX. . ... . .. 108

REFERENCES . . .. 114

BIOGRAPHICAL SKETCH . . 119

















LIST OF TABLES


TABLE Page

1 Actual and Potential County Revenue for the
Support of Programs of Education .. 57

2 Wealth Indices Based on the Rationale Employed
by the Tennessee Education Finance Act of
1977 ... . 62

3 Individual County Effort Indices for the
Support of Programs of Education .. 68

4 Tennessee County Ranks Based on Measures of
Fiscal Capacity and Effort to Support Programs
of Education . 79

5 Summary Data for County PSTY/ADA .. 96

6 Summary Data for County PPTY/ADA 96

7 Summary Data for County Effort Indices 98


vii










Abstract of Dissertation Presented to the Graduate Council
of the University of Florida in Partial Fulfillment
of the Requirements for the Degree of Doctor of Philosophy

RELATIONSHIP BETWEEN COUNTY LOCAL OPTION SALES TAX
ABILITY AND COUNTY FISCAL CAPACITY AND EFFORT
TO SUPPORT THE PUBLIC SCHOOLS OF TENNESSEE

By

Benjamin Horace Brown, Jr.

June 1978

Chairman: Dr. S. Kern Alexander
Major Department: Educational Administration

The primary problem for this investigation was to

determine the relationship between county local option

sales tax ability and county fiscal capacity and effort to

support programs of public education in Tennessee. Investi-

gation of this relationship required the development of

measures of capacity and effort based upon local option

sales tax ability, property wealth, and a combination of

both.

Local option sales tax and property ability were

selected as measures of local fiscal capacity because of

the high percentage of total county support for education

from the local option sales tax and the county property tax

during the period of the study. County revenue receipts

from these two sources comprised over 97.5 percent of all

county revenue for the support of education in Tennessee

during the 1977 fiscal year.


viii











Formulae were developed for and presented in the study

which combined each county's local option sales tax and

property ability into a single index. These indices were

a function of each county's individual local option sales

tax ability, each county's property wealth, and the state-

wide relative usage of each to support education.

Effort was defined in this study as the degree to

which ability was utilized. Formulae were developed for

and presented in the study which calculated each county's

effort based upon property wealth, local option sales tax

ability, and a combination of both.

Eight null hypotheses were developed to test the rela-

tionships between measures of local option sales tax abil-

ity and county fiscal capacity and effort to support pro-

grams of education.

The following conclusions were drawn from the study:

1. A significant positive relationship existed be-

tween counties ranked by local option sales tax ability

and by property wealth.

2. A significant positive relationship existed be-

tween counties ranked by local option sales tax ability

and by indices of combined local option sales tax and

property ability.

3. No significant relationship existed between coun-

ties ranked by local option sales tax ability and by










measures of effort based upon local option sales tax

ability.

4. A significant inverse relationship existed between

counties ranked by local option sales tax ability and by

measures of effort based upon property wealth.

5. No significant relationship existed between coun-

ties ranked by local option sales tax ability and by

measures of effort based upon combined local option sales

tax and property ability.

6. A significant inverse relationship existed between

counties ranked by combined local option sales tax and

property ability and by combined measures of effort based

upon combined local option sales tax and property ability.

The procedures developed for this study can be used

to develop indices of combined measures of ability based

upon several sources of tax revenue. Tennessee could well

utilize this methodology to include local option sales tax

ability in the calculation of county fiscal capacity indices.

Counties with high combined local option sales tax

and property ability were found to be making low effort.

Inclusion of local option sales tax ability in calculations

of required local contributions to the Tennessee minimum

foundation program would constitute a first step in remedy-

ing this inequity.
















CHAPTER I

INTRODUCTION


The expansion of our educational system since World

War II constituted perhaps the greatest single indicator of

the cultural as well as economic advantages of the free

enterprise system. This expansion was characterized by

rates of increase in enrollments and expenditures per pupil

that exceeded those of population or of national income

(Miner, 1968). As a consequence, increasing fiscal demands

were placed on all levels of governmental units. Tax bases

for meeting those demands were developed to provide the

necessary flexibility and adequacy of yield to not only

forestall financial crisis but provide the educational

growth demanded by an increasingly brain intensive society.

The fiscal mainstay of support for education has his-

torically been the property tax. However, the property tax

cannot maintain this position without increasing support

from other tax sources. Colm (1968) found for the United

States as a whole projected revenues for education will

rise more rapidly than projected property tax collections.

Boulding (1968) stated:










The tax systems by which public education is sup-
ported tend to be regressive and inequitable, and
they only seem to be tolerable as long as the total
tax collections for these purposes are smaller than
the needs of this sector of the economy. (p. 212)

The increasing strain on the available tax dollar for

support of educational programs has reemphasized the need

for equitable allocation of state revenues to individual

school districts. Certainly indigenous to any consideration

given to equitable allocation are objective measures of the

fiscal capacities and efforts of local school districts.

This study facilitated the statistical treatment of the

problem by developing measures of county fiscal capacity in

Tennessee which expanded the property index to include local

option sales tax wealth.

Statement of Problem

The primary problem for this investigation was to deter-

mine the relationship between county local option sales tax

ability and county fiscal capacity and effort to support

programs for public education in Tennessee.

To further clarify the problem studied, the following

questions were identified:

Question 1. To what extent were measures of fiscal capacity

based on county local option sales tax ability

related to measures of capacity based on county

property wealth?

Question 2. To what extent were measures of capacity based










on county property wealth alone related to

combined capacity indices based on property

and local option sales tax ability?

Question 3. To what extent were measures of capacity based

on local option sales tax ability related to

measures of effort based on local option sales

tax ability?

Question 4. To what extent were measures of capacity based

on local option sales tax ability related to

measures of effort based on county property

wealth?

Question 5. To what extent were measures of capacity based

on county local option sales tax ability re-

lated to measures of effort based on combined

sales tax and property ability?

Question 6. To what extent were measures of capacity based

on combined sales tax and property ability

related to measures of effort based on com-

bined sales tax and property ability?

Delimitations

1. This study made no attempt to define an "ideal"

tax structure for a county nor recommended changes in the

utilization of revenue sources.

2. This study developed measures of capacity and

effort that were a function of present county use of the

ability bases studied.










3. The data collected were confined to the 1976 and

1977 fiscal years and only represented those years.

4. All county tax revenue data used in this study

represented that reported for current operation and main-

tenance only.

Limitations

1. This study was subject to the reliability of the

data gathered from governmental sources.

2. The relationships between measures of capacity and

effort were only as reliable as the degree to which the

tax bases used for their determination were a true reflec-

tion of district wealth.

3. The relationships between measures of capacity and

effort were only as valid as the accounting procedures used

by the counties in reporting revenue receipts.

Justification for the Study

The State of Tennessee adopted a new plan for financing

a minimum foundation program of public education May, 1977.

A basic change was made in the procedure for determining

each district's amount of state entitlement. However, the

basic reliance on property wealth alone for determination

of required local contributions did not change. Reliance

on some measure of capacity or effort based on property

wealth has remained in effect in Tennessee since 1909.










There existed little question as to the need for new

studies of the relative capacity and effort of Tennessee

counties to support education. The Advisory Commission on

Intergovernmental Relations (ACIR, 1971) has specified

three reasons for this type of study:

1. First, it is tremendously important that the
general public be able to form some reasonable
idea as to how well it is being served by the
government.

2. Well-based financial comparisons are needed by
responsible policymakers-governors, mayors,
legislators and local councilmen and board
members.

3. Thirdly, good comparative measures of fiscal
ability are needed for policy-making and ad-
ministration with regard to grants-in-aid from
one level of government to another. (p. 2)

Since required local effort and fiscal capacity were

inextricably linked in the state allocation formula, the

basic concept of equity of treatment for taxpayers was

impregnably involved in the measurement of relative fiscal

ability.

It was hoped a careful examination of the relationship

between county local option sales ability and county capac-

ity and effort to support public education would provide

an impetus to change the methodology of determining the

county fiscal capacity as specified in the Tennessee

Education Finance Act of 1977.

Tennessee initiated a study of the financing of her

public schools December, 1977. The data and findings of

this study comprise a portion of the Tennessee School Finance

Study Report as filed with the Governor, August, 1978.











Assumptions

1. Property tax assessments reported by the Tennessee

State Board of Equalization were reliable.

2. Tax bases selected for this study were valid indi-

cators of district fiscal capacity to support education.

3. Revenue receipts reported by the counties were

reliable.

4. Similar fiscal relationships for the financing of

public schools existent among various states allowed the use

of general statistical inference tests for measuring

strengths of relationships in this study.

Definitions

ADA-Average Daily Attendance. The aggregate number of

days the pupils of a school district were in attendance

divided by the number of school days in the school year.

Assessment Ratio. The average ratio of assessed

valuation to sales price for property within a certain

class within a county (used to provide a ratio of assessed

value to true market value).

Capacity. The ability to generate revenue.

Effort. A measure of the degree to which capacity is

exercised.

Equalized Assessed Valuation. The full adjusted valua-

tion of real property which is taxable in support of educa-

tion.










State Fiscal Average Effort. A county levying the

state fiscal average rate is making the state fiscal

average effort.

State Fiscal Average Rate. The total state revenue

from a base expressed as a percentage of the base.

Wealth. The amount of a tax base(s) available for

taxation.

Procedures

This investigation was designed to determine the rela-

tionship between county local option sales tax ability and

county fiscal capacity and effort to support programs of

public education. The investigation was an exploratory

field study. Such studies are designed to (1) identify sig-

nificant variables as they exist in a real situation, (2)

discover relations among the variables, and (3) provide a

basic framework for future development, refinement, and

testing of hypotheses.

Because this study involved all of the 95 counties of

Tennessee, no sampling technique was used. The local option

sales tax base was selected for analysis with respect to

impact on capacity and effort of the counties because of

the degree of utilization of this base as a source of local

revenue in fiscal year 1977. Local option sales tax yields

provided over 33 percent of the county revenue receipts for

the current operation and maintenance of county programs of

education during this period.









All data collection was from governmental sources.

Equalized assessed valuations, Tennessee Valley Authority

payments through the State of Tennessee to the counties and

payments directly to counties were obtained from the State

Board of Equalization. Tennessee state retail sales tax col-

lections by county were obtained from the Tennessee Depart-

ment of Revenue. County ADA, school taxes current year,

school taxes prior year, pick-up taxes, interest and penalty

on delinquent school taxes, payments in lieu of county taxes,

and county local option sales tax revenue for education data

were obtained from the State Department of Education.

Equalized assessed valuations, Tennessee Valley Author-

ity payments, and Tennessee state retail sales tax collec-

tions were fiscal year 1976. All other fiscal and ADA data

were fiscal year 1977. Data with one fiscal year discrepancy

were used to simulate the methodology employed by the

Tennessee Education Finance Act of 1977. This methodology

was adopted by the Act because of the unavailability of

the Tax Aggregate Report of Tennessee issued by the State

Board of Equalization until April 12-15th of each year and

the necessity of calculating local requirements for the

minimum foundation program prior to that date.

Formulation of Null Hypotheses

The study was designed to examine the relationship

between county local option sales tax ability and measures

of county fiscal capacity and effort to support programs










of public education. Two measures of wealth were developed

for analysis with respect to determining the degree of

relationship present.

Firstly, measures of local option sales tax ability

and county property wealth were developed using guidelines

specified in the Tennessee Education Finance Act of 1977

(see Chapter II of this study). These measures of wealth

were designated in this study as county adjusted local

option sales tax ability and county adjusted property

valuations respectively.

Secondly, measures of county local option sales tax

ability and county property wealth were calculated using

a state fiscal average rate procedure explained in detail

later in this chapter. These measures of wealth were

designated and abbreviated as potential sales tax yield

(PSTY) and potential property tax yield (PPTY),respectively.

The operational null hypotheses developed from the

questions to be answered in determining the relationship

between measures of local option sales tax ability and

measures of county fiscal capacity stated:

1. There is no significant relationship between the

county adjusted local option sales tax ability

and county adjusted property valuations.

2. There is no significant relationship between the

county PSTY/ADA and county PPTY/ADA.










3. There is no significant relationship between

county adjusted property valuations and com-

bined wealth indices based on property and local

retail sales.

4. There is no significant relationship between

the county PPTY/ADA and combined (county poten-

tial property and sales tax yields)/ADA.

The operational null hypotheses developed from the

questions to be answered in determining the relationship

between local option sales tax ability and measures of

county effort to support programs of education stated:

5. There is no significant relationship between

county PSTY/ADA and county local option sales

tax effort/ADA.

6. There is no significant relationship between

county PSTY/ADA and county property wealth

effort/ADA.

7. There is no significant relationship between

county PSTY/ADA and combined (local option sales

and property tax effort)/ADA.

8. There is no significant relationship between

combined (PSTY and PPTY)/ADA and combined

(local option sales and property tax effort)/ADA.

Test of Significance

Through the rank order method of correlating data,

coefficients of correlation were obtained to determine the










extent of the inverse or positive relationship between the

measures of local option sales tax ability and measures of

county capacity and effort to support programs of educa-

tion.

A t-test of significance was applied to the coeffi-

cients obtained from the rank-order method. The test was

applied to each coefficient through formulating the follow-

ing problem:

1. H : r' = 0 (i.e., r is not significant)

2. H1 : r' $ 0 (i.e., r is significant)

3. If Ho is not rejected, it will be retained.

4. level = .05, t .05 at 93 df = .170.

level = .01, t .01 at 93 df = .238.

5. If calculated t < -.170 or > +.170, reject

H and retain H1 at .05 level.

6. If calculated t < -.238 or > +.238, reject

H and retain H1 at .01 level.

Measures of Capacity

County Property Wealth

Two methods were employed for calculating fiscal

capacity based on county property wealth. Method 1

utilized the procedure specified by the Tennessee Educa-

tion Finance Act of 1977 for determining county adjusted










property valuations (see Chapter II of this study). Each

county's adjusted property valuation thus determined was

expressed as a percent of the state total adjusted property

valuation for analysis. A county's percent of state ad-

justed property value represented the county's percent of

any state aggregate local requirement under the Tennessee

Education Finance Act of 1977.

Method 2 for calculating fiscal capacity based on

county property wealth produced (PPTY)/ADA for each county.

The following formula was used to calculate PPTY:


County A PPTY =
Total state (School taxes current year +

School taxes prior year +

Pick-up school taxes +

County A adjusted property valuation Interest and Penalty on
X
Total state adjusted property valuation delinquent school taxes +

Payments in lieu of

county taxes) (1)


PPTY thus determined represented the dollar yield

from property available in each county of the state if the

state fiscal average effort were exercised. Each county

PPTY was divided by the county ADA to determine county

PPTY/ADA dollar amounts.










County Local Option Sales Tax Ability

Two methods were employed for calculating fiscal

capacity based on county local option sales tax ability.

Method 1 paralleled Method 1 used for determining fiscal

capacity based on county property wealth.

State sales tax was collected at a rate of 4.5 percent

in each county during the 1977 fiscal year. Local option

sales tax was collected "piggyback" from the same retail

sales base but at varying county rates statewide accord-

ing to local referendum. The following formula was used

to calculate each county's percent of the total state

retail sales base available for local option sales tax

levies:


County A percent of state retail sales base =

State retail sales tax collections in County A
X 100. (2)
Total state retail sales tax collections


The data thus developed were statistically compatible

for analysis with county adjusted property valuations de-

veloped using methods specified under the Tennessee Educa-

tion Finance Act of 1977. County local option sales tax

ability data generated using Formula 2 were designated

"county adjusted local option sales tax ability" for use

in this study.

Method 2 for calculating fiscal capacity based on

county local option sales tax ability produced PSTY for










each county. Method 2 paralleled Method 2 used for deter-

mining PPTY for each county. The following formula was

used to calculate each county's PSTY:


County A PSTY =

State total local
option sales tax

State retail sales tax collection in County A revenue for the
-------_- X current operation
Total state retail sales tax collections maintenance of
and maintenance of
programs for
education (3)


PSTY thus determined represented the dollar yield from

the local option sales tax base available in each county of

the state if the state fiscal average effort were exercised.

Each county PSTY was divided by the county ADA to determine

county PSTY/ADA dollar amounts.

PSTY and PSTY/ADA thus developed were statistically

compatible for analysis with county PPTY and PPTY/ADA.

Combined Property and Local
Option Sales Tax Ability

Capacity measures which were based on both property

and local option sales tax ability were calculated using

the following formula:


Combined ability index for County A =


County A percent of + b County A percent of state
state retail sales base adjusted property valuation (4)











where a =

Total state local option sales tax revenue for education
X 100, (5)
Total county revenues for education

and

Total state (school taxes current year +

school taxes prior year +

pick-up school taxes +

interest and penalty on delinquent +

school taxes

payments in lieu of county taxes)
b = X 100. (6)
State total county revenues for education


Combined ability indices computed using Formula 4 repre-

sented each county's percent of the 95 county total fiscal

capacity to support education where fiscal ability was de-

fined as a weighted average of county property and local

option sales tax bases. These indices were a function of

the statewide utilization of the property and local option

sales tax bases for county support of education during the

1977 fiscal year.

A second set of combined measures of ability were com-

puted using data generated in Formulae 1 and 3. Total

potential revenue per ADA from the property and local option

sales tax bases was calculated by summing PPTY/ADA and

PSTY/ADA for each county. This combined ability measure

represented the combined dollar yield available in each










county for each pupil in ADA from the property and local

option sales tax bases if both of these bases were taxed

respectively at rates representing their statewide fiscal

average county usage to support local programs of education.

Measures of Effort

The concept of effort accepted in formulating an opera-

tional definition for use in this study was taken from the

1971 ACIR national study of state and local effort. For

purposes of this study effort was defined as the degree to

which counties were using their fiscal capacities to support

the current operation and maintenance of programs of educa-

tion. An index of 100.0 indicated a county was making the

state fiscal average effort on a particular tax base.

Effort indices for counties based on property wealth

were calculated by the following formula:


County A property effort index =


School taxes current year +

School taxes prior year +

Pick-up school taxes +

County A Interest and penalty on

delinquent school taxes +

payments in lieu of

county taxes
X 100. (7)
County A PPTY










Effort indices for counties based on local option

sales tax ability were calculated by the following formula;


County A local option sales tax effort index =


County A local option sales tax revenue

for current operation and maintenance

of programs of education
X 100. (8)
County A PSTY



County A combined ability effort indices =


Formula (7) numerator + Formula (8) numerator
X 100. (9)
County A (PPTY + PSTY)


The foregoing formulae were designed to generate

measures of capacity and effort for use in testing the null

hypotheses. Data generated by Formulae 1 through 9 were

computed in a manner compatible with rationale utilized in

the methodology employed in the Tennessee Education Finance

Act of 1977 to determine county fiscal capacity. Applica-

tions of these formulae are demonstrated and analyses of

these treatments are described in Chapter III.
















CHAPTER II

REVIEW OF RELATED LITERATURE AND RESEARCH


Consensus on the method of determination of the fiscal

capacity and effort of a local school district has eluded

educators, politicians, and economists alike. Reasons for

disagreement are professed to be multiple; however, among

the most pertinent ranks the realization that the acceptance

of any particular method would cost some districts money.

Also significant are the difficulties associated with at-

tempting to isolate capacity and effort to support a single

cost dimension (education) from the capacity and effort of

a state or local jurisdiction to finance the entire spectrum

of public need.

The review of related literature provides a background

of information and knowledge tracing the development of

rationale utilized in fiscal capacity measures. From this

review a basis was developed for measuring the fiscal capac-

ity and effort of Tennessee counties to support education.

This chapter consists of two parts. Part one traces

the development of fiscal capacity measures with special

attention to basic rationales employed. Studies analyzing










capacities of states and localities were examined with re-

spect to methodology. Part two is devoted to the develop-

ment of capacity measures employed by the State of Tennessee

spanning the period from 1909 to 1977.

Measures of Fiscal Capacity

Two basic approaches have been developed by researchers

in attempting to measure fiscal capacity and effort. One

approach utilized economic indicators, notably some refine-

ment of income or wealth, out of which all taxes were paid.

The second approach subjected available tax bases to vari-

ous levels of tax rates in an attempt to determine "poten-

tial" revenue levels from a uniform tax system. Conceptu-

ally these approaches represented a choice between an

absolute "capacity" measure and an "ability to pay" approach.

Capacity measures based on revenue "potential" have not

relied on single revenue bases. Instead, composite measures

of potential yields from income, property, and consumption

were calculated for analysis. This approach seems to cap-

ture the true meaning of fiscal.

Webster traced the origin of the word fiscal to a

Latin term for public chest, and defined it as "relating to

the public treasury or revenues" (Webster's new, 1971,

p. 210). Incorporating this concept of fiscal, an Advisory

Commission on Intergovernmental Relations (ACIR) study in

1971 defined fiscal capacity as being concerned with the

ability of governments to obtain resources for public










purposes. The emphasis was not on individual tax burdens.

Measures of fiscal effort were determined as a gauge of how

much of their capacity governments were actually using.

Relative to the use of economic indicators to measure

fiscal capacity, discussions have centered around the

alternative acceptance of the economic concepts of stock

and flow. Alkin (1965) asks the question,

Should a measure which represents the yearly flow
of funds such as "income" be used as the measure
of financial ability or, alternately, should the
choice be a measure which is representative of the
total stock of accrued fiscal capacity such as
"wealth" or property valuation? (p. 10)

Measures involving only single bases have emphasized

a concern for individual taxpayer burden (ability to pay)

whereas measures involving multiple revenue bases were

concerned with actual dollar capacities of jurisdictions

(potential revenue). The ACIR (1971) succinctly summarized

this point by stating:

It is especially important to observe that fiscal
capacity involves the financing capabilities of
governments rather than the economic well-being of
people. The two are interrelated, because govern-
ments depend mainly for their financing upon taxes
and other revenue sources that tap the income,
transactions, or property holdings of people. (p. 4)

The basic problem -in determining fiscal capacity, then,

rests in the necessity of choosing between a measure of

revenue potential, a measure of ability to pay, or a measure

giving equitable weight toe ach. Hickrod and Sabulao

(1969) commented:










If the two principal measurements of "ability" or
"wealth", that is income and property valuations,
were closely correlated then the debate over
which is a "better" measurement of ability to
support education would have little importance.
The following state-wide correlations between
the two variables have been observed: .57 (Wiscon-
sin), .40 (New York), .38 (Oregon), .34 (California),
.30 (Massachusetts), .26 (New Jersey), .09 (New
Mexico), .01 (Washington), and one negative corre-
lation, -.18 (Nebraska). Present thinking in
the field does seem to be more favorable toward a
mixture of property valuations and income, or
property valuations, income and the sales tax base,
rather than simply property valuations alone.
There is no agreement on the proportions in this
mixture. (p. 39)

Property Wealth as a
Measure of Capacity

Historically, the most prevalent indicator of fiscal

capacity to support education has been the assessed valua-

tion of property per pupil. Alford (1963) stated that,

"By 1942, the general property tax amounted to only 3.8

percent of all state revenues, as compared with 25.6 per-

cent in 1922 and 42.7 percent in 1902" (p. 2). This trend

allowed the local governments to increase their utilization

of the property tax in a dramatic fashion. Johns and

Morphet (1969) pointed out that by 1966 local governments

were collecting 87.1 percent of all property taxes levied

with a national average indicating schools to be receiving

98 percent of their local revenue from this source.

Due (1970) determined that nationwide, local govern-

ments received about $30 billion or 86 percent of their

tax revenue from the property tax during fiscal year 1969










despite expansion of local nonproperty taxes. School dis-

tricts received 99 percent of their local tax revenue from

the property tax during the same period.

The high level of support for education from property

has prompted many researchers in school finance to deter-

mine assessed valuations per pupil for inter distirct

wealth comparisons with no further discussion or refine-

ment of the measure. However, comparable property valua-

tions are not easily obtained on an interstate basis with-

out using questionable sales ratio techniques. Alkin

(1965) observed that, a pattern has been reasonably

well established of using property valuation as a measure

of fiscal capacity in inter district comparisons and of

using income as a measure in the examination of fiscal

capacities between states" (p. 11).

Hickrod et al. (1975) has advised the use of caution

in blind reliance on property valuations by stating, "

while 'property valuations' have been accepted for half a

century as the measure of local fiscal capacity, there is

now, and there has been for sometime, reservations concern-

ing the validity of this specification of fiscal capacity"

(p. 45).

Hickrod's concern was based upon observed assessment

practices in the State of Illinois. Underassessment has

been traditionally rewarded with more funds from the state,

or less local requirement, or both. Validity of measures










based on property valuation in any state remains in the

hands of a determined and persistent effort at the state

level for equalized assessments.

During the decade of the forties, Johns pioneered the

implementation of "Indices of Taxpaying Ability." By 1955,

some states, either because assessed valuation had not been

equalized or because a satisfactory plan for determining

assessment ratios had not been established, adopted this

method of ability determination (Johns & Morphet, 1960).

The Index of Taxpaying Ability was not designed nor

intended to be a measure of total fiscal capacity. Instead,

the approach was designed to measure the relative ability

of local school systems to pay property taxes. This Index

functioned as a surrogate measure of relative equalized

assessed property wealth.

The procedure employed was to regress economic factors

(e.g., sales tax receipts, automobile license tax paid,

value of farm products sold, and number of gainfully em-

ployed workers) on the true value of property in those

counties where reliable property data were available (Johns

& Morphet, 1960). Weightings assigned to each economic

factor were then used to calculate ability indices based

on relative true property wealth in all counties of a

state.










The basic rationale was that property remained the

best indicator of local ability to finance education and

should be used as such even if relative property wealth had

to be estimated statistically. An additional rationale for

using property wealth as a measure of capacity rests in the

relationship between property valuations and expenditures

for education.

Weiss (1970) evaluated 1,384 communities in the states

of Connecticut, Maine, Massachusetts, New Hampshire, Rhode

Island, and Vermont using property valuation as the measure

of financial ability. Simple correlations between financial

ability and current expenditure per resident pupil were sig-

nificant for every state studied. Brazer (1962), Hirsch

(1960), Sacks et al. (1963), Kee (1965), and Garms (1967)

all have conducted significant research in correlating per

pupil expenditure to wealth of districts and all have found

property valuations to have high correlations.

At Stanford, James, Thomas, and Dyck (1963) utilized a

model with data from 589 school districts in 10 states to

analyze variations in per pupil current operating expendi-

tures. Property valuations surfaced as a significant

element in explaining 77 percent of expenditure per pupil

variation.

A 1969 study by Hickrod and Sabulao of five metropoli-

tan areas (Boston, Chicago, Cleveland, Detroit, and










St. Louis) identified assessed property valuation per pupil

as the leading predictor of school expenditures in three

of the areas and second best in the remaining two.

Research cited seems to indicate that people tend to

spend what they "can" for education. Since property wealth

is the largest single base available for local taxation, a

natural relationship should and does exist between this

revenue source and local expenditure for education. The

rationale employed in developing fiscal capacity measures

based upon consideration for potential revenue for educa-

tion has led researchers to adopt property wealth per pupil

data.

Recently, criticism of using property alone as a

measure of local wealth has emerged. In an attempt to

unite the considerations for potential revenue and indi-

vidual taxpayer burden several researchers have suggested

combined measures of property and income (Hou & Carson,

1977). Odden (1977) indicated that property was no longer

an accurate measure of wealth for either school districts

or individuals.

This expressed concern is not novel; however, pioneer

research in the field of fiscal capacity determination

focused on a combination of income and property wealth.

Strayer and Haig (1923) formulated an index for the coun-

ties of New York based on the average of taxable income










per county plus one-tenth of the full value of the county's

real estate. Norton (1926) used a three-year average state

income plus one-tenth of all tangible property to develop

indices of capacity on an interstate basis. Over 40 years

later James and Cronin (1969) commented explicitly on this

point:

Neither measures of property value nor measures
of income constitute the sole valid estimate of
community taxpaying ability in all communities.
Present reliance on one or the other of the two
lead to unintentional inequities in both taxa-
tion and distribution schemes. Future researchers
doubtless will continue to identify the differ-
ences of the two measures, and the possibility of
developing an equitable mixture of the two or of
finding other valid measures of wealth. (p. 4)

Benson and Kelly (1967) shared a similar philosophy

after conducting a 1966 school facilities study in Rhode

Island. They believed income and property to both be

viable measures of ability. Certain areas of Rhode Island

were found to be high in property values and low in income,

and vice versa. Industrial cities were frequently low in

income but high in property values. They commented:

Because the two measures represent different
dimensions of taxpaying ability, the state should
take each into account in determining local
wealth for state aid purposes. (p. 34)

As a result of the work of Benson and Kelly, Rhode

Island adopted a combination of income and assessed valu-

ation into their 1968 state aid formula. Equalized assessed

valuation was adjusted by the ratio of the school district










median family income to the state median family income

(Hou & Carson, 1977). Rhode Island did not represent an

isolated case. Kansas, Maryland, Connecticut, Virginia,

and Pennsylvania have employed combinations of income and

property as determinants of local fiscal capacity.

One question remains, how can income and property

measures be equitably combined for ability determination?

This question is especially germane in states not utilizing

a personal income tax. Property ownership in a high income

area would immediately assume a greater liability if state

allocations and/or local requirements were based on income-

property combinations of capacity measures.

In summary, the use of property valuations per pupil

persist as the most common measure of the local ability to

finance education for two indubitable reasons. Property

provides in excess of 98 percent of the local support for

school systems across the nation, and per pupil measures

relate this wealth directly to need in a manner useful for

state allocation plans.

Measures Based Upon Income Alone

Much discussion has been generated relative to the use

of some form of income measure of fiscal capacity. Odden

(1977) has raised the use of income in three contexts:

1. For jurisdictions that can levy income taxes,

income is clearly an additional measure of

fiscal capacity.










2. Regardless of the particular tax that is used,

income is the best single indicator of fiscal

capacity, and

3. Income, as an indicator of ability to pay links

taxes raised to the burden placed on the community

and its resources.

Availability of comparable data remains a logistic

consideration for using personal income as a measure of

capacity because personal income data represent the most

comprehensive economic data now available annually on a

state-by-state basis (ACIR, 1962). However, income data

for jurisdictions smaller than state-wide is not as easily

obtained and often must be prorated. This is especially

true when analyzing data for school districts not coterminous

with political subdivisions.

Even when used for interstate comparisons, gross per-

sonal income data have not met certain criteria of past

research. Rationale for refinements have focused on the

concept that gross personal income did not accurately re-

flect the per capital amount available for local taxation

(Johns & Morphet, 1960).

According to Rossmiller (1972) federal income tax paid

and a minimum living allowance are not available for local

taxation and should be deducted from gross income to yield

a more viable measure of relative local ability. As a










consequence, several net personal income measures have been

developed for school finance study.

Johns and Hanilton (1970) deducted $750 per capital for

basic necessities and federal personal income tax paid from

gross personal income to derive a measure of net personal

income per capital. Using the same approach, the Educational

Policy Commission of the National Education Association

(1959) increased the base deduction to $800 per capital. A

1977 school finance study conducted in West Virginia de-

fined net personal income in the same manner as Johns and

Hamilton.

Effective buying income (EBI) represents another gross

income refinement that has received attention in the study

of school finance as a measure of fiscal capacity. EBI

per capital or per household represents the disposable

personal income individuals or households have available to

spend after subtracting all direct taxes-federal, state,

and local (Our children's, 1977).

Each of these refinements represented reductions in in-

come for federal tax paid. Federal tax data for these re-

ductions were not always easy to obtain, however, and their

necessity is questionable. The ACIR (1962) has pointed out

that refinements of this type may not be warranted:

A fairly extensive study of federal tax with-
drawals from personal income made in 1954 details
the conceptual and measurement problems involved
in adjusting for these withdrawals. This study,










as well as the work done by the Office of Business
Economics on developing estimates of personal
taxes by states, points to the conclusion that
the relative position of the states is affected
very little by an adjustment for federal tax with-
drawals. (p. 15)

Alexander (Our children's, 1977) used gross personal in-

come per capital, net personal income per capital, and

effective buying income per capital in a 1977 school finance

study of West Virginia. When compared with five adjacent

states and the United States, West Virginia's rank changed

one position regardless of the income measure used.

Some have proposed that income measures related more

directly to the demand for education should be used to

assess the capacity of states and units of local government

to finance education. Johns and Morphet (1960) stated:

Obviously, the per capital income would not be a
good measure of ability of the various states to
support schools, even though it might constitute
a measure of ability to support certain other
governmental services. (p. 149)

Personal income per person age 5-17, personal income

per child in average daily attendance, and personal income

per child in average daily membership have been recommended

("Variations," 1971). These measures do reflect educa-

tional "burdens" more accurately than per capital measures

and are sensitive to inter district pupil density varia-

tions.

Johns and Hamilton (1970) found that Tennessee ranked

44th among the states on the basis of gross personal income










per capital, net personal income per capital, and net per-

sonal income per capital as a percentage of personal income

per capital. However, when income measures were changed to

reflect educational "burden" Tennessee ranked 38th on

personal income per school age child, 38th on personal

income per child in ADA, and 41st on net income per child

in ADA.

Hou (1975) found that among the 438 Illinois unit

(K-12) districts, the City of Chicago ranked 4th in per

ADA income, 47th in per capital income, and 92nd in median

family income. Consideration given to introducing income

weightings into a state aid formula should include results

from investigation of the possible different effects of

different income weightings.

Regardless of the particular income refinement

selected, a basic question persists relative to the adopta-

tion of income as an element in capacity determination in

states not levying a personal income tax. Should a base

not available for local taxation be included in a measure

of ability? This question must be answered before a

rational selection of a methodology for capacity determina-

tion can be made. Pioneer research in school finance justi-

fied the inclusion of income ability in measures determin-

ing the fiscal capacity of localities only because of its

availability for taxation at the local level. Commenting










on the selection of tax bases for building a composite

ability index for the State of New York, Mort (1926)

stated:

It (selection of tax bases) may be simplified
first by eliminating theoretical ability to
pay from consideration. We need only determine
ability to pay under the tax system actually to
be used. Since we must deal with communities which
have no power over their tax systems except through
state action, we cannot consider their ability as
it would be under an ideal tax system. To build
our system of state aid on such a foundation
would throw excessive burdens upon the actual tax-
payers in some communities, simply because there
happened to be wealth in those communities that
was not taxable under the existing system of
taxation. (p. 16)

Odden (1977) has expressed the desirability of includ-

ing measures of income regardless of its availability as a

source of revenue and has stated, "Even when the property

tax is still the only local tax, income may still be a more

comprehensive and sensitive measure of fiscal capacity.

Studies have shown that income is the single best explana-

tory variable of governmental expenditures" (p. 364). How-

ever, Odden did not claim income to be the best single ex-

planatory variable of governmental expenditures for educa-

tion. Research has shown little relationship between

measures of income and per pupil expenditures.

Johns (1977) commented:

Odden confuses "fiscal capacity" with "fiscal
capability." Including income in the measure
of a district's contribution to the cost of its
state assured program could easily result in
requiring a district to levy property taxes in
excess of its legal limits, if it does not have










the capability of levying local income
taxes. (pp. 98.99)

Numerous studies have been conducted in an attempt to

isolate socioeconomic variables related to effort for edu-

cation. Kay, in a 1973 study of local tax effort in Ken-

tucky, used multiple regression analysis to determine the

relationship of 24 selected socioeconomic variables to

local tax effort. When individual variables were corre-

lated with tax effort, the most significant variable related

to effort was the property tax base.

Sparkman (1977) studied the relationship between

socioeconomic variables and state effort for education in

all 50 states. Twenty-eight socioeconomic variables were

analyzed with respect to their influence on each state's

educational effort. Using two different measures of effort,

the study could explain 38 and 32 percent of the variation

in effort among the states. The factor associated with in-

come measures in the analysis explained only 1 percent and

7 percent, respectively, of the variation in state effort

for education. Rationalization for using income based on

the relationship between income and effort cannot be justi-

fied on the basis of the literature reviewed.

In summary, justification for the use of income re-

mains with its relationship to the ability to pay principal.

Interstate capacity measures will likely continue to utilize

some form of income data until such time as comparable










interstate data for other wealth measures become available.

The use of income in states not taxing this source for

education is questionable in the determination of local

capacity for education support.

Tennessee does not levy a general personal income tax.

The local retail sales and the property tax bases produced

over 97 percent of the county revenue support for the financ-

ing of public school during the 1977 fiscal year. Research

cited did not justify inclusion of measures of county per-

sonal income ability for the computation of measures of

county fiscal capacity where this base was not available

for local taxation. Generally, income measures have been

included in capacity measures where

1. Income represented the only reliable data

base for comparisons, and/or

2. Income taxation was available locally for

support of programs of education.

Neither case applied to the State of Tennessee. A valid

case has been built by past research for using

1. Bases for which valid measures are available, and

2. Bases which are available for local taxation.

These criteria indicate the selection of a combination

of measures of local option sales tax and property ability

to be a valid choice for the State of Tennessee.










Uniform Tax Systems

The second major approach to the problem of measuring

fiscal capacity evaluates tax bases available to a taxing

jurisdiction, determines "appropriate" rates, and estimates

the amount of revenue these bases would produce if subjected

to the selected rates. A Model Tax System, Representative

Tax System, and Average Financing Tax System are some of

the more widely discussed methods of this type for determin-

ing the fiscal capacity and effort of state and local areas.

Although these methods share a common approach, each differs

in the rationale utilized for base and rate selection and/or

determination.

The idea of a Model Tax Plan was developed by the

National Tax Association in 1919. The plan selected bases

and rates thought to produce taxpayer equity and adequacy

of yield. Acceptance of Model Tax Plans for capacity deter-

mination dictated the assumption that an ideal procedure

for raising taxes could be derived, an assumption not sub-

stantiated in the field of economics (Alkin, 1965). How-

ever, by 1935 Newcomer, in her work at Columbia, developed

an index of taxpaying ability of state and local govern-

ments using a Model Tax Plan approach. While Newcomer

assumed a uniform tax in all states, Chism (1936) modi-

fied the Model Tax Plan and applied it directly to each

state in an effort to determine potential revenue available

to finance public schools.










Implementation of tax-based models assumed state

wealth or income to be available for support of education

only insofar as it might be taxed through a practical "

system of taxation. Definitions of "practical" have been

left to the discretion of researchers and/or policymakers.

In 1962, the ACIR explored the possibility of using the

Model Tax Plan approach in a nationwide study and con-

cluded:

Views on the content of a model or ideal state-
local tax system vary widely. No attempt has
been made in recent years to crystalize them
into a consensus .Indeed, the concept
of a model tax system has implications for
public policy (but not necessarily for fiscal
capacity measurement) purposes which may be
at variance with the Commission's underlying
philosophy that local conditions, preferences,
and objectives are so varied among the 50 states
as to preclude a single tax model appropriate
for all the states. (p. 31)

Rather than inject policy decisions into the selection

of an "ideal" tax system, the Commission selected a model

based on prevailing tax practice across the country-or

"Representative Tax System." The "Representative Tax System"

was an average of the tax structures which actually existed

in the States. ACIR members indicated that such a system

reflected the politically accepted here and now. As such,

comparisons of fiscal capacity measures were meaningful in

terms of the kinds of taxes and tax rates politically

available to the states.










A 1971 ACIR study of local fiscal capacity and effort

refined the earlier "Representative Tax System" approach

with the introduction of an "Average Financing System."

Revenue capacity of a particular area was defined as,

"the total amount of revenue that would result by applying

to bases within the area, the national average rate of

each of the numerous kinds of state-local revenue sources"

(p. 7). Thus revenue potential was expanded beyond bases

politically available within each state. Revenue potential

of a state not taxing personal income included revenue from

this source. These measures did not necessarily reflect

the political here and now in each state as did the 1962

ACIR study. This procedure, in effect, weighted each

revenue source according to its nationwide importance.

A third example of the Model Tax System approach has

been calculated by Quindry (1978) in a series of reports

on potential revenue prepared annually for the Southern

Regional Education Board. Quindry applied national average

tax rates to each of 15 bases. All of the tax bases used

in the reports were not utilized by each state. Neither

Quindry's nor the "Average Financing System" approach re-

flected actual practice" in each state. A significant

procedural difference in the Quindry methodology was the

utilization of personal income as a proxy base for com-

puting potential revenue from other tax bases including

general sales. Personal income data were available annually










on an interstate basis and its use represented a viable

estimation of the relative potential of other often non-

unilaterally taxed bases. Quindry further refined his

total revenue potential by including projected motor

vehicle and motor fuel tax collections based on the number

of motor vehicle registrations within a jurisdiction.

Due (1970), in a detailed discussion of alternative

tax sources and/or utilization, developed tables demon-

strating increased revenue potentials of the states. His

technique made no recommendations relative to desirable tax

mixes or rates. Rather his work afforded individual states

the opportunity to examine their revenue potential in rela-

tion to the rest of the nation.

Significant differences to date in uniform tax system

approaches have been the inclusion or exclusion of bases

not taxed in all jurisdictions and the method of rate

determination.

Development of uniform tax system approaches for

capacity measurement allows the researcher flexibility in

base and rate determination. Theoretically a uniform tax

system can be designed to measure local ability to support

education. Among the decisions necessary in designing any

uniform tax system are the following:

1. Should bases be selected that are

a. legislatively available but not presently

utilized?










b. legislatively available and utilized?

c. not legislatively available for taxation?

2. Should rates be determined by

a. dividing aggregate revenue by aggregate bases

in area under study?

b. average rates in all areas under study?

c. a or b but using aggregates from areas larger

than study area (e.g., nationwide rates for

state or local studies)?

d. selecting some "practical" rate?

e. utilizing a "maximum" rate?

Given the choices outlined, it is apparent that the

validity of the final capacity measure rests equally in the

hands of policy decision and economic realism.

Development of Tennessee
Capacity Measures
Early Attempts at Equity
and Adequacy

The 1909 Session of the Tennessee Legislature formally

established a General Education Fund to provide more ade-

quately for the general education of Tennessee's scholastic

population (Tennessee Public Acts of 1909, Section 3,

Chapter 264). Until this time appropriations from the

General Fund of Tennessee were made on a year-to-year

basis. The General Education Fund as established in 1909

constituted 25 percent of the general revenue of the state.










As a part of the General Education Act of 1909, 10

percent of the General Education Fund was set aside as a

"special fund" to be .. used and expended for the

purpose of more nearly equalizing the common schools in

the several counties of the State ." This provision

constituted a major step in Tennessee for equity and ade-

quacy in education.

Participation in this special apportionment required

a minimum local school tax of not less than 40 cents on

each hundred dollars of taxable property, a tax of two

dollars on each taxable poll, and local utilization of all

legal privilege taxes for education. Allocation of the

special fund to qualifying counties was made in

proportion to their scholastic population and in inverse

ratio to the taxable property of the several counties to

scholastic population (Tennessee Public Acts of

1909, Section 3, Chapter 264).

"Equalizing," as used in the 1909 special fund pro-

vision, approached the present usage of the term by at-

tempting to make available adequate funding to all common

schools. Two basic elements of a modern funding mechanism

were present in this historic Act: (1) required local

effort and (2) allocations based on a measure of need and

ability.










Capacity and effort were conceptualized in terms of

property wealth per pupil in this initial attempt to fis-

cally equalize educational opportunities in the State of

Tennessee. No formal recognition was given to the indi-

vidual ability-to-pay principle.

Subsequent amendments (Tennessee Public Acts of 1913,

Chapter 23; Tennessee Public Acts of 1915, Chapter 35)

changed the amounts to be apportioned and/or local require-

ments. Basic reliance on property tax effort did not

change. The policy of basing state allocations for educa-

tional purposes on property tax effort was established and

has remained in some form through the present.

Steps taken by the 1917 Session of the Tennessee

Legislature (Tennessee Public Acts of 1917, Section 2,

Chapter 130) to set aside a portion of the General Educa-

tion Fund as a "Special Equalizing Fund" had the purpose

of aiding in and encouraging the lengthening of the short

school terms in the counties until all the elementary school

terms of the state contained a minimum of 140 days.

Local effort was encouraged by the requirements for

participation in the equalizing apportionment. Amounts

received by the county from the state were dependent on

two dimensions: (1) the length of school term in the

county and (2) the county school tax vote on each $100.00

of taxable property.










Required effort was based on one revenue source-

property.

First Comprehensive Equalization Plan

During the 1925 Legislative Session, Tennessee added

another dimension based on local effort to the general plan

for state financing of education. Flat grant per capital

allocations based on local property tax effort became the

basis for allocating 73 percent of the General State School

Fund to the counties. Each county's portion of this allo-

cation was determined as follows:

Five dollars ($5.00) per capital, based upon the
average daily attendance in the county and city
public elementary schools of the state shall be
distributed annually to each county that levies
less than 30t for elementary schools; six dollars
($6.00) for each county that levies for elementary
schools not less than 30t and under 404; and
seven dollars ($7.00) for each county that levies
for elementary schools 404 or more .
(Tennessee Public Acts of 1925, Section 17,
Chapter 115)

The remainder of the General State.School Fund was

utilized as an equalizing fund to enable the various coun-

ties of the state to provide a minimum school term of eight

months in the rural elementary schools. Enjoyment of the

equalization clause was available to counties only after

the following provisions were met and found to provide

inadequate funding for the operation of eight-month ele-

mentary programs. Each county was required to levy and

collect










(1) a tax of elementary schools of not less than
fifty cents on each one hundred dollars of taxable
property in the county, including any tax for ele-
mentary schools levied by the Legislature and
retained in the county and excluding the State
tax of eight cents for schools as provided in this
Act, (2) a poll tax of one dollar ($1.00), (3) all
privilege taxes and fines allowed by law and that
(4) complies with all other provisions of this
Act .(Tennessee Public Acts of 1925, Section
17, Chapter 115)

Revenues thus determined were added to the allocated

seven dollars per capital. This sum was then subtracted

from the amount required to operate a state defined minimum

program to determine the equalization amount available to

any county experiencing additional need.

The rationale for both the variable flat grant alloca-

tion and the equalization provision was based upon a re-

quired property tax effort. Effort as defined by this

Act required a reasonable exercise of local ability.

Ability was measured by property wealth.

Substantive change did not occur in the method of

determining local ability and/or effort until following the

1945-47 survey of public education in Tennessee. As the

effect of the 1925 plan had become better understood,

property assessment had either been lowered or had not

kept pace with true value (Public education, 1957).

In an effort to amend the inequities of improper

and/or inadequate local assessment practices, the 1947

Legislature felt compelled to move toward a more equitable

method for determining local property valuations. The










method for determining property valuations for each county

as specified in the General Education Act of 1947 follows:

1. The locally assessed valuation of taxable
property in each county in 1946 was adjusted
to reflect equivalent valuations represented
by payments-in-lieu of taxes made by the T.V.A.
and other federal agencies.

2. The total true value of property in each
county in 1946 was estimated by the State
Board of Education.

3. An average of the two above quantities was
computed for each county, and this average
constituted the base for determining the local
contribution. (Tennessee Public Acts of 1947,
Section 8, Chapter 8)

This method determined property valuations by averaging

inequitable local assessments with estimated property values

made by the State Board of Education. Additionally, a

guarantee provision was enacted to insure that no county

would be required to contribute more than it raised for

public school purposes in the 1945-46 school year.

Property was retained as the ability indicator for

capacity determination although problems with obtaining

valid local assessments on a state-wide basis were becoming

obvious. The methodology employed by the 1947 Legislature

constituted a first step in the solution of this problem.

Implementation of the Index
of Taxpaying Ability

Property remained the single base for measuring local

ability until the 1955 Session of the State Legislature

adopted an "index of taxpaying ability"(Tennessee Public











Acts of 1955, Section 5, Chapter 136). Criticism had

steadily mounted relative to certain inequities inherent

in the 1947 index of ability. In a report to the Educa-

tion Survey Subcommittee of the Tennessee Legislative Coun-

cil (Public education, 1957), the following comments were

made:

In addition to the inequities inherent in the
guarantee provisions there was no basis for adjust-
ing the 1947 index to reflect population changes,
construction of new residences and manufacturing
plants, and other factors affecting the relative
taxpaying ability of the counties. (p. 440)

Gibbs (Public education, 1957), in his work to pro-

vide a more equitable method for obtaining valid property

data, employed a procedure utilizing multiple regression

techniques to predict relative property values for the 95

counties of Tennessee. This procedure, pioneered by Johns,

had been implemented in Georgia, Alabama, and Mississippi

prior to 1955 (Johns & Morphet, 1960).

Simply stated, the procedure regressed certain eco-

nomic factors on property values obtained from sales ratio

studies conducted by the railroads operating in Tennessee.

The multiple regression technique produced the following

equation:

Index of Taxpaying Ability =

.105 (county percent of the state total
motor vehicle registration payments
for the three most recent years) +










.069 (county percent of the state total
farm products sold) +

.139 (county percent of the total number of
gainfully employed non-governmental
workers in the state) +

.690 (county percent of the state total
retail sales tax collections for the
three most recent years)

(Tennessee Public Acts of 1955,
Section 5, Chapter 136)
Misunderstanding as to what was being measured and how

it was measured surrounded the procedure. Criticism focused

on its heavy reliance on sales tax collections. The basic

contention was that often a purchaser paid his sales tax

in one county ". while his taxable real estate was lo-

cated in another county and, as a result, property taxpay-

ing ability in cities and towns was unduly exaggerated"

("Public Education," 1957, p. 442). The validity of this

criticism was dispelled by a comparison between the index

of taxpaying ability and an equalized property valuation

index for 20 counties. Comparison indicated the index of

taxpaying ability to be an accurate estimate of the tax-

paying ability of the large metropolitan counties ("Public

Education," 1957).

The economic index of taxpaying ability was not in-

tended to supplant reliance on property wealth in the State

Minimum Foundation Plan. Instead, the "index" furnished

a surrogate measure of each county's percent of the total











estimated true value of taxable property in the

state.

A 1957 survey of public education in Tennessee in-

dicated that if and when a satisfactory plan was

developed for equalizing property valuations among coun-

ties, the actual equalized assessed valuation of taxable

property in each county could be used to determine the

local contribution of the state minimum school program"

( Public education, 1957, p. 442).

Tennessee Educational Finance Act of 1977

In an attempt to implement a funding mechanism that

better met the individual needs of students across the

state, the 1977 Session of the Tennessee Legislature passed

into law the Tennessee Educational Finance Act of 1977.

As a part of the Act, a new method for measuring the fiscal

capacity of the 95 counties was implemented. After a

period of 22 years, the "index of taxpaying ability" was re-

placed by a new method of determining the local ability for

financing programs of education (Tennessee Public Acts of

1977, Section 6, Chapter 289). Implementation of this

procedure was made possible by certain court litigation

initiated in the Federal Court by the L & N Railroad

Company and in the State Court by the Southern Railway

System (Legislation relating, 1967).











The L & N and Southern Railways had sought relief

through the State and Federal Court Systems claiming unfair

discrimination relative to the different assessment ratios

employed with respect to public utilities and residential

properties. The courts in granting relief commented with

respect both to the unconstitutionality aspects involved

and to the facts uncovered by sales ratio studies con-

ducted to facilitate proceedings (Legislation relating,

1967).

The state, in an attempt to remedy the inequities

precipitated by the condition of property assessments,

appointed a tax study commission to conduct a study of

all phases of the problem and recommend remedial action

(Legislation relating, 1967). As a result of the work

of the study commission, four bills relating to the tax

problem were enacted by the Legislature. Chapter 326,

Tennessee Public Acts of 1967, established a procedure

whereby a state-wide reappraisal and tax revaluation pro-

gram was undertaken.

Originally, the total state reappraisal of property

was to have been completed by 1973. As of the fall of

1977, all counties in Tennessee except Monroe, Carter,

and Johnson had completed the state-wide reappraisal pro-

gram begun in 1967 (Annual survey, 1977).











As an outgrowth of state interest in tax equity

the 1972 Session of the State Legislature (Tennessee Public

Acts of 1972, Chapter 746) created a Tax Modernization and

Reform Commission. One major area of study included al-

ternative methods of financing public school systems.

As a part of the final recommendations made by the Tax

Modernization and Reform Commission, a section was devoted

to state-local funding of education (Sharing of state,

1974). Local ability was once again placed in the hands

of equalized assessments of property. Recommendation was

made that each county would be required to provide annually

as its local share of the minimum foundation program an

amount equal to the value of a tax rate determined by

(state aggregate amount of local contribution/95 percent

of state aggregate property assessment) (Sharing of state,

1974).

While final action on the local share measure retained

the basic reliance on equalized property assessments, the

methodology for determining each county's "adjusted

property value" was changed to read as follows:

(1) Obtain the most recent payments in lieu of
taxes paid by the Tennessee Valley Authority
directly to individual counties and to the state
for distribution to individual counties as are
available on March 1. The total amount of such
payments received by each county shall be con-
verted to an equivalent amount of assessed
property value by using the current individual










county tax rate available on March 1. Where
multiple county tax rates exist, the highest rate
shall be used.

(2) Obtain the total assessed valuation for the
county from the most recent Tax Aggregate Report
of Tennessee by the State Board of Equalization
as is available on March 1 each year.

(3) The adjusted county property value shall be
the sum of the total assessed valuation of the
county and the county property equivalent of TVA
payments in lieu of taxes as calculated in sub-
section one (1) above. (Tennessee Public Acts of
1977, Section 6, Chapter 289)

Each county's local share in the basic minimum pro-

gram as well as local fiscal responsibility in capital

outlay was based on this property measure.

Summary

The first section of this chapter provided a survey

of developments of the various approaches to measures of

fiscal capacity. Section two was devoted to a summary

tracing measures of fiscal capacity in Tennessee. Ration-

ale employed by Tennessee did not appear incongruent with

general developments of rationale employed in previous

research.

One fundamental choice made by previous researchers

focused on the use of only those tax bases available for

taxation. The 1962 ACrR study indicated that this decision

allowed the capacity measures to represent the political

here and now.











The selection of property wealth for capacity deter-

mination in Tennessee represented a natural choice since

historically property has represented the bulk of local

support for education in the state. This choice held

counties accountable for a degree of effort from the base

available to them. Tennesseans have viewed this require-

ment as an equitable one since 1909. Even during the

period (1955-1977) when Tennessee turned to the "economic

index" approach, property wealth remained the standard

of comparison for relative county ability to support edu-

cation.

One variable, however, has gained fiscal significance

in the local funding of education without gaining formal

recognition in the State Educational Finance Act of 1977

or any previous act. The local option sales tax has,

since its adoption in 1963, assumed a position second only

to property in supplying local funds for programs of edu-

cation. As of fiscal year 1977, local sales tax yields

supplied $112,721,281 or 33 percent of county revenue

receipts for the current operation and maintenance of

programs of education (Annual survey, 1977).

Tennessee has demonstrated a history of determining

local capacity based on taxes available to support educa-

tional programs. Inclusion of measures of tax bases not

available for local taxation contradicts the principal










established by this rationale. Revenue from a general

personal income tax is not now available in Tennessee.

Early state programs cited (1909, 1917, and 1925) in-

cluded yields from the poll tax and other privilege taxes

available locally even though these sources represented

only a fraction of the property yields. The exclusion of

local sales tax ability which supplied 33 percent of the

local revenue for education in fiscal year 1977 is a vio-

lation of this basic rationale employed since 1909.

How may property and sales tax ability be equitably

combined for local capacity determination in Tennessee?

One major purpose of this study was to present a methodology

for doing this and to show it was not in violation of the

basic rationale historically used in Tennessee. The method

developed and employed was also in keeping with the best

rationale utilized in previous capacity studies.















CHAPTER III

PRESENTATION AND DISCUSSION OF THE DATA



The purpose of this chapter is to present and discuss

the data necessary to analyze the relationships posed in

Questions 1-6. Nine formulae were presented in the Pro-

cedures section of Chapter I for the purpose of developing

measures for use in this study from the raw data obtained

from the Tennessee State Board of Equalization, State

Department of Revenue, and State Department of Education.

These measures comprise the data presented and discussed.

This chapter is divided into two principal sections.

Section one presents and discusses county fiscal capacity

data. Two measures of fiscal capacity are provided for

both the county retail sales and county property bases.

The discussion of county fiscal capacity data is supple-

mented by a tabular presentation of county measures de-

rived by Formulae 1-6.

Section two presents and discusses county effort data.

Three sets of effort indices are developed. Effort indices

based on local retail sales ability, property wealth, and a











weighted average of retail sales and property ability were

calculated by utilizing Formulae 7-9. A tabular presenta-

tion of the three sets of effort indices is provided.

Raw data used for developing measures of capacity

and effort are presented in the Appendix section of the

study.

Measures of County Fiscal Capacity

County Adjusted Property Valuations

The Tennessee Education Finance Act of 1977, Section 6,

specified the method whereby the required local county

share was computed for participation in the Tennessee

Minimum Foundation Program. Local requirement was based

solely on an equalized assessed property valuation adjusted

to reflect two payments made annually to the counties in

lieu of property taxes by the Tennessee Valley Authority.

Total equalized assessed property valuation in Tennessee

as reported by the State Board of Equalization for the 1976

fiscal year was $11,407,723,071. This figure represented

a 4.8 percent increase over the 1975 assessment.

Tennessee Valley Authority payments made directly to

the counties totaled $946,631. This amount increased less

than 1/10 of 1 percent over the 1975 payment. Tennessee

Valley Authority payments to the counties disbursed by the

state totaled $3,024,747, an increase of 27.7 percent over

the 1975 fiscal year payment.










Equivalent property values for each county were com-

puted from the Tennessee Valley payments by dividing the

total of each county's payments by the 1976 county property

tax rate. The property rate was available annually March 1.

Where multiple county tax rates existed, the highest rate

was used (see Chapter II of this study, Section 6(a)(1),

Tennessee Education Finance Act of 1977). Each county's

equivalent property value was then added to the county

assessed valuation to determine the county adjusted

property valuation. The state total county equivalent

property value was $11,553,632 for fiscal year 1976.

The Tennessee adjusted property valuation totaled

$11,519,276,703 for the 1976 fiscal year. Complete county

adjusted property valuation data is listed in the Appendix

of this study.

Each county's adjusted property valuation was ex-

pressed as a percent of the state adjusted property valu-

ation. The county values ranged from a high of 19.559

percent in Shelby County to a low of .050 percent in

Hancock County. Shelby, Davidson, Hamilton, and Knox

counties contained percentages of 19.559, 14.897, 7.560,

and 6.394, respectively, for a total of 48.410 percent

of the state adjusted property value. Table 2 lists

adjusted property valuation percentages for each county.










County Potential Property
Tax Yields/ADA

County PPTY/ADA were computed using Formula 1.

PPTY/ADA data represented each county's potential yield

from the county adjusted property valuation if the state

fiscal average property tax rate were levied. The state

fiscal average property rate for education was 1.912

dollars per hundred dollars of assessed valuation during

the 1977 fiscal year. PPTY/ADA data were a function of

adjusted property valuations/ADA and the state fiscal

average usage of this base for education.

A 1977 fiscal year state total of $220,304,980 in

revenue for education was collected in the counties from

school taxes current year, school taxes prior year, pick-

up school taxes, interest and penalty on delinquent school

taxes, and payments in lieu of county taxes. This figure

represented 64.6 percent of the state total county 1977

fiscal year revenue receipts for education. Individual

county PPTY/ADA ranged $413.68/ADA from a high of $495.29/

ADA in Polk County to a low of $81.61/ADA in Hancock

County, a ratio of 6:1. The state average PPTY/ADA

was $213.69. Table 1 lists PPTY/ADA data for each county.

County Adjusted Local Option
Sales Tax Ability

Formula 2 was used to compute each county's percent

of the state retail sales base. Retail sales were taxed











TABLE 1


County


Actual and Potential County
Support of Programs of


Property Revenue
Actual a/ADA PPTY/ADA


Anderson
Bedford
Benton
Bledsoe
Blount
Bradley
Campbell
Cannon
Carroll
Carter
Cheatham
Chester
Claiborne
Clay
Cocke
Coffee
Crockett
Cumberland
Davidson
Decatur
DeKalb
Dickson
Dyer
Fayette
Fentress


$307.51
210.90
196.56
171.36
220.88
201.75
207.38
161.42
171.81
199.42
160.83
56.12
184.55
176.95
174.09
124.96
125.72
241.96
481.69
161.93
215.67
173.30
74.55
101.91
140.45


$137.07
301.25
151.05
166.40
292.35
257.12
119.95
411.38
146.06
131.32
143.86
163.31
117.09
131.40
173.80
176.09
189.58
261.13
461.04
179.72
172.64
160.81
271.89
206.70
162.57


Revenue for the
Education

Local Option Sales
Tax Revenue
Actuala/ADA PSTY/ADA


$ 3.66
66.98
41.32
26.60
105.16
109.95
0.00
39.48
41.97
54.18
57.22
47.88
80.64
30.95
64.63
59.36
47.16
56.06
350.99
79.03
30.24
121.31
112.32
37.31
0.00


$123.25
127.69
91.92
45.84
125.59
121.58
91.84
76.51
83.01
75.98
53.22
81.44
65.00
55.76
88.88
126.74
54.19
89.09
255.83
91.98
88.90
94.76
120.99
45.67
68.32











TABLE 1 (continued)


Property
County Actuala/ADA


Revenue
PPTY/ADA


Local Option Sales
Tax Revenue
Actuala/ADA PSTY/ADA


Franklin
Gibson
Giles
Grainger
Greene
Grundy
Hamblen
Hamilton
Hancock
Hardeman
Hardin
Hawkins
Haywood
Henderson
Henry
Hickman
Houston
Humphreys
Jackson
Jefferson
Johnson
Knox
Lake
Lauderdale
Lawrence
Lewis
Lincoln


188.94
162.09
416.41
119.02
217.51
166.93
211.50
443.89
91.49
172.46
173.02
242.94
160.59
202.64
272.13
315.38
143.38
232.87
175.94
230.98
321.95
236.97
161.63
138.84
160.29
166.06
175.55


173.49
202.99
213.83
145.74
223.56
108.03
266.48
359.55
81.61
173.27
213.36
166.41
240.74
132.33
240.45
261.77
152.70
395.26
173.08
213.25
193.18
255.54
205.59
155.61
155.62
204.61
212.27


49.81
79.66
83.09
21.81
80.80
73.34
134.01
196.16
21.06
58.63
60.16
32.14
56.56
38.13
72.51
0.00
47.64
94.94
29.34
78.27
0.00
292.73
63.49
39.27
96.14
0.00
80.66


87.99
102.66
96.19
38.23
92.28
57.59
38.28
194.26
33.44
66.05
107.78
61.37
81.25
92.78
126.04
77.65
36.01
100.08
52.28
72.23
74.71
185.17
85.67
74.63
93.82
75.93
86.18











TABLE 1 (continued)


Property
Actuala/ADA


County


Revenue
PPTY/ADA


...... .. 7F=== ---a
Local Option Sales
Tax Revenue
Actuala/ADA PSTY/ADA


Loudon
McMinn
McNairy
Macon
Madison
Marion
Marshall
Maury
Meigs
Monroe
Montgomery
Moore
Morgan
Obion
Overton
Perry
Pickett
Polk
Putnam
Rhea
Roane
Robertson
Rutherford
Scott
Sequatchie
Sevier
Shelby
Smith


$277.83
286.44
225.48
186.38
110.46
244.07
300.72
195.45
163.86
169.82
152.21
296.27
255.93
143.16
140.64
282.15
93.54
528.78
237.15
304.15
163.54
199.41
237.25
199.40
138.07
279.95
319.08
199.18


$164.87
210.20
207.77
290.85
233.43
152.61
221.12
246.75
247.21
149.05
163.83
324.01
170.69
246.88
151.91
264.83
185.41
495.29
264.24
222.19
256.23
160.92
257.04
153.89
150.49
249.74
334.91
228.89


$ 82.54
61.61
0.00
74.05
145.55
54.84
113.92
139.03
23.89
89.90
209.39
0.00
0.00
99.54
74.44
19.50
61.98
76.07
72.32
44.88
83.12
110.53
111.80
0.00
101.43
165.25
158.35
47.35


$ 90.05
111.24
70.98
93.34
160.06
96.38
99.44
127.00
109.09
98.31
127.36
39.57
38.32
115.16
70.77
60.22
67.14
103.06
130.62
87.54
164.86
81.53
118.94
77.98
70.14
166.22
174.10
97.93


~I~~TT---2


,,,










TABLE 1 (continued


p LocaT 6tTo nSaT es
Property Revenue Tax Revenue
County Actuala/ADA PPTY/ADA Actuala/ADA PSTY/ADA

Stewart $218.57 $261.20 $ 68.20 $ 59.89
Sullivan 400.53 388.53 125.57 144.33
Sumner 316.14 239.80 52.50 75.52
Tipton 133.23 156.48 38.02 68.31
Trousdale 208.50 324.60 26.43 116.69
Unicoi 206.18 160.77 0.00 72.14
Union 219.99 123.98 41.13 48.41
Van Buren 127.06 154.96 40.72 32.61
Warren 123.27 171.36 182.18 113.37
Washington 188.06 234.24 113.76 137.10
Wayne 160.62 192.93 32.71 63.92
Weakley 163.99 211.69 56.26 100.23
White 123.36 161.82 24.42 89.56
Williamson 329.19 260.81 70.18 79.19
Wilson 178.83 245.95 73.30 79.41



aActual property revenue/ADA and actual local option sales tax
revenue/ADA were derived from data reported in the 1977 Annual Statisti-
cal Report of the Tennessee Department of Education.










by the state at a 4.5 percent rate during the 1976 and 1977

fiscal years. Therefore, each county's collections ex-

pressed as a percent of the total state collection yielded

the percentage of retail sales available to each county for

local option sales taxation. Adjusted local option sales

tax ability data computed in this manner were analogous

to the concept of property wealth expressed by county

adjusted property wealth data.

The percentage of county adjusted local option sales

tax ability ranged from a high of 19.804 in Shelby County

to a low of .026 in Van Buren County. Shelby, Davidson,

Hamilton, and Knox Counties contained percentages of 19.804,

16.152, 7.981, and 9.052, respectively, for a total of

52.989 percent of the total state local option sales tax

ability. Table 2 lists adjusted local option sales tax

ability percentages for each county.

County Potential Sales
Tax Yields/ADA

Formula 3 was used to compute individual county

PSTY/ADA. PSTY/ADA data represented each county's poten-

tial yield from the county local option sales tax base if

the state fiscal average local option sales tax rate were

levied. The state fiscal average local option sales tax

rate for education during the 1977 fiscal year was .957.

During fiscal year 1977, a state-wide county total of

$112,721,281 in revenue receipts for the current operation










TABLE 2

Wealth Indices Based on the Rationale Employed by the
Tennessee Education Finance Act of 1977


Adjusted Adjusted
property local
valuations option
as a percent sales
of the tax Combined
County state total wealth index

Anderson .876 1.539 1.100
Bedford .714 .591 .672
Benton .189 .224 .201
Bledsoe .134 .072 .113
Blount 1.901 1.595 1.797
Bradley 1.480 1.367 1.442
Campbell .405 .605 .473
Cannon .342 .124 .268
Carroll .382 .425 .397
Carter .560 .633 .585
Cheatham .294 .213 .267
Chester .170 .165 .168
Claiborne .280 .303 .288
Clay .088 .073 .083
Cocke .455 .454 .455
Coffee .633 .891 .720
Crockett .297 .166 .253
Cumberland .653 .435 .579
Davidson 14.897 16.152 15.322
Decatur .159' .159 .159
DeKalb .189 .190 .189
Dickson .436 .502 .458
Dyer .857 .745 .819
Fayette .517 .223 .417











TABLE 2 (continued)


Adjusted
property
valuations
as a percent
of the
County state total


Fentress
Franklin
Gibson
Giles
Grainger
Greene
Grundy
Hamblen
Hamilton
Hancock
Hardeman
Hardin
Hawkins
Haywood
Henderson
Henry
Hickman
Houston
Humphreys
Jackson
Jefferson
Johnson
Knox
Lake
Lauderdale
Lawrence
Lewis


.203
.463
.928
.451
.207
1.039
.128
1.169
7.560
.050
.417
.412
.604
.503
.245
.544
.331
.097
.612
.131
.558
.221-
6.394
.156
.375
.474
.151


Adjusted
local
option
sales
tax
wealth


Combined
index


.167
.459
.917
.397
.106
.838
.134
1.185
7.981
.040
.311
.406
.435
.332
.335
.557
.192
.045
.303
.078
.369
.167
9.052
.127
.351
.559
.109


.191
.462
.924
.433
.173
.971
.130
1.174
7.702
.047
.381
.410
.547
.445
.275
.548
.284
.079
.507
.113
.494
.203
7.294
.146
.367
.503
.137











TABLE 2 (continued)

Adjusted Adjusted
property local
valuations option
as a percent sales
of the tax Combined
County state total wealth index

Lincoln .533 .422 .495
Loudon .404 .432 .413
McMinn .802 .829 .811
McNairy .409 .273 .363
Macon .342 .215 .299
Madison 1.444 1.935 1.610
Marion .345 .425 .372
Marshall .352 .310 .338
Maury 1.106 1.112 1.108
Meigs .170 .146 .162
Monroe .336 .434 .369
Montgomery 1.088 1.652 1.279
Moore .124 .030 .092
Morgan .269 .118 .218
Obion .769 .701 .746
Overton .234 .213 .227
Perry .133 .059 .108
Pickett .063 .045 .057
Polk .611 .248 .488
Putnam .913 .881 .902
Rhea .443 .341 .408
Roane 1.006. 1.265 1.094
Robertson .516 .510 .514
Rutherford 1.733 1.567 1.677
Scott .298 .295 .297
Sequatchie .121 .110 .117
Sevier .773 1.005 .852











TABLE 2 (continued)

Adjusted Adjusted
property local
valuations option
as a percent sales
of the tax Combined
County state total wealth index

Shelby 19.498 19.804 19.602
Smith .280 .234 .264
Stewart .192 .086 .156
Sullivan 4.957 3.598 4.497
Sumner 1.803 1.109 1.568
Tipton .509 .434 .484
Trousdale .153 .108 .138
Unicoi .209 .209 .209
Union .122 .093 .112
Van Buren .062 .026 .050
Warren .486 .628 .534
Washington 1.665 1.904 1.746
Wayne .257 .166 .226
Weakley .526 .487 .513
White .274 .296 .281
Williamson 1.200 .7.12 1.035
Wilson 1.143 .721 1.000


aThe combined index was calculated as a weighted average of
Columns 1 and 2. Weights were determined by the state fiscal average
county usage of property and sale tax bases for the support of educa-
tion during the 1977 fiscal year.










of programs of education were collected and disbursed

from the local option sales tax base. This figure repre-

sented 33.0 percent of the total county 1977 fiscal year

revenue receipts for education. Table 1 shows a PSTY/ADA

range of $255.83/ADA, from a high of $223.22/ADA in Davidson

County to a low of $32.61/ADA in Van Buren County, a ratio

of almost 8:1. The state average PSTY/ADA was $92.12.

Combined Property and Local
Option Sales Tax Ability

Formulae 4, 5, and 6 were used to compute measures

of wealth based on a functional relationship between county

property wealth, county local option sales tax ability,

and the relative use of both by counties to support pro-

grams of public education, County revenue from these two

sources comprised 97.6 percent of all county revenues for

current operation and maintenance during the 1977 fiscal

year.

Using fiscal year 1977 data, the Formula 4 used to

calculate each county's combined wealth index became



64.588 (County A percent of + 33.047 (County A percent of state
state retail sales base) adjusted property valuation)

97.635


Combined wealth index data for each county are listed

in Table 2. County values ranged from a high of 19.602 in










Shelby County to a low of .047 in Hancock County. Shelby,

Davidson, Hamilton, and Knox counties contained percentages

of 19.602, 15.322, 7.702, and 7.294, respectively, for a

total of 49.920 percent of the total state combined

property and local option sales tax ability.

Measures of County Effort

Three sets of effort indices were developed for this

study. Formulae 7, 8, and 9 in the Procedures section of

Chapter I give the mathematical derivation of each.

The first index was based on property effort; the

second index, local option sales tax effort; and the third

index on a weighted average of both. Effort indices are

displayed in Table 3.

County Property Wealth Effort Indices

A property wealth effort index was calculated for each

county by utilizing Formula 7. Each county's property

revenue for the current operation and maintenance of pro-

grams of education was expressed as a percent of that

county's PPTY. An index of 100.0 indicated a county was

making the state fiscal average effort from the property

base.

County property wealth effort indices ranged from a

high of 224.4 in Anderson County to a low of 27.4 in Dyer

County. The mean county effort index based upon property

wealth was 96.2. This meant that the average county was











TABLE 3

Individual County Effort Indices for the
Support of Programs of Education

Combined
property
Property Retail sales sales tax
effort tax effort effort
County indices indices indices

Anderson 224.4 3.0 119.5
Bedford 70.0 52.5 64.8
Benton 130.1 45.0 97.9
Bledsoe 103.0 58.0 93.3
Blount 75.6 83.7 78.0
Bradley 78.4 90.4 82.3
Campbell 172.9 0 97.9
Cannon 39.2 51.6 41.2
Carroll 117.6 50.6 93.3
Carter 151.9 71.3 122.3
Cheatham 111.8 107.5 110.6
Chester 34.4 58.8 42.5
Claiborne 157.6 124.1 145.6
Clay 134.7 55.5 111.1
Cocke 100.2 72.7- 90.9
Coffee 71.0 46.8 60.9
Crockett 66.3 87.0 70.9
Cumberland 92.7 62.9 85.1
Davidson 104.5 137.2 116.2
Decatur 90.1 85.9 88.7
DeKalb 124.9 34.0 94.0
Dickson 107.8 128.0 115.3
Dyer 27.4 92.8 47.6
Fayette 49.3 81.7 55.2
Fentress 86.4 0 60.8











TABLE 3 (continued)


Combined
property
Property Retail sales sales tax
effort tax effort effort
County indices indices indices

Franklin 108.9 56.6 91.3
Gibson 79.9 77.6 79.1
Giles 194.7 86.4 161.1
Grainger 81.7 57.1 76.5
Greene 97.3 87.6 94.4
Grundy 154.5 127.4 145.1
Hamblen 79.4 96.9 85.4
Hamilton 123.5 101.0 115.6
Hancock 112.1 63.0 97.8
Hardeman 99.5 88.8 96.6
Hardin 81.1 55.8 72.6
Hawkins 146.0 52.4 120.8
Haywood 66.7 69.6 67.4
Henderson 153.1 41.1 107.0
Henry 113.2 57.5 94.0
Hickman 120.5 0 92.9
Houston 93.9 132.3 101.2
Humphreys 58.9 30.5 66.2
Jackson 101.7 56.1 91.1
Jefferson 108.3 108.4 108.3
Johnson 166.7 0 120.2
Knox 92.7 158.1 120.2
Lake 78.6 74.1 77.3
Lauderdale 89.2 52.6 77.4
Lawrence 103.0 102.5 102.8
Lewis 81.2 0 59.2
Lincoln 82.7 93.6 85.8










TABLE 3 (continued)


Property
effort
County indices


Combined
property
Retail sales sales tax
tax effort effort
indices indices


Loudon
McMinn
McNairy
Macon
Madison
Marion
Marshall
Maury
Meigs
Monroe
Montgomery
Moore
Morgan
Obion
Overton
Perry
Pickett
Polk
Putnam
Rhea
Roane
Robertson
Rutherford
Scott
Sequatchie
Sevier


168.5
136.3
108.5
64.1
47.3
159.9
136.0
79.2
66.3
113.9
92.9
91.4
149.9
58.0
92.6
106.5
50.5
106.8
89.7
136.9
63.8
123.9.
92.3
129.6
91.8
112.1


91.7
55.4
0
79.3
90.9
56.9
114.6
109.5
21.9
91.3
164.4
0
0
86.4
105.2
32.4
92.3
73.8
55.4
51.3
50.4
135.6
94.0
0
144.6
99.4


141.4
108.3
80.9
67.8
65.1
120.1
129.3
89.5
52.7
105.0
124.2
81.5
122.0
67.0
96.6
92.8
61.6
101,1
78.4
112.7
58.6
127.8
92.8
86.0
108.6
107.0










TABLE 3 (continued)


Combined
property
Property Retail sales sales tax
effort tax effort effort
County indices indices indices

Shelby 95.3 91.0 93.8
Smith 87.0 48.4 75.4
Stewart 83.7 113.9 89.3
Sullivan 103.1 87.0 98.7
Sumner 131.8 69.5 116.9
Tipton 85.1 55.7 76.2
Trousdale 64.2 22.7 53.2
Unicoi 146.5 9 96.8
Union 177.4 85.0 151.5
Van Buren 82.0 124.9 89.5
Warren 71.9 160.7 107.3
Washington 80.3 83.0 81.3
Wayne 83.3 51.2 75.3
Weakley 77.5 56.1 70.6
White 76.2 27.3 58.8
Williamson 126.2 88.6 117.5
Wilson 72.7 92.3 77.5










exercising 96.2 percent of its projected property tax yield

capacity for the current operation and maintenance of pro-

grams of education.

County Local Option Sales Tax
Effort Indices

A local option sales tax effort index was calculated

for each county by utilizing Formula 8. Each county's

local option sales tax revenue for the current operation

and maintenance of programs of education was expressed as

a percent of that county's PSTY. An index of 100.0 indi-

cated a county was making the state fiscal average effort

from the county retail sales base.

County local option sales tax effort indices ranged

from a high of 164.4 in Montgomery County to a low of 0.0

in Campbell, Fentress, Hickman, Johnson, Lewis, McNairy,

Moore, Morgan, Scott, and Unicoi Counties. The mean county

effort index based upon local retail sales abilitywas 67.6.

This meant that the average county was utilizing 67.6 per-

cent of its potential local option sales tax yield capacity

for the current operation and maintenance of programs of

education.

County Combined Ability Effort Indices

A combined ability effort index was calculated for

each county by utilizing Formula 9. The sum of each

county's local option sales tax and property tax revenue

for the current operation and maintenance of programs of











education was expressed as a percent of the sum of each

county's PPTY and PSTY. This index reflected relative

effort made from each wealth base. The sum of county

revenue receipts from the property and retail sales bases

captured 97.6 percent of all county revenue receipts for

the current operation and maintenance of programs of edu-

cation during the 1977 fiscal year.

Effort indices based on measures of combined ability

ranged from a high of 161.1 in Giles County to a low of

41.2 in Cannon County. Davidson, Hamilton, Knox, and

Shelby counties had combined effort indices of 116.2,

115.6, 120.2, and 93.8, respectively. The mean county

combined wealth effort index was 88.0. This meant that

the average county was utilizing 88.0 percent of its po-

tential total local option sales tax and property tax yields

capacity for the current operation and maintenance of pro-

grams of education.

As an example, Grainger County raised $440,366 from

the local option sales and property tax bases for education

during the 1977 fiscal year. If Grainger County had

levied the state fiscal average rates on these two bases,

a combined yield of $575,274 would have been realized.

Expressing the actual yield as a percent of the potential

yield resulted in a combined effort index of 76.5. This

meant Grainger County was exercising 76.5 percent of its

projected capacity from the local option sales and property

tax bases.















CHAPTER IV

FINDINGS


The purpose of this chapter is to report the findings

of the analysis of the relationships between measures of

local option sales tax ability and county fiscal capacity

and effort to support programs of public education.

Chapter I provided a detailed discussion of the pro-

cedures used in this analysis. Specific formulae were

presented which were utilized in the development of measures

needed to examine the relationships posed in Questions 1-6.

Chapter II provided a review of literature. The re-

view was divided into two principal parts. Part one traced

the development of fiscal capacity measures with a particu-

lar emphasis on the rationale employed. Part two traced

the history of fiscal capacity measures and required local

effort for the local support of programs of education in

the State of Tennessee.

Chapter III applied Formulae 1-9 to the raw data to

generate measures of capacity and effort needed to test

null hypotheses 1-8. County measures were presented in

tabular form to supplement the discussion provided.










This chapter is divided into two principal sections.

Section one examines the relationships between measures of

county sales tax ability and county fiscal capacity. Com-

puted correlations are discussed, analyzing the strengths

and characteristics of the relationships between data

appropriate in the testing of null hypotheses 1-4.

Section two examines the relationships between measures

of county sales tax ability and measures of county effort

to support education. Computed correlations are discussed

analyzing the strengths and characteristics of the rela-

tionships between data appropriate in the testing of null

hypotheses 5-8.

Relationship Between Measures of Local Option
Sales Tax Ability and County Fiscal Capacity
to Support Programs of Education

To further clarify the problem studied, two questions

were investigated to examine the relationship between

measures of local sales tax ability and measures of capacity:

Question 1. To what extent were measures of fiscal capacity

based on county local option sales tax ability

related to measures of capacity based on

county property wealth?

Question 2. To what extent were measures of capacity-based

on property wealth alone related to combined

capacity indices based on property and local

option sales tax ability?










Two measures of ability were developed for analysis of

the relationships posed in Questions 1 and 2. Firstly,

measures of county local option sales tax ability were

developed using Formula 2 and were designated county ad-

justed local option sales tax ability. County adjusted

local option sales tax ability represented each county's

state retail salescollections for the 1976 fiscal year as

a percentage of the total state retail sales tax collections.

These percentages represented the county relative sales

tax base available for local option sales taxation.

Measures of county property wealth were developed utiliz-

ing the methodology specified in the Tennessee Education

Finance Act of 1977 and were designated county adjusted

property values. Adjusted property valuations were ex-

pressed as a percentage of the state total adjusted property

value. These percentages represented the county relative

property base available for support of education. County

adjusted local option sales tax ability and percentages of

adjusted property valuation thus determined represented

parallel measures of capacity.

Secondly, measures of county local option sales tax

ability were developed using Formula 3 and were designated

PSTY/ADA. PSTY/ADA represented each county's potential

yield/ADA from the retail sales base if the state fiscal

average rate were levied. Measures of county property










wealth were computed utilizing Formula 1 and were desig-

nated PPTY/ADA. PPTY/ADA represented each county's poten-

tial yield/ADA from the property base if the state fiscal

average rate were levied. PSTY/ADA and PPTY/ADA calculated

in this manner represented a second set of parallel measures

of capacity.

Relationship Between County Adjusted
Local Option Sales Tax Ability and
County Adjusted Property Values

The relationship between adjusted local option sales

tax ability and adjusted property valuations was examined

by employing the rank order correlation coefficient method.

A correlation coefficient of +.995 was computed. The test

of significance indicated that the relation was significant

at both the .05 and .01 levels of significance. Null

hypothesis 1 was rejected at both levels.

Examination of Table 2 reveals the strong positive

relationship between data in Columns 2 and 3. The value

of the correlation was not unexpected since these data

represented the "fiscal size" of counties and not their

relative wealth on a per pupil measure as did PPTY/ADA

and PSTY/ADA data.

Examination of Table 2 allows comparison of indi-

vidual county data. The four large metropolitan counties

of Davidson, Hamilton, Knox, and Shelby each had greater

percentages of the state total adjusted local option sales

tax ability than percentages of state total adjusted










property valuations. Collectively, these counties con-

tained 52.989 percent of the state adjusted local option

sales tax ability and 47.349 percent of the state adjusted

property value. Twenty-nine of the 95 counties had higher

percentages of state adjusted local option sales tax abil-

ity than state adjusted property valuations. Complete

rankings of county adjusted local sales tax ability and

adjusted property valuations are given in Columns 1 and

2, Table 4.

Relationship Between County Potential
Sales Tax Yields/ADA and Potential
Property Tax Yields/ADA

Formulae 1 and 3 were used to generate county PPTY/ADA

and PSTY/ADA. PSTY/ADA and PPTY/ADA data represented the

dollar amounts per pupil each county could raise from the

property and retail sales bases if the state fiscal average

rate were levied on each.

A rank correlation coefficient of +.516 was computed

between counties ranked by PSTY/ADA and PPTY/ADA, null

hypothesis 2 was rejected at both the .05 and .01 levels

of significance. State-wide, county local option sales

tax ability was significantly positively correlated with

county property wealth.

The four large metropolitan counties of Tennessee

ranked consistently high on PSTY/ADA and PPTY/ADA.

Davidson ranked 1st and 2nd, Hamilton 2nd and 6th, Knox








































-0
c-












to---


O
u



0
0









O
S.-

0


0



4-
O o











O
U 4-
ro







S.-

4-)4-
C 4-J





Lu
0
C-



a)








I-


r-


0

-




0
to .,- a) X
U 4-) M
0 CL (Z 4-'
-J 0 I





S-


0
S-







00
c '- c.




o <
0




>- 4.








a- L <:
*ee









0>


4 a. aC














En D=
0-- 0)
a>




0 >,


I)1 U *r o -
























0
<_


- E
0 l 0) >' t0 D

s- O O ) C i- .00 0 a) &
0 4- 4-3 -0 = -0 C 4-' 4 3 M 0
mO C m) O co E C SL- SL- L) a
C a) a) S.- to t3 o to -Z .C
< 00 00 00 00 00 0


0a
S-




) C)
.--
*r-- >
n3 (J


L M L A LM r-N OA LA k. M -zN -t M c
O- cO M ::- I'D Lo M On 3 C\ m C Oj








LO CO r- LO ,- CD CO M M vt- On
00 ..- r L- L M M- c'- O z D Ln .- O








- ,- O- -- ,"-- ,- :: M cj Mo o0
m ) CD i m d- rm r :. o-> CmI i- r- r" "-









'CO o c c'j o r. LA 00 m 4. cm o
A i- LA cO r- '- co N. co Co LA O>







0o cM ) CO rN. mri C j C-, re) LO LA P- CY)
a- 00 UA A A 0 LA r- CO





r* CD .- z- M 'zt- Co LA N CM M
00 00 ,-- C\J C CmO m OC tO Cn CO







LN r O M O k i- CO LA r C C -
,- c\j N- o e- K3- t0 Ln c ko rLA ko mA i








0- o \ CmJ m "O (\J c> O o -r LA <- LA oO
i- to LA o .- c0j N- 3- ( r- LA N- Ln CO









r- LA LA t- LA 0 ,- CD C, ) C\J M CO *C?- C'
C\i C\j r- O0 LO LO LO M LA N- LA Ch

















-,


E
0
L



C
0 fL
0T- a~ X
u 4.-) t-







O ~C
.4-.
Oa
0




SQ.




0-- L Cc



E >o
0
L-)Q










ao *O
CL -



.S- <









>).)







j- to 0 -ca
0
L- 0























r,0 0 *-
0 -
0)5-






* 0

-' 0a -0


c" in ik o C) W n CM c C in i U')n i- -
in WO in Mn z- C\jM M0 cO n 00 L- .O



cO c Co 0 I c O- 0 0 Cin ,-- r-M ,a--




- -. m .-. m -- oCJ O.- 0:t iLO ,- m .n m '








%:- C) M Co .0 M t i O n i- (D M C CM ko in M
CO c O i00 O n M O n c C ( o o 0 ) i. m N


i- "- CO d- CM in 0) M .
in ki C in iUn in -







O LO, '- rI-.- M CO r- C 0
ar .- o .4- d- m C





tln) CM 0" CM .- CO M
n iMn M- UM0) o -,







:T to rrM m M C Ln m m
d- ko r rN -I- "N


" mO on ,M- i- Mo %
. rN Ln LO -4 C0t m m m







M M C) o in CM "- CM
wo N- in CM ro 0m *:- or





n Co N C). iy> n i?








r- N C C) in it 0 Ic
*' r- 't CM :Z- N- r- o
N NLz~mOm



h~N < N0~


N-C) CM Co I oCJ in CO ) ) 0 C in O 'N- -- r-.-




Oi-N M N-N i CM i N. r M MO CM P-




,-- CO CM NCM O0 r N,- CM N- t- M m Lin M r- r-
- CM in CM mO ,I- N- CM Z3- Iz oM


-0
C
4.-) 0 C

a) a) s- A =3 -0 0
-e 4- 0 -a 0 m -O
0 ) E > U UC
O O L 3 Q O Q *r
0 0 S = 0 a) a
L) .) C) Cj() m m cmm


(A C
a) (A *
4-) S- -- 0
a) 4O) C (
>, C >0 .
Sa) s *-
L- UL LL CD


5-
L

01 0) >
C c -o
.- a) C

03 0 0
5-5-S.-
CL ( C
















Q-
C









0 (A,
*- a) )X
U 4-) ,- t
0 CL 1o 4-4
-I 0 V)
JO






)
L
0




s-
QL--c




--0
C~.)









0>
F- a) mV
.. ) QJ -:







L CL
a-







00
'3 Q- () 2
o 00










fU C




) -
>.- V) ,














-P- (o













0 ) M
*i--- i- Q














4-)
C

0
C-)
3rr

~ 0
P) I-- ~ V t l


CTI ai rN- oI-n U- Mo- CO n c') i- r- MD M C)
u") i- ) ) N-^ i- N-* ('4 C) ro O U) r- m- "-r








- cic ci cj o o co W 1o0 N r, C) k) C M UD
S-M kO k LO r LO0 O cO ) i) 0 ')









r-. CNJ O r k ,- cO "4 (M t3 CO '3- M0 LO f-









M' L) -- M u) n CO M OW CO r -- O0 C') OM )
m- O m rI C'O rN- \i C\ 0O r Ct- L- U -)


Mr C" c'^ U) r-, Mb N CD U- C)
Mr r- C" r- M qt u) Mn





.- ut ) LCO CD ) C) CO r- N- co
0- ) UO u> U.0 M 0O C') r-







M) L) CU O U) C) CD CMJ
U- (I O- t () -z k m' U 0n


M- U CO UD CO)
C' CO0 U O) U"





U) 'z~ I) ('4 b1


UO) r- CO "4 -z" ,-
SOm Co) r-- cO


mm- o ) 0o 0 C r- CO ,-- M COM
m -zU Lo L) M k M Lo 0) U) rC r--


i- 0 I-) Om -
,- O w-,- oO


C
C 0 -"
a) 4-) L
-- 0
S U
E E Ca
-r -0 -r
= II 1


C l n0

E C C 0
a *- *- o0
-0 -- -r "-
-- 2

1111


0O iD- 0 ,- M0 U Co ,- M j- ,-
U) C') U 0" ("4 CO o ) N- CO


mc 1 m0 c-



C C
o >) 0
U, C C a) C ) C
0- 0 0 0 0
a >, E 4-' uC a) to
S. -1 0 CL -N- 4-+ C X (U
= C u 3 E u 4.- o 0-
a) a) 0 3 a( o c (c
1 1 1 I 1 0 0 2

















-0
.Q






C

0

0






0 >








5-
O






la-
0 mi
a- ,-- 10+
C 0)




















s-
*- .-














o a) a1,
















(A UDr (r-
-) 0 4
a-















o
0










0 )
I- 0) a +















01 a
I o f






) 0






C (
-0 >



3 ~ 0 ->( 4> *


0r}- >VI -
-0 0 "

















(_


S w O LO O ,- NO CO t- W .- LO O) OY) t i-







nC O M I- '.N o t 0 0- O t t- 0O 0- 0 C
A i-- "n c\ c.J LA O O r,.M Lr) WCO C" Om m-







co C\i r. O L n tD c't r- rN. cj 3- cO) "r- Ln cM
Ln Zr kD k0 CV) CO m r0- C\ j Z LO-








.li %: 0 LO 0 '- O0 L LO N- L k A fN- Czr LA
N- k. LA ; LA M LA k (Y) Cj Cj ko LA o C\J cn






N- co K- C\j LA LO o m I r) c\ L L o L C) C) -
LA (n ko LA %zr CM rN- co C") M CJ CV) ,- O3I 0)
~~N o~M~~ ~ < m a N New


'1- LO CO CM L A LO ,CM ,- Oc I o Om LA w O LD
r- r- z" Lo '1- ,- cz) i- CO cJ c CO W


(n Csi


UL tO -- r- oM to M M0 Mc N -m 00 O O
Ln n oo C) 0 oj LA LA LA LA M O- cO LO OI rN







M. M L M L Z LA O M 1 CO 0 0









N3- cM O C O) LA O 00 CO-- .L Ul LO (n Oc LO CO r-
LO CO0 O LO CM LO LO -- LA LA ,- rN- L -- CO I


S.
S C > c E
C c c L- o C o C
0 0 o C *- C 0 0 -C >1 Ui O M0 0) (0
L *r U T3 r- 0 *- *r- IA 5-. C +- SL- 0)
3 3 C 0 -O S- s- 3 -- C C 0 L-
0 1) 0 UO 0 '0 (0 0 0 0 O O O O
~~~EEEEE EEEEEE
















C0
r-









S-
E
0
c


r-
,--0 u










V) C)
0
C



0r






<






F-- L .M







QE






0>
>- <-








I- Q -







-- 0 .C-
0








.- 0)
0>




Wr-IU)) 4.

0 -) 4 4-
< *0- .0c

04



-0 0


o CD CO :- M) kt -- 0M r"- M rN'- cn m c- co Lo *,-
oo "l r m o o) tO (\, CO w Z LO \J c\J r- in O M








Co )- L in .- 0o '"- kO c D "- 0C) M in Lo) Mo
O O O c\j 0 r- r- CJ C\J M'








0 M c 0 ro r-N n r M-- a) -c\j C)
C O N ) -c O in- i O O O-- C V Lto q.-








Mn C) "c C M in c r-- oC o) C\ C- ) in c o -cr
CM Co m ko .- %-" oj r- N 0 C- Cr) r
ON OC


oi- in Co t
CM o C M kn
C\J r- 0 r, CO





N- CDO n O) to N-, MN
CM 0o M in C7) CM







Ln Co CM Mo CM M- C) %o
CM tkoo c M Co (in O-


in C) CM LO .:
LO CM ko rN-





C) CM N- CM in N-~


qt- -- 00
C 0in


mo Co c in Co. too o
M in "o to C)oo


to o0 cD M C C) M Co o rN -- i- to in
CM N o Mc )M to C n c ) r- o 0o








i0 C) Ln M c to Wo Co Co C) i- LO in in
cM rN Co 0C MM CM ^- i- M to C C4M to r


--
0 0
O O
4.) U 4-
0 -P E -) S-
C 4,t >. 0 ) S- O)
o S- S.- -e -< c 3 E ) 7=
*- W U 4J C Oa 4
3D > 0) r- 0 3 -C 0 0 3
CO O C 0- -.-CL Q; = =


0)
- c
U 4
4 ) > *
=3 -- 4) -
0- > 0) *- ) r-
0) 0) V) E 4) 3V
l) L) LO L L ()
















-0


E
0




C
O<-
U +-' -O

-j 0 v)






0)
S-

0
--





C T)
.- ,- S.t.. ,

E e *-
C<





s- <:


1- 0Q)
0



>- m- clZ




I- L) 0

00









=J ,0 4- (aO 4.-
m n3

0 >



S'0












co
= )
O 0
4-) *- 10 i
*rl r 0Q (/)
1O 0 e'






cCC















0


N- CJ W- "o qtj I-- M- n M- 01 < Nr- r-- co UO








S ) r 0 C CI CJ CD CD u
LU uO CO W M a- i- i- N- u w mo n c'j








M- m r r- U) M- M) LO M M n ct "


c0') -n N0 0r) -N o
o' cO' 0. oo'


" rNI 0 C m


CM Cn


0 CO0 CD 0 CO
-- N Z- C') in) in






Mo O Zzr U CMj CMj


0 0 CM i,- CO I- CJ N- 0m d Cxi rN- CO
Ur-- m 0 N r ) Uo N 0 r) kN U -

















Nr 0) CM CM 00 t o- M0 CO M UO C" ^

m 0 CONOO m tO0 O -


0) C
r 0)
L- C *- 3.
(0) 0 U) 0 C Cr
C 4- 3 U 0
E 0- 0 *- *- C
3 *- L C C -
0l F- F- Z) fl


C c
0 0

0) E


Un >) M
C0 10 D -C -
~x ~s s ax
r CEM Y ) m-
v, ? ca *e
cJ c 0 *










3rd and 24th, and Shelby 4th and 7th, respectively. Com-

plete rankings of county PSTY/ADA and PPTY/ADA are given

in Columns 4 and 5, Table 4. Davidson, Hamilton, Knox,

and Shelby counties had average PSTY/ADA and PPTY/ADA of

$202.34 and $352.76, respectively, for a combined average

of $555.10. At the other extreme, Claiborne, Grundy, and

Hancock counties had average PSTY/ADA and PPTY/ADA of

$51.11 and $177.16, respectively, for a combined average

of $228.27/ADA.

Relationship Between County Adjusted
Property Values and Combined Property
and Local Retail Sales Ability Indices

The methodology outlined in the Tennessee Education

Finance Act of 1977, Section 6, was used to calculate

county adjusted property values. Formulae 4, 5, and 6

were used to combine property and local retail sales

ability into a single index of capacity. County combined

wealth indices represented weighted averages of each

county's adjusted local option sales tax ability and per-

cent of adjusted property value. The weightings were

determined by the percent of the county revenue for the

operation and maintenance of programs of education derived

from the local sales tax and the county property tax. For

the 1977 fiscal year 33.047 percent and 64.588 percent,

respectively, came from these bases.

A rank correlation of +.990 was computed between

county adjusted property values and combined ability










indices. Null hypothesis 3 was rejected at both the .05

and .01 levels of significance. A significant positive

relationship was not unexpected since 64.588 percent of

the combined ability index was derived from the value of

(a) in Formula 4.

Thirty-five counties ranked lower on combined ability

indices than on county adjusted property wealth alone. A

required local contribution to the state minimum foundation

program based on an ability index including adjusted local

option sales tax ability would result in a lower local re-

quirement for these 35 counties. The impact on the measure

of wealth specified in the Tennessee Education Finance Act

of 1977 by including local option sales tax ability can be

examined by comparing Columns 2 and 4 of Table 2.

Relationship Between County PPTY/ADA
and Combined County Potential Property
and Sales Tax Yields/ADA

Formula 1 was used to calculate PPT.Y/ADA for each

county. Combined county potential property and sales tax

yields/ADA were calculated by summing individual county

PPTY/ADA and PSTY/ADA.

A rank correlation of +.933 was computed between

county PPTY/ADA and combined property and sales tax yields/

ADA. This correlation forced rejection of null hypothesis

4 at both the .05 and .01 levels of significance. A sig-

nificant positive correlation was expected due to the










significant positive correlation of +.516 between PSTY/ADA

and PPTY/ADA data.

Forty-three counties ranked lower on combined measures

of potential property and sales tax yields/ADA than on

PPTY/ADA alone. The four large metropolitan counties each

ranked higher on combined ability/ADA than on PPTY/ADA

alone. Davidson moved from 2nd to Ist, Hamilton from

6th to 3rd, Knox from 24th to 9th, and Shelby from 7th to

5th, respectively. Complete county rankings of PPTY/ADA

and combined property and sales tax yields are given in

Columns 4 and 6, Table 4.

Relationship Between Local Option Sales Tax
Ability and County Effort

To further clarify the problem studied, four questions

were investigated to examine the relationship between

measures of county local sales tax ability and measures of

effort.

Question 3. To what extent were measures of capacity based


Question 4.


on local option sales tax ability related to

measures of effort based on local option

sales tax ability?

To what ex-tent were measures of capacity based

on local option sales tax ability related to

measures of effort based on county property

wealth?










Question 5. To what extent were measures of capacity based

on county local option sales tax ability

related to measures of effort based on com-

bined sales tax and property wealth?

Question 6. To what extent were measures of capacity based

on combined sales tax and property ability

related to measures of effort based on com-

bined sales tax and property wealth?

Relationship Between County Potential
Sales Tax Yields/ADA and Local Option
Sales Tax Effort

Data generated by Formulae 3 and 8 were ranked for

correlation analysis. County PSTY/ADA represented the

dollar yield/ADA from the local option sales tax base

available to each county if the state fiscal average rate

were levied. Local option sales tax effort indices were a

measure of the extent to which this revenue potential was

utilized by each county.

A rank correlation coefficient of +.137 was computed.

The test of significance indicated that the relation was

significant at neither the .05 nor .01 levels. Null

hypothesis b was retained. There was no significant re-

lationship found between county PSTY/ADA and county local

option sales tax effort.

The four large metropolitan counties of Davidson,

Hamilton, Knox, and Shelby ranked 1st, 2nd, 3rd, and 4th











in PSTY/ADA and had effort indices based on PSTY/ADA of

137.2, 101.0, 158.1, and 91.0, respectively. An index of

100.0 indicated a county was making the state fiscal

average effort on a particular base. Column 8 of Table 4

shows the rankings of effort indices based on local option

sales tax ability for each county.

Relationship Between County Potential
Sales Tax Yields/ADA and County
Property Wealth Effort/ADA

County property wealth effort data were generated by

Formula 7. Effort indices based on property wealth were

computed to measure each county's usage of property wealth

compared to the state fiscal average usage.

A rank correlation coefficient of -.251 was calculated.

The test of significance indicated that the relation was

significant at both the .05 and .01 levels. Null hypothesis

6 was rejected. There existed a significant inverse rela-

tion between county local option sales tax ability and

county property effort. Then, high ability on the local

retail sales base was associated with a low effort on the

property base.

Davidson County ranked 1st in retail sales abilityand

39th in property effort, Hamilton County 2nd in retail

sales and 25th in property effort, Knox County 3rd in

retail sales and 51st in property effort, and Shelby County

4th in retail sales and 47th in property effort. Columns

5 and 7 in Table 4 give a complete county listing of ranks.











Relationship Between County Potential
Sales Tax Yields/ADA and Combined
County Local Option Sales and
Property Wealth Effort/ADA

County combined local option sales and property

wealth effort/ADA data were calculated by utilizing

Formula 9. County combined effort indices were a measure

of each county's usage of both the property and retail

sales bases relative to the state fiscal average usage of

these combined bases. An index of 100.0 indicated a county

to be exercising a total effort from the property and

retail sales bases indicative of the state fiscal average

effort.

A rank correlation of -.094 was calculated between

county PSTY/ADA and county effort based on combined retail

sales and property ability. Null hypothesis 7 was retained

at both the .05 and .01 levels of significance. No sig-

nificant relationship existed between these variables.

Davidson County ranked 1st in PSTY/ADA and 19th in

combined effort, Hamilton County ranked 2nd in PSTY/ADA

and 20th in combined effort, Knox County ranked 3rd in

PSTY/ADA and 13th in combined effort, and Shelby County

ranked 4th in PSTY/ADA and 44th in combined effort.

Columns 5 and 9 in Table 4 give a complete county listing

of ranks.