The effects of additional revenues for sparsity on the equity of a state school finance system

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The effects of additional revenues for sparsity on the equity of a state school finance system
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O'Loughlin, Joseph Michael, 1947-
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Education -- Finance -- Florida   ( lcsh )
Government aid to education -- Florida   ( lcsh )
Rural schools -- Finance -- Florida   ( lcsh )
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Thesis:
Thesis (Ph. D.)--University of Florida, 1992.
Bibliography:
Includes bibliographical references (leaves 144-150).
Statement of Responsibility:
by Joseph Michael O'Loughlin.
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Typescript.
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Vita.

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THE EFFECTS OF ADDITIONAL REVENUES FOR SPARSITY ON
THE EQUITY OF A STATE SCHOOL FINANCE SYSTEM











By

JOSEPH MICHAEL O'LOUGHLIN











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



UNIVERSITY OF FLORIDA

1992


UIVNiSITY OF rFLOI.D, L!~..'2I:S














ACKNOWLEDGEMENTS


The conclusion of my doctoral studies and the

completion of this dissertation represent the realization

of a aspiration that took form many years before. The

pursuit of this degree has been a journey both long and, at

times, difficult. Along the way it was my very good

fortune to have had the guidance, support, encouragement,

and goodwill of many fine people. The completion of my

Ph.D. has much to do with them.

First, I wish to thank the person responsible for my

two years of residency at the University of Florida. Dr.

R. Craig Wood recruited me for the doctoral program in the

Department of Educational Leadership after I had dismissed

such a pursuit as unfeasible. During the years that I have

known and worked with him, he has come to be a valued

friend, advisor, and teacher. His kindness and generosity

toward me and confidence in me sustained my efforts in

completing this degree. For these things, he will always

have my respect and gratitude.

No less important to my success has been Dr. David S.

Honeyman. It was his drill and instruction that

contributed so much to my success during the academic








preparation for conducting the research and writing of this

dissertation. He taught me how to conduct a disciplined

inquiry and kindly endured untold readings of the various

drafts of the dissertation until I finally got it right.

What he did for me was invaluable. Without his efforts in

my behalf, I would not have finished.

Dr. Joan Curcio gave me a love for the study of the

law. Her enthusiasm, humor, sense of perspective, and

presence of mind under fire inspired me in some of the

darker moments of my doctoral studies. Not only has she

been a source of sound advice and counsel, she has been an

ally in supporting my efforts. The Department of

Educational Leadership is fortunate to have an individual

of her caliber as a member of its faculty.

The remaining member of my committee is Dr. David

Miller, who holds a position of high regard among the

graduate students of this college. His effectiveness as a

teacher, willingness to assist his students, and skill as a

researcher have been of inestimable benefit to me. It has

been my very good fortune to have him on my committee, and

I am genuinely grateful for his contributions to this

dissertation.

Two people who have been most important during my

graduate studies are Leila Cantara and Kathy Carroll. They

helped me immensely in charting my course through the

sometimes hazardous waters of a doctoral program. Their








technical expertise, professional experience, and personal

regard for me contributed substantially to this endeavor.

Most of all, I thank them for their friendship.

Others have had an impact on this dissertation. Among

them has been Dr. Paul George, Dr. William Hedges, Dr.

James Hensel, and Dr. Mike Nunnery. Each in his own way

has contributed to my graduate experience. Also, to Dr. Ed

Greene I extend a special note of thanks. We spent much

time together in the trenches of graduate school at the

University of Florida. He has been a good and faithful

comrade.

Lastly, my deepest appreciation, love, and respect I

extend to my parents, Thomas and Agnes O'Loughlin. More

than anyone, they are responsible for this accomplishment.

They provided me with the love, the nurturing, and the

sense of myself that has served me so well.















TABLE OF CONTENTS




ACKNOWLEDGEMENTS .................................... ii

ABSTRACT ............................................ vii

CHAPTERS

I INTRODUCTION .................................. 1

Rural Schools and School Districts ............ 3
Education Finance .............................. 4
Purpose of the Study ........................... 5
Research Question .............................. 5
Significance of the Study ...................... 6
Limitations of the Study ....................... 8
Definition of Terms ........................... 8
Notes ..................................... ...... 9

II REVIEW OF LITERATURE .......................... 12

A Theory of Social Justice .................... 13
Education as a Benefit of Society ............. 16
Principles of School Finance .................. 19
Rural Schools and Districts ................... 25
Economy of Scale ............................... 26
Review of Cases ................................ 34
Summary ................... .................... 53
Notes ......................................... 53

III METHOD .......................................... 64

Florida ........................................ 64
Overview of the Florida Education Finance
Program .................................... 66
Calculation of the FEFP ........................ 68
The Sparsity Supplement ........................ 77
Research Design ................................ 80
Elements of the FEFP ........................... 84
Measures of Equity and Fiscal Neutrality ...... 86
Mean .. .................................... 86
Range ...................................... 87
Restricted Range ............................ 87









Federal Range Ratio ......................... 88
Variance .................................... 88
Standard Deviation .......................... 89
Coefficient of Variation ................... 90
McLoone Index ............................... 90
Gini Coefficient ............................ 91
Simple Correlation .......................... 92
Slope of the Regression Line ............... 93
Summary ........................................ 94
Notes ......................................... 95

IV DATA ANALYSIS ................................. 101

Measures of Equity ............................. 102
Mean ....................................... 102
Range ...................................... 103
Restricted Range ............................ 105
Federal Range Ratio ......................... 106
Variance ................................... 108
Standard Deviation .......................... 109
Coefficient of Variation ................... 110
McLoone Index .............................. 112
Gini Coefficient ............................ 113
Correlation Coefficient .................... 115
Variance Explained and Residuals ........... 117
Slope of the Regression Line ............... 119
Summary ........................................ 121
Measures of Equity .......................... 123
Measures of Fiscal Neutrality .............. 124

V SUMMARY, OBSERVATIONS, FINDINGS, CONCLUSIONS,
AND IMPLICATIONS .............................. 125

Summary ........................................ 125
Observations .................................. 130
Findings ...................................... 133
Conclusions ................................... 136
Implications for Further Research and
Public Policy ............................... 140
Notes ......................................... 143

REFERENCES ........................................... 144

APPENDICES

A DATA SET ............ ........................... 152

B SCATTERPLOTS .................................. 155

BIOGRAPHICAL SKETCH ................................. 159










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

THE EFFECTS OF ADDITIONAL REVENUES FOR SPARSITY ON
THE EQUITY OF A STATE SCHOOL FINANCE SYSTEM

By

Joseph Michael O'Loughlin

May, 1992

Chair: R. Craig Wood
Cochair: David S. Honeyman
Major Department: Educational Leadership

This quantitative study was designed to examine the

effects of additional revenues for sparsity on the equity

of the state school finance system of Florida. Twenty-nine

states had mechanisms in their state school finance

formulas to provide rural schools and districts with

additional revenues to equalize educational opportunities

because of the higher per pupil costs associated with

sparsity of student populations. Equity, the equalization

of educational opportunities, is one of the foremost

concerns in the study of education finance. In practice,

equity meant assuring equality in the distribution of

educational revenues or assuring sufficient revenues to

provide comparable educational programs and services after

the different needs of students and costs for providing for

them were taken into account.

Measures of equity and fiscal neutrality were applied

to determine the effects of additional revenues for

vii








sparsity on equity of the system. The results of the

analysis were evaluated in light of the education finance

principles of horizontal equity, vertical equity, and

fiscal neutrality.

Results from the calculation of the measures of equity

indicated an increase in the variation in the distribution

of revenues per pupil per district. The increase in

variation was due to the effects of additional revenues for

sparsity. Results from the calculation of the measures of

fiscal neutrality indicated little relationship between the

property wealth per pupil per district and revenues per

pupil per district. The lack of a relationship was the

effect of additional revenues for sparsity.

Conclusions reached included (a) supplementary

revenues, revenues from the levy of the discretionary

property tax, and categorical and special allocations had a

disequalizing effect that provided more per pupil revenue

to wealthier, non-rural school districts; (b) additional

revenues for sparsity negated the disequalizing effect of

supplements, discretionary levy, and categorical and

special allocations; (c) the effects of additional revenues

for sparsity resulted in greater vertical equity for rural

districts; and (d) the effects of additional revenues for

sparsity resulted in a system more consistent with the

principle of fiscal neutrality.


viii













CHAPTER I
INTRODUCTION



The provision for the operation of the public schools

in the United States resides with states under the terms of

the Tenth Amendment to the Constitution of the United

States.1 The responsibility for the education of the

citizenry is set forth in the constitutions of the

states.2 "State legislatures are required by the

respective state constitutions to create and maintain

'thorough,' 'efficient,' 'effective,' [and] 'equal'

educational systems 'throughout' their respective

states."3

Accordingly, state officials have devised school

finance programs to distribute revenues for the creation

and maintenance of a system of public education. A variety

of programs have been used by the fifty states to finance

education.4 However, a comprehensive and equitable state

school finance program must address four essentials: (1)

the fiscal capacity of local school districts to provide

for education, (2) adequacy of revenues for a child's

education notwithstanding the efforts of local school

districts, (3) the educational needs of the child, and (4)

the provision for additional revenues to local school

1










districts that cannot provide programs and services of

comparable quality due to higher costs.5

Higher costs for educational programs and services are

generally associated with special characteristics of

student populations, the kind of program in which a student

is enrolled, or legitimate differences based on the

characteristics of schools or school districts that require

additional resources to maintain comparable programs and

services.6 Higher costs make it more difficult for

schools and school districts to provide an equal

educational opportunity to its students. To maintain the

equity of a school finance program, schools and school

districts may need to be compensated by the states for the

extra costs incurred.7

In many states, the special characteristics of schools

and school districts have been taken into consideration in

the school finance formulas.8

The rationale for including factors in a
financing formula that account for special school
district characteristics is that additional
support levels are needed to accommodate
differences in the cost of providing educational
services of similar quality among districts due
to differences in economies of scale, the
variation in the purchasing power of the dollar
or declining enrollment or growth in school
population. Importantly, states support these
different characteristics in many different
ways.9

One of the special characteristics of schools and school

districts that result in higher costs can be attributed to

the sparsity of the student population.10 As a special










characteristic, the sparsity of the student population is

of particular concern to rural schools and school

districts.

Rural Schools and School Districts

In 1988, 51 percent of all schools in the United

States were situated in locales that were classified as

rural and small towns. Nearly 40 percent of the nation's

students attended these schools.11 Rural and small

schools and school districts are subject to higher costs if

they are to provide educational programs and services

comparable to their urban counterparts. Higher costs are

the result of what has been termed the "sparsity and

dispersion effect."12 "Sparsely settled districts with a

widely dispersed pupil population must operate small

schools, especially small high schools, which have a high

per student cost if appropriate educational programs are

provided."13

Rural schools and districts incur higher per pupil

costs because of limited enrollments, small teacher-pupil

ratios, and higher utility and operational costs per pupil.

Other sources of higher costs include superintendents and

administrators whose salaries have to be divided among

fewer students. Additionally, higher salaries may be

needed to recruit and retain teachers, particularly in

curricular areas experiencing teacher shortages.14 In

1990, 29 state legislatures recognized higher per pupil










costs associated with the sparsity of student populations

in rural schools and school districts and provided

additional revenues through school finance funding

formulas.15

Education Finance

Education finance concerns the distribution of both

the benefits of education and the burden of paying for

it.16 The distribution of educational benefits is

measured against certain goals. "In financing public

schools, states have been concerned with equity, adequate

provision, and efficiency of education. Of these, more

attention has been directed to the concern for equity."17

The goal of school finance that is labelled
equity is more commonly expressed as equality of
educational opportunity. This expression
recognizes that it is not possible to educate all
students to the same level, for they have
different preferences and innate abilities.
There are many possible definitions of equal
educational opportunity, but in practice the
concept has been limited to mean assuring equal
dollars per student or assuring enough money to
provide comparable programs for students when
their different needs and the costs of providing
them have been taken into account.18

There are numerous objects that could be considered in

judging how well a school finance program conforms to the

goal of equity.19 Having selected from among possible

objects, such as revenues per student, the principles of

equity must be applied in order to judge how fairly the

dollars have been distributed.20 There are three










principles of equity: horizontal equity, vertical equity,

and fiscal neutrality.

The principle of horizontal equity holds that students

who are alike should receive equal shares.21 If the

object is revenues per student, then all students who are

classified alike would receive equal shares. The principle

of vertical equity holds that students are different and

that certain legitimate differences entitle those students

to appropriately unequal treatment in the distribution of

shares.22 Fiscal neutrality is the equity principle that

requires that the quality of the education a student

receives should not be a function of the wealth of the

local school district.23

Purpose of the Study

In this study, the principles of equity and the

funding of rural schools and school districts were

addressed. The purpose of this study was to determine the

effects of additional revenues for sparsity on the equity

of a state school finance system. The researcher utilized

quantitative measures of equity to determine the degree to

which additional revenues to offset higher per pupil cost

due to sparsity conform to the principles of equity.

Research Question

This study was conducted to answer the following

research question: What were the effects of additional








6

revenues for sparsity on the equity of state school finance

systems?

SiSnificance of the Study

A search of the literature revealed numerous

references to studies on the equity of state school finance

programs. There existed a number of studies on the

characteristics of rural schools and districts and the

higher costs associated with providing comparable

educational programs and services. However, the search

failed to reveal any studies that reported the effects of

additional revenues for sparsity on the equity of state

school finance systems.

A recent study was conducted on the subject of state

funding mechanisms for rural schools and school districts.

The extent to which states provided additional revenues to

compensate for higher costs due to sparsity was examined.

The author concluded the study by recommending that

additional research on this subject should be conducted.

For future research, there appears to be a need
to more accurately describe the various
mechanisms for funding small schools, to analyze
the impact of existing aid distribution systems,
and to identify alternative funding sources or
mechanisms that are not currently being
employed.24

Another researcher, who completed a study on the subject of

financing rural schools and school districts, recommended:

The first step in the solution to the issues
confronting rural education is for states to
fully fund the formulas and programs already in
existence and to evaluate the impact of their










formulas and their sparsity adjustments under
full funding conditions.25

There were no studies in the search of the public

school finance literature that addressed either of these

recommendations. This researcher sought to advance the

level of knowledge in the field of education finance by

conducting research designed to address these

recommendations. The present study was designed to

describe a mechanism for providing additional revenues to

rural schools and districts for higher costs associated

with the sparsity of the student population. Furthermore,

this study was designed to evaluate the effects of

additional revenues for sparsity, under conditions of full

state funding, on a public school finance system.

The study of education finance is set within the

framework of a considerable body of case law. The courts

of a number of states have declared their respective state

school financing system unconstitutional.26 Within the

examination and analysis of a financing system, attention

is directed to how well a system conforms to the legal

standards enunciated by the courts for the equalization of

educational opportunity. Accordingly, the present study

served to evaluate the effects of additional revenues for

sparsity in light of established legal principles arising

from case law.










Limitations of the Study

Researchers in the field of public school finance are

concerned with equity in the distribution of revenues, the

adequacy of revenues, and efficiency in the utilization of

revenues for public education, as well as the burden of

paying for public education. In this study, equity in the

distribution of revenues to rural schools and school

districts for higher costs associated with the sparsity of

the student population was addressed. Questions of

adequacy and efficiency were not addressed nor were

questions of the burden of paying for public education.

This study was limited to the public schools of the

United States. It did not include postsecondary education

that is publicly funded nor did it include education that

is privately funded.

Definition of Terms

Adequacy is the provision of sufficient fiscal

resources necessary to meet the demands on schools.27

Efficiency is the arrangement of economic and social

institutions so as to achieve the maximum level of

satisfaction, both monetary and nonmonetary, at the lowest

possible cost.28

Equity is the equalization of educational opportunity

that in practice means assuring equal dollars per student

or sufficient dollars to provide comparable programs for










students after taking into account their different needs

and the cost of providing them.29

Rural and small refers to the nonmetropolitan

population and land area that is equivalent to that portion

of the total national population and land area not included

within the Standard Metropolitan Statistical Area.30

Notes

1. U.S. Const. amend. X.

2. William E. Thro, "The Third Wave: The Impact of
the Montana, Kentucky, and Texas Decisions on the Future of
Public School Reform Litigation," Journal of Law and
Education 19 (Spring 1990): 229.

3. Kern Alexander, "Rural Education:
Institutionalization of Disadvantage," Journal of Education
Finance 16 (Fall 1990): 128.

4. Deborah A. Verstegen, School Finance at a Glance
(Denver, Colo.: Education Commission of the States, 1990),
2.

5. Kern Alexander and K. Forbis Jordan, Educational
Need in the Public Economy (Gainesville, Fla.: University
Presses of Florida, 1976), 337.

6. Robert Berne and Leanna Stiefel, The Measurement
of Equity in School Finance (Baltimore: Johns Hopkins
University Press, 1984), 14-16.

7. Walter I. Garms, James W. Guthrie, and Lawrence
Pierce, School Finance: The Economics and Politics of
Public Education, 2d ed. (Englewood Cliffs, N.J.: Prentice-
Hall, Ihc., 1988), 147.

8. Verstegen, School Finance, 18.

9. Ibid.

10. Ibid., 18-22.

11. Frank H. Johnson, Assigning Type of Locale Codes
to the 1987-88 CCD Public School Universe (Washington,
D.C.: National Center for Education Statistics, 1989).










12. Roe L. Johns, "An Index of Extra Costs of
Education Due to Sparsity of Population," Journal of
Education Finance 1 (Fall 1975): 159-204.

13. Ibid., 159.

14. Johns, 159-204; William F. Fox, "Reviewing
Economies of Size in Education," Journal of Education
Finance 6 (Winter 1981): 273-96; Richard G. Salmon, "State
School Finance Programs and Their Influence on Rural
Schools and School Districts," Journal of Education Finance
16 (Fall 1990): 130-48; Deborah A. Verstegen, "Efficiency
and Economies-of-Scale Revisited: Implications for
Financing Rural School Districts," Journal of Education
Finance 16 (Fall 1990): 159-79; Gerald R. Bass,
"Isolation/Sparsity," Journal of Education Finance 16 (Fall
1990): 180-91; Austin D. Swanson and Richard A. King,
School Finance: Its Economics and Politics (New York:
Longman Publishing Group, 1991), 179.

15. Verstegen, School Finance, 19-23.

16. Thomas H. Jones, Introduction to School Finance
(New York: Macmillan Publishing Company, 1985), 12.

17. Walter I. Garms, James W. Guthrie, and Lawrence
Pierce, School Finance: The Economics and Politics of
Public Education (Englewood Cliffs, N.J.: Prentice-Hall
Inc., 1988), 130.

18. Ibid.

19. Berne and Stiefel, 8-12.

20. Ibid., 12-13.

21. Ibid., 13.

22. Ibid.

23. Ibid., 17.

24. Gerald R. Bass, "Financing for Small Schools,"
The Rural Educator 9 (2): 14.

25. David S. Honeyman, David C. Thompson, and R.
Craig Wood, Financing Rural and Small Schools: Issues of
Adeauacy and Equity., (Charleston, W.V.: ERIC Clearinghouse
on Rural Education and Small Schools, 1989), 72.








11

26. See, e.g., Serrano v. Priest, 487 P.2d 1241
(Calif. 1971), Robinson v. Cahill, 303 A.2d 273 (N.J.
1973), Pauley v. Kelley, 255 S.E.2d 859 (W.V. 1979), Helena
Elementary School Dist. v. State, 769 P 2d 684 (Mont.
1989), Rose v. Council For Better Educ.. Inc., 790 S.W.2d
186 (Ky. 1989), Abbott v. Burke, 575 A.2d 359 (N.J. 1990).

27. Garms, Guthrie, and Pierce, 150.

28. Jones, 5.

29. Garms, Guthrie, and Pierce, 130.

30. U.S. Bureau of the Census, Statistical Abstract
of the United States: 1990, 110th ed. (Washington, D.C.,
1990).














CHAPTER II
REVIEW OF LITERATURE



This chapter contains an examination of the literature

relevant to this study. In the first section, the concept

of equity is examined and the justification for additional

revenues to rural and small schools and school districts to

compensate them for the higher costs associated with

providing an equalized educational opportunity is

developed. The review begins with a theory of social

justice as a basis for the distribution of social benefits.

Next, the literature on the benefits of education is

discussed, followed by a review of the concept of

educational need and the principles of equity. In the

final discussion in the section, the characteristics of

rural and small schools and school districts are addressed.

The second section of the chapter contains a

discussion of case law. Litigation involving state school

finance programs is addressed. The court cases discussed

represent efforts at both the federal and state levels to

establish legal standards for an equitable distribution of

revenues for public education.










A Theory of Social Justice

Equity is a concept that goes beyond the meaning of

equality. Although there is general approval for the idea

of equity and equal educational opportunity, there are

differing perspectives as to what it should mean in

practice.' This discussion is intended to provide a

perspective within which the concept of equity in the

financing of public schools has its place.

The 18th Century movement known as "The Enlightenment"

gave expression to the belief that human beings had certain

natural rights. Unlike the monarchical or aristocratic

view of society, a belief grew

that men had certain natural rights that could
not be abrogated by society. More and more
people began to believe that men themselves
should have some share in formulating the civil
policies by which they were to be governed. This
outlook took the form of a belief in natural
rights, in a more democratic form of government,
and in a humanitarian social philosophy.2

The "natural rights" that emerged were life, liberty,

equality, property, and the pursuit of happiness.3 These

rights, together with a democratic form of government and a

humanitarian social philosophy, were articulated in the

liberties and guarantees set forth in the U.S.

Constitution.4 A just society was to be the practical

expression of the natural rights of humanity.

The philosopher John Rawls developed a theory of

justice and society. He conceptualized justice as

"fairness."5 Society, on the other hand, was "a more or










less self-sufficient association of persons who in their

relations to one another recognize certain rules of conduct

as binding and who for the most part act in accordance with

them."6 In his scheme, society and its major social

institutions distributed the fundamental rights and duties

and determined the distribution of benefits to the members

of society.7 "Justice," he wrote, "is the first virtue of

social institutions, as truth is of systems of thought."8

Thus, the distribution of benefits to the members of a

society by its major social institutions was to be based on

the principles of social justice.

Rawls formulated two principles of social justice.

The first dealt with the rights of the individual. "Each

person has an equal right to a fully adequate scheme of

basic liberties which is compatible with a similar scheme

of liberties for all." This principle was one of equality.

The second principle addressed social and economic

disparities.

Social and economic inequalities are to satisfy
two conditions. First, they must be attached to
offices and positions open to all under
conditions of fair equality of opportunity; and
second, they must be to the greatest benefit of
the least advantaged members of society.9

The second principle was one of equity.

Rawls elaborated on these principles by noting that

there were common interests among the members of society

"since social cooperation makes possible a better life for

all than any would have if each were to live solely by his










own efforts."10 However, within society there are

conflicts of interest.

There is a conflict of interest since persons are
not indifferent as to how the greater benefits
produced by their collaboration are distributed,
for in order to pursue their ends they each
prefer a larger to a lesser share. A set of
principles is required for choosing among the
various social arrangements which determine this
division of advantages and for underwriting an
agreement on the proper distributive shares.
These principles are the principles of social
justice: they provide a way of assigning rights
and duties in the basic institutions of society
and they define the appropriate distribution of
the benefits and burdens of social
cooperation.11

Rawls maintained that within the structure of society

are "various social positions" and people born into

positions are different from one another and

have different expectations of life determined,
in part, by the political system as well as by
economic and social circumstances. In this way
institutions of society favor certain starting
places over others. These are especially deep
inequalities. Not only are they pervasive, but
they affect men's chances in life; yet cannot
possibly be justified by an appeal to the notions
of merit or desert.12

Such inequities are certain in any society. It is for

this reason that the principles of social justice should be

applied. "The justice of a social scheme depends

essentially on how fundamental rights and duties are

assigned and on the economic opportunities and social

conditions in the various sectors of society."13

Rawls' envisioned a society wherein distribution of

the benefits of social collaboration are assigned in










keeping with the second principle of justice. His

philosophy, termed "distributive justice,"14 provided a

rationale advancing the requirement that social and

economic inequalities are permissible. However, they are

permissible only if they are to the benefit of the least

advantaged members of society.

In summary, Rawls defined two principles of social

justice. The first, the basic liberties, required equality

in the assignment thereof. The second principle required

that "social and economic inequalities, for example, the

inequalities of wealth and authority, are just only if they

result in compensating benefits for everyone, and in

particular for the least advantaged members of

society."15 In Rawls' philosophical design, the first

principle of social justice is synonymous with equality,

the second with equity. It is the second principle of

social justice, distributive justice, that distinguishes

equity from equality.

Education as a Benefit of Society

That education is one of the benefits of society is

well documented.16 As one of the benefits of social

collaboration, the distribution of educational benefits in

a just society would be according to Rawls' second

principle of social justice, distributive justice. That

is, the distribution of educational benefits ought to work










to the benefit of all, but particularly to the least

advantaged within a society.

The idea that education is a social benefit has a base

in economic theory. Specifically, the work of Theodore W.

Schultz laid the foundation for a field of study known as

human capital theory.17 Schultz postulated that "people

enhance their capabilities as producers and as consumers by

investing in themselves and that schooling is the largest

investment in human capital.",,18 He viewed schooling as an

industry that produced an educated product. However, the

product differed from that of conventional industry in that

the "contribution of most education is multidimensional, in

serving at one and the same time social, political, and

other purposes."19

A contemporary of Schultz, Burton A. Weisbrod analyzed

the benefits of education.20 Although most of the

analyses of the benefits of education focused on the

economic benefits of increased earning capacity and

production capability, Weisbrod put forth the argument that

earnings and productivity were incomplete measures.21

Schooling created benefits that went beyond economic gains

to the individual.

Schooling benefits many persons other than the
student and his present family. It benefits the
student's future children, who will receive
informal education in the home; and it benefits
neighbors, who may be affected favorably by the
social values developed in children by the
schools, and even by the quietness of the
neighborhood while the schools are in session.










Schooling benefits employers seeking a trained
labor force; and it benefits the society at large
by developing the basis for an informed
electorate.2

Weisbrod elaborated on the economic and noneconomic

benefits of schooling. The economic benefits included

greater income differentials due to one's level of

education, the opportunity to acquire more education, and

the capacity to adjust to new job opportunities brought

about by technological changes.23 However, the value of

an education had noneconomic benefits as well. Schools

provided the by-product of child care by allowing mothers

to work. The children of educated parents benefit from

informal education at home. The effects of education

resulted in higher levels of employment, lower levels of

crime, and fewer expenditures for social programs. A high

level of literacy promoted a more informed citizenry and an

appreciation of culture and the arts. Furthermore,

education played a prominent role in furthering the social

goal of equality of opportunity.24

Thus, it was apparent that education was one of the

benefits of social collaboration. It provided both

economic and noneconomic benefits for the individual and

society. Inasmuch as it was a social benefit, in the

Rawlsian scheme of justice it ought to be distributed

according to the second principle of social justice. It is

this second principle, distributive justice or equity, that










is one of the chief concerns of the study of school

finance.

Principles of School Finance

The historical antecedents of school finance had their

beginnings with the dissertation of Ellwood P. Cubberly in

1906.25 Cubberly asserted that it was the responsibility

of the state to assure a minimum level of education and to

equalize educational opportunities as much as possible.

Equal educational opportunity was a new idea for that era.

Furthermore, he advocated the concept that all children

within a state were entitled to the same educational

advantages.26

The Financing of Education in the State of New York by

George D. Strayer and Robert M. Haig was published in

1923.27 The contribution these researchers made to the

field of school finance was the development of the concept

of a minimum educational foundation for the children of a

state. The concept was based on the principle of

equalization of educational opportunity. A minimum

educational foundation contained three elements: (1)

establishment of schools or other arrangements that were

sufficient to provide every child in the state with equal

educational opportunity up to some prescribed minimum, (2)

a state or local tax for education based on ability to pay,

and (3) the direct administration of the schools by a state

department of education.28








20

Paul R. Mort was a student under George D. Strayer at

Columbia University. Generally, his ideas were congruent

with those of Strayer. In The Measurement of Educational

Need, Mort elaborated and extended the concept of

equalization of educational opportunity and educational

need.29 He advanced the argument that the measure of the

cost of an educational program or activity was equivalent

to a measure of educational need.30

The educational need of a community is regarded
as the composite of all of those elements in the
community that would affect the cost of the
public educational offering demanded by a state
program for making available to all children a
satisfactory minimum educational opportunity.31

A satisfactory minimum educational opportunity was

synonymous with a satisfactory educational equalization

program.32

Mort specified three elements for a satisfactory

educational equalization program. The combination of the

elements served as a measure of educational cost and, thus,

educational need. The elements were (1) educational

activities that were generally found in the communities

throughout the state were acceptable elements of an

equalization program; (2) any unusual expenditures that

were required to provide a minimum educational program due

to causes over which the local community had no control

were considered necessary for an equalization program; and

(3) where communities offered more schooling or a more

expensive educational program than were otherwise common










and, if it could be established that unusual conditions

required such additional expenditures to meet the minimum,

these expenditures would be considered part of the

equalization program.33

As the measure of educational need, Mort developed a

teacher-pupil unit. He utilized linear regression

techniques to estimate the relationship between the number

of teachers and the average daily attendance of schools of

various sizes. This relationship served as an estimate of

the typical number of teachers necessary to staff a school

of a particular size. The typical number of teachers

served to predict educational costs and educational

need.34

In their writings, Roe L. Johns and Edgar L. Morphet

enlarged on the idea of equalization of educational

opportunity based on educational need. They did so by

identifying additional variables that accounted for

educational costs based on legitimate educational needs.

In The Economics and Financing of Education, Johns and

Morphet included such variables as the costs of various

educational programs, as well as the extra costs associated

with sparsity and density of population.35

The research of these early school finance theorists

established the concept of equalization of educational

opportunity based on educational need. The concept was

rooted in the idea that all children were equally important










and some would have greater educational needs than others.

The standard that emerged as an indicator of educational

need was the cost of providing educational programs and

services of similar quality even though the cost might vary

from community to community. It was the duty of state

legislatures to fund those costs through their school

finance funding formulas.

Educational need was represented by those conditions

at the local level that distinguish among school districts

in their eligibility for state aid.36 There were numerous

ways in which states measured educational need based on the

costs of providing educational programs and services.

Methods varied from recognizing child-based characteristics

such as students with special needs to the differing

characteristics of school districts, for example, the

differences in economies of scale based on size. Still

other methods included adjusted teacher units and programs

costs.37

School finance researchers continued to broaden the

efforts of the early researchers' interests in the funding

of public education. The contemporary study of school

finance is closely aligned with the field of economics of

education. Both school finance and the economics of

education "are grounded largely in the discipline of

economics and the subfield of public finance."38

Nevertheless, whether approached from an economics of










education point of view or that of public finance, there

exists the ongoing concern for the equalization of

educational opportunity through the equitable distribution

of educational resources based on educational need.39

Although state officials are concerned with other

issues in the funding of public education such as an

adequate provision and efficiency, more research emphasis

has been directed to the concern for equity.40

The goal of school finance that is labelled
equity is more commonly expressed as equality of
educational opportunity. This expression
recognizes that it is not possible to educate all
students to the same level, for they have
different preferences and innate abilities.
There are many possible definitions of equal
educational opportunity, but in practice the
concept has been limited to mean assuring equal
dollars per student or assuring enough money to
provide comparable programs for students when
their different needs and the costs of providing
them have been taken into account.41

There are three principles that researchers in school

finance use to guide them in measuring the equity of the

distribution of fiscal resources for education. These

principle are horizontal equity, vertical equity, and

fiscal neutrality. Equity principles are applied in the

determination of whether a state school finance program is

fair.42

Horizontal equity is the principle of the equal

treatment of equals. The principle means "that students

who are alike should receive equal shares." Horizontal

equity is measured by the dispersion in the distribution of










the shares.43 An example of such shares would be resource

inputs. The inherent problem with horizontal equity is the

determination of which students are alike. However, once

such categories are established, the requirement is that

all are to receive the same share of that which is

distributed.44

Vertical equity is the principle of the unequal

treatment of unequals. It recognizes that students who are

different should be treated differently. The requirement

is that they will receive unequal shares of that which is

distributed. Under this principle, "both the

identification of 'legitimate' differences among children

and the selection of the nature and extent of the

appropriate unequal treatment must be made; these choices

are based largely on values."45 Differences can be the

result of child-based characteristics, district-based

characteristics, and program-based characteristics.46

The third principle is that of equal opportunity. It

recognizes that there should be no differences in the

shares of that which is distributed owing to

characteristics that are not considered legitimate. This

principle is also known as fiscal neutrality. In the study

of the equity of state school finance programs it means

that education should not be a function of local

wealth.47 "It is generally agreed that equity requires

fiscal neutrality."48










In the present study, the measures of equity were

applied to inputs per student. Inputs were "the resources

that are combined to educate children in schools, measured

either in actual physical resources (e.g., books and

teachers), in dollars, or in price adjusted-dollars."49

The most common input used in the analysis of state school

finance programs were dollar measures either as revenues or

expenditures.50

Rural Schools and Districts

Rural schools and school districts are unique in that

they experience differences in comparison to their urban

counterparts because of characteristics based on the nature

of the school or district.51 These characteristics have

an effect on the schools and school districts that can

threaten the quality of education in those settings. One

factor contributing to these characteristics is the

sparsity and dispersion of the student population. The

result is higher per pupil costs associated with providing

educational programs and services of a quality comparable

to their urban counterparts.

Of the approximately 85,000 public elementary and

secondary schools in the United States, 51 percent are

situated in locales that are classified as rural and small

town. There are 15.2 million students attending schools in

rural and small town locales representing 40 percent of the

total public school student population of the nation.








26

Twenty-eight states have more than one-half of their public

school students attending school outside a Standard

Metropolitan Statistical Area (SMSA).52

The apparent discrepancy between most schools
being outside the large population centers, and
most students attending schools within the large
population centers is resolved by looking at
school sizes in each locale. Schools tend to be
larger (in terms of student membership) in
urbanized areas than in rural areas.s

It is the difference in the size of student membership

between the urban and rural areas that gives rise to the

characteristics unique to the rural and small schools and

school districts. There is a considerable body of

literature concerning school size.54 However, the

characteristic of school size of concern in the financing

of rural schools and districts in this study was economy of

scale. Economies of scale in rural schools and districts

account for the characteristics that result in higher per

pupil costs for educational programs and services of a

quality comparable to schools in urban settings. The

sparsity and dispersion of the student population in rural

and small locales are responsible for the economies of

scale, or more appropriately the diseconomies of scale, in

rural schools and school districts.

Economy of Scale

One definition of economy of scale referred to the

gain in the number of units of output per unit of input as

the size of the organization increases.55 More simply










put, "economies of scale exist when larger organizations

are able to produce the same outcomes as smaller

organizations for less cost."56 Two sources were

identified for economies of scale and the resulting higher

costs for smaller schools and school districts.

These economies of scale are generally traced to
two sources. The first involves the difficulties
small organizations encounter when they seek to
purchase small amounts of relatively indivisible
inputs. The result may be a tendency for small
organizations to purchase more of the indivisible
inputs than is optimal in terms of efficiency.
An example drawn from education would involve an
instance where a school district is forced to
operate with smaller class sizes than it would
prefer to offer. To the extent that student
performance is not enhanced by small class size,
there is a sense in which the teacher resource,
because of its indivisible nature, is being
underutilized. This underutilization of certain
inputs can erode the efficiency of the affected
organization and the net result can be a
situation where in small organizations it costs
more than in larger organizations to achieve the
same result.57

The second source had to do with teacher specialization.

A second source of scale economies involves the
gain in specialization that can accompany
increases in scale. Consider a situation where
there are 30 students and 1 teacher in one school
district and 240 students and 8 teachers in a
second school district. Assume further that in
both districts the teachers are all paid the
same. The pupil-teacher ratio is 30:1 in both
cases, but in the latter case each teacher will
be able to specialize to a degree that is
impossible (or difficult to achieve) in the first
instance. To the degree that this specialization
is associated with pupil gains, the second
district will be producing more than the first
for the same cost. Looked at in a different way,
this result suggests that the smaller district
can produce the same outcomes as the larger
district only if it incurs additional costs.58










The concept of economy of scale was based on

production models from the field of economics. Production

models consist of three components. These are inputs,

outcomes, and a process that transforms inputs into

outcomes. The three components are linked by a production

function.59 Monk stated

that a production function is a summary of
production possibilities. Specifically, the
production function reveals the maximum amount of
outcome possible for alternative combinations of
inputs. If you know the supply levels of various
inputs and you know the production function, you
can calculate the maximum possible level of
outcome.60

Production models in education have the same three

components: inputs, outcomes, and the process that

transforms inputs to outcomes. The inputs in the

educational production model are multiple. These inputs

can be generally divided into student inputs and school

inputs. Examples of inputs supplied by students are the

characteristics and attributes they bring to school such as

ability, self-esteem, family background influences, and

peer relationships. Whereas the inputs supplied by the

school are resources such as personnel, buildings, and

materials,61 school inputs can be quantified by

calculating the costs for the purchase of these resources.

Just as the production model in education has multiple

inputs, it also produces multiple outcomes. These outcomes

are both economic and noneconomic, private and public.










They were discussed previously as the benefits of

education.

The third element of the education production function

model pertains to the process that creates the

transformation of inputs to outcomes. The elements of this

transformation are the combination of the various inputs.

The transformation results from the interaction of the

various inputs.62

The issue in the discussion of the education

production functions, economies of scale, and school size

is the cost of producing educational outcomes as the size

of the student membership of a school or district varies.

Production efficiency is enhanced when more outcomes can be

produced relative to the cost of doing so.63 The costs

associated with economies of scale in education are the

costs of school inputs such as personnel, buildings,

instructional materials, transportation, and other fixed

costs.

Economies of scale can be graphically illustrated by a

U-shaped cost curve. That is, the cost per student for a

given level of educational outcome decreases as the size of

the student membership of a school or district increases up

to a point of maximum efficiency where the costs are

lowest. Beyond that point, costs per student increase once

again.64 The explanation for this phenomena is that

this decline in costs reflects the fact that
teachers and other resources will not be fully










utilized at very low enrollments: the major
fixed costs (instructional and administrative
salaries, building maintenance, and operations)
are essentially the same whether 10 or 20
students are being taught. The cost per pupil,
however, changes dramatically if the costs are
being shared by 20 students instead of 10.65

Levin defined the phenomena in terms of educational

effectiveness for a given level of expenditure.66 The

size of the student membership can affect the economic

efficiency with which the school produces educational

services. When the production of educational services is

translated into costs, "the same level of educational

output will incur differences in costs depending upon the

enrollment of the school or school district."67 The long

run average cost curve is U-shaped, indicating declining

costs as the student membership increases up to an optimum

level of enrollment. This curve

reflects the fact that minimum teacher and other
resources required for any level of educational
outcome will not be fully utilized at very low
enrollments. That is, these resources represent
minimum "fixed capital" requirements that are
necessary just to provide an educational offering
of a given quality. Thus, at very low levels of
enrollment the cost per student is very high. It
is this phenomenon which fed the school
consolidation movement during the first half of
this century.68

Beyond an optimal level of enrollment, costs per

student increase as the number of students in a school or

school district increase. "As schools diverge from this

optimal size they will face increasing costs without

increases in the educational output for each student."69










This is explained by the observation that the school

organization cannot be administered as efficiently unless

higher resource inputs per student are increased.

Rural and small school districts have a number of

characteristics that result in diseconomies of scale.

These characteristics are associated with the sparsity and

dispersion of the student population. McClure referred to

these diseconomies of scale as the transportation effect.

The transportation effect is due to higher costs associated

with the transportation of students over longer distances

in sparsely populated locales.70 Johns termed the

phenomena the sparsity and dispersion effect. Johns wrote

that "sparsely settled districts with a widely dispersed

pupil population must operate small schools, especially

small high schools, that have a high per student cost if

appropriate educational programs are provided."71 Bass

noted that small rural school districts incur higher per

pupil costs due to limited enrollments, small teacher-pupil

ratios, and higher utility and operational costs per pupil.

These were not the only sources of higher per pupil costs.

Salaries for superintendents and other administrators had

to be divided among fewer students. In addition, higher

salaries were needed to recruit and retain teachers,

particularly in curricular areas experiencing teacher

shortages.72










If rural schools and school districts were to offer

educational programs and services similar in quality and

scope to those offered by larger schools, higher per pupil

costs are inescapable.73 Because of the higher costs of

providing for an equalized educational opportunity in rural

schools and districts, there exists a greater educational

need as measured by higher educational costs. Accordingly,

the school finance programs of twenty-nine states provide

additional revenues based on the educational need

demonstrated by the diseconomies of scale resulting from

the sparsity and dispersion of student populations.74

However, diseconomies of scale may not be the only

argument to justify additional revenues to rural schools

and districts. During the decade of the 1980s, many parts

of rural America experienced a severe economic decline that

had a serious impact on public school financing.75 High

rates of inflation during the previous decade exaggerated

property values in the rural sector. Rural Americans

borrowed at high rates of interest to invest in expensive

land and equipment. When inflation eased in the 1980s,

agriculture was left with debt it could not service. The

condition was exacerbated by an overly optimistic

expectation of worldwide demand for U.S. farm products.

The decline of the rural economy signaled a downturn in

property tax revenues as assessed valuation of agricultural

land dropped. As rural economic conditions stabilized,










they did so at a lower level. Local governments in

agriculture-dependent locales faced a downturn in property

tax revenues. The consequence was less revenue to support

the educational enterprise.

The trends that reshaped rural America and rural

education have been well documented.76 These trends not

only threatened the equalization of educational opportunity

but also the character of rural America. Stephens cited

the pressures in rural areas: (1) changes in the world

economy, (2) high unemployment, (3) reduced population

growth, (4) changing demographics, (5) lag in personal

income, (6) persistence of poverty, (7) underdeveloped

human resources, (8) the crisis in agriculture, (9) fiscal

pressures and rural local governments, (10) gaps in

infrastructure, and (11) a weakening political base.77 In

the past, the nation has been well-served by a strong

system of rural school districts.78 The pressures in

rural areas jeopardize their future.

In summary, the foregoing discussion documented the

various elements required to justify additional revenues to

rural and schools and school districts. The philosophical

basis for such a method of distribution rests in Rawls'

principle of distributive justice. Under the principle of

distributive justice, the distribution of the educational

benefit can be unequal if it works to the gain of the










least-advantaged. The purpose of an unequal distribution

is ultimately to produce equality of opportunity.

The goal of education finance known as equity permits

an unequal distribution of educational resources based on

the principle of vertical equity. Vertical equity is not

unlike Rawls' principle of distributive justice.

Legitimate differences among the educational needs of

students permit an unequal distribution of educational

resources. Educational resources are typically expressed

in terms of revenues per pupil. Fiscal neutrality is also

necessary for an equitable distribution of educational

resources.

The basis for establishing educational need was the

justifiable costs necessary to provide for equality of

educational opportunity. Rural schools and school

districts had higher per pupil costs due to the phenomena

of diseconomies of scale. These diseconomies of scale were

the result of the sparsity and isolation of the student

population. In 1990, twenty-nine states provided

additional revenues for the operation of rural schools and

districts based on the sparsity and dispersion of the

student population. The economic plight in rural areas was

a further justification for additional revenues.

Review of Cases

Equity, or equality of educational opportunity, in the

funding of the public schools of the United States has been










the object of litigation in both state and federal courts.

The seminal case that addressed equality of educational

opportunity was Brown v. Board of Education.79 The issue

before the Supreme Court of the United States was the

constitutionality of the practice of segregating white and

black children in the public schools. The case was a

direct challenge to the "separate but equal" doctrine

adopted in the earlier case of Plessy v. Ferouson.80 The

argument turned on the interpretation of Section 1 of the

14th Amendment to the U.S. Constitution that prohibited the

states from denying to any person in their respective

jurisdictions the equal protection of the laws.81

Writing for the Court, Chief Justice Earl Warren

opined that

where a State has undertaken to provide an
opportunity for an education in its public
schools, such an opportunity is a right which
must be make available to all on equal terms.
Segregation of children in public schools solely
on the basis of race deprives children of the
minority group of equal educational
opportunities, even though the physical
facilities and other "tangible" factors may be
equal.82

In overturning Plessy, the Court emphasized the basic

importance of education as a function of government and as

an avenue for success in life.

Today, education is perhaps the most important
function of state and local governments.
Compulsory school attendance laws and the great
expenditures for education both demonstrate our
recognition of the importance of education to our
democratic society. It is required in the
performance of our most basic public










responsibilities, even service in the armed
forces. It is the very foundation of good
citizenship. Today it is a principal instrument
in awakening the child to cultural values, in
preparing him for later professional training,
and in helping him to adjust normally to his
environment. In these days, it is doubtful that
any child may reasonably be expected to succeed
in life if he is denied the opportunity of an
education.83

The impact of the Brown decision meant the end to

legalized segregation in public education. It also meant

the end of the practice of segregation as an official

public policy. But it was the Court's finding that

education opportunities in the public schools must be made

available to all on equal terms, that would serve as a

basis for legal challenges to state school finance

programs. This finding was based on the Court's

interpretation of the equal protection clause of the

Fourteenth Amendment.

There followed a series of court cases that dealt with

the issue of funding disparities among local school

districts resulting from state school funding formulas.

"During the late 1960s, it was thought that the federal

Constitution's equal protection clause might include a

guarantee of a right to substantially equal funding for all

school districts within a given state."84

In 1968, the system of financing the public schools of

the state of Illinois was contested in federal court. The

case was McInnis v. Shapiro.85 Suit was filed on behalf

of students attending the public schools in Cook County.








37

Plaintiffs claimed that the various state statutes dealing

with the financing of the public school system were

unconstitutional because of the resulting funding

disparities created among school districts. Of the

revenues for the public schools, 75 percent came from local

property taxes and 20 percent came from state sources. The

funding formula resulted in expenditure disparities ranging

from $400 to $1000 per pupil.86 The plaintiffs claimed

that such wide variations in expenditures amounted to a

denial of equal educational opportunity that was protected

by the Fourteenth Amendment to the United States

Constitution.87

The federal district court dismissed the suit. The

dismissal was subsequently affirmed by the U.S. Supreme

Court.88 In dismissing the suit, the district court held

that the financing of the public schools was not

discriminatory and complied with the Fourteenth Amendment

even though it permitted wide variations in per-pupil

expenditures from district to district.89 The

Constitution did not require that public school

expenditures be made only on the basis of the educational

needs of students without regard to the financial strength

of local school districts, nor did it require the rigid

guideline of an equal expenditure of dollars for each

student.90










The idea of funding public schools on the basis of

educational need presented a problem for the court.

Educational need was not a judicially manageable standard

because there was no commonly accepted measure of it.91

Lacking a manageable standard to measure equal educational

opportunity, the court declared the decisions of the

Illinois Legislature permitting local choice and

experimentation in school expenditures were reasonable

especially because the state's foundation program

guaranteed a minimum expenditure of $400 per student.92

However, the Court was not unsympathetic to the plight

of the plaintiffs. "Without doubt, the educational

potential of each child should be cultivated to the utmost,

and the poorer school districts should have more funds with

which to improve their schools." However, "[the]

inequality inherent in having school funds determined by

pupil place of residence [is] an inevitable consequence of

decentralization."93

The state of Virginia was the scene of another

challenge to the state's method of funding public schools,

a method that was heavily dependent on the local districts

raising revenues through the property tax. In Burrus v.

Wilkerson94 the plaintiffs contended that "the

apportionment of state funds creates and perpetrates

substantial disparities in educational opportunities

available in different counties in violation of the










equal protection clause of the Fourteenth Amendment."95

The state constitution charged the legislature with the

duty to "establish and maintain an efficient system of free

public schools."96

Again, the case was dismissed in federal court.

Citing McInnis v. Shapiro, the court declared "the

circumstances of that case are scarcely distinguishable

from the facts here, Virginia's division of school funds

closely paralleling Illinois'. While we must and do deny

the plaintiffs suit, we must notice their beseeming,

earnest, and justifiable appeal for help."97 The court

found the Fourteenth Amendment offered no protection from

the disparities in educational opportunities resulting from

Virginia's method of financing its public schools.

Furthermore, it was stated, "the courts have neither the

knowledge, nor the means, nor the power to tailor the

public monies to fit the varying [educational] needs of

these students throughout the state."98 The lack of an

acceptable measure of educational need continued to present

the courts with a judicially unmanageable standard.

The landmark case in the federal courts dealing with

the financing of public schools was San Antonio School

District v. Rodriguez.99 To this point in time, it was

the only school finance dispute reviewed by the Supreme

Court of the United States.100 The case involved the

public schools of the state of Texas. The case was being










appealed by the San Antonio School District after the

federal district court ruled in favor of the plaintiffs.

The system by which Texas financed its public schools

drew revenues from both state and local sources.

Approximately one-half of the revenues were derived from

state sources designed to provide a basic minimum

educational offering. Each school district was permitted

to supplement state aid by a tax on the property within its

jurisdiction. The students of families who resided in

school districts that had a low property tax base claimed

the state's reliance on the local property tax created wide

disparities in per pupil expenditures thus favoring the

more affluent districts. Plaintiffs claimed the system

violated the equal protection clause of the Federal

Constitution because of substantial interdistrict

disparities in per pupil expenditures resulting from

differences in the value of assessed property among the

districts.101

Because the differences in the value of the tax base

permitted wealthy school districts to generate

substantially more revenue, plaintiffs from property poor

districts contended they were a "suspect" class. Such a

classification was discriminatory. A second claim was that

education was a "fundamental" right. Each claim implicated

the equal protection clause of the Fourteenth Amendment.

Both claims, if upheld, called for a standard of strict








41

scrutiny of the state's actions by the courts. Under such

a test, "the State's system is not entitled to the usual

presumption of validity, that the State rather than the

complainants must carry a heavy burden of

justification."102

The U.S. Supreme Court, by the narrowest of

majorities, supported the San Antonio School District and

reversed the decision of the federal district court.

Ruling on the issue of wealth as a suspect classification,

the Court set forth two conditions that had to be met to

gain such a classification: "because of their impecunity

they were completely unable to pay for some desired

[educational] benefit, and as a consequence, they sustained

an absolute deprivation of a meaningful opportunity to

enjoy that benefit."103 The Court further declared, "the

system of alleged discrimination and the class it defines

have none of the traditional indicia of suspectedness: the

class is not saddled with such disabilities, or subjected

to such a history of purposeful unequal treatment, or

relegated to such a position of political powerlessness as

to command extraordinary protection from the majoritarian

political process."104

As to the issue of education as a fundamental right,

the Supreme Court agreed with the lower court in that

education has a "grave significance" both to the individual

and to society that cannot be doubted.105 But,










"education, of course, is not among the rights afforded

explicit protection under our Federal Constitution. Nor is

it implicitly protected."106 Furthermore, the lack of a

judicially manageable standard continued to elude the

courts: "[a] major controversy over the extent to which

there is a demonstrable correlation between educational

expenditures and the quality of education."107

Whereas the Court did not recognize the students as a

suspect class nor education as a fundamental right, no

strict scrutiny of the state's actions was called for.

Thus, the standard of review required only that the state's

system of financing its public schools demonstrates some

rational relationship to a legitimate state purpose.108

The state satisfied the constitutional standard of review

under the equal protection clause, rational basis, by

demonstrating to the Court's satisfaction the legitimate

purpose of promoting local control of the public schools

through the design of its system of financing.

Throughout these cases, it had been the federal

courts' consistent opinion that the equal protection clause

of the Federal Constitution held no guarantees for an equal

educational opportunity based on substantially equal

expenditures per pupil. In spite of this, the courts did

recognize the significance of education to the individual

and society. However, in a telling dissent to San Antonio,

Associate Justice Thurgood Marshall wrote: "equal










protection is not addressed to minimal sufficiency but

rather to the unjustifiable inequalities of state

action."109

In spite of the turn of events in the federal courts,

constitutional guarantees to equal protection were applied

differently in a number of successful challenges to public

school finance systems in state courts. The first

successful challenge was Serrano v. Priest.110 The case

involved California's public school financing system that

relied heavily on local property taxes. Because of

variations in local property wealth, there resulted

substantial disparities among school districts in the

amount of revenue available per pupil.111

In Serrano v. Priest, the California Supreme Court

ruled the right to an education in the public schools was a

fundamental right that could not be conditioned on wealth.

Furthermore, "California's public school financing system,

with its substantial dependence on local property tax and

resultant wide disparities in school revenue, violates the

equal protection clause of the Fourteenth Amendment."112

The Court

determined that this funding scheme invidiously
discriminates against the poor because it makes
the quality of a child's education a function of
the wealth of his parents and neighbors.
Recognizing as we must that the right to an
education in our public schools is a fundamental
interest which cannot be conditioned on wealth,
we can discern no compelling state purpose
necessitating the present method of financing.
We have concluded, therefore, that such a system










cannot withstand constitutional challenge and
must fall before the equal protection
clause.113

In ruling that education was a fundamental interest

and that the California school financing system

discriminated against the poor, the judicial standard of

review was that of strict scrutiny. In cases

involving "suspect classes" or touching on
"fundamental interest," the [U.S. Supreme] court
has adapted an attitude of active and critical
analysis, subjecting the classification to strict
scrutiny. Under the strict standard the state
bears the burden of establishing not only that it
has a compelling interest which justifies the law
but that the distinctions drawn by the law are
necessary to further its purpose.11

The compelling interest cited by the state was the

maintenance of local administrative control. In applying

the standard of strict scrutiny, the court declared the

"present financial system cannot be considered necessary to

further this interest."115

In McInnis, the federal court could find no standard

to apply to the concept of "educational need."116 In

Serrano, the state supreme court found a manageable

standard in a theory called "fiscal neutrality" that

established a relationship between the wealth (taxable

property) of a school district and the level of educational

expenditures.117 Under the California system, more than

half the revenues for education were raised locally by

taxing real property and "as a practical matter districts

with small tax bases simply cannot levy taxes at a rate










sufficient to produce the revenue that more affluent

districts reap with minimal tax efforts."118 This served

as a judicially manageable standard with which to measure

equal educational opportunity.

At the time the U.S. Supreme Court was announcing its

decision in the San Antonio case, the New Jersey Supreme

Court had just ruled that state's system of financing

public schools was unconstitutional.119 The

circumstances in Robinson v. Cahill were familiar. New

Jersey had a system of financing public schools that relied

heavily on the local taxation of property to furnish

approximately 67 percent of public school costs. The

result was great disparities in the dollar inputs per pupil

because of variation in the wealth of local districts.120

The difference between this case and previous cases

was the use of the education clause in the state

constitution as part of the equal protection argument. The

New Jersey Constitution's education clause required a

"thorough and efficient" system of public schools. "The

Legislature shall provide for the maintenance and support

of a thorough and efficient system of free public schools

for the instruction of all children in the state between

the ages of 5 and 18 years."121

The court found the constitutional requirement for a

"thorough and efficient" public school system was not met

by a system of public school financing that permitted the










funding disparities in question. A system that did not

equalize local wealth denied equal protection to the

affected students. There was no apparent relationship

between the requirement for "equal educational opportunity"

and the wide variation in per pupil expenditures created by

the state's heavy reliance on local property taxes.122

The quality of educational opportunities depended in

substantial measure on the dollars expended per pupil.

Obviously equality of dollar input will not
assume equality in educational result. There are
individual and group disadvantages which play a
part. Local conditions, too, are telling, for
example, insofar as they attract or repel
teachers who are free to choose one community
rather than another. But it is nevertheless
clear that there is a significant connection
between the sums expended and the quality of
educational opportunity.123

However, absolute equality of expenditures was not

required. The state could provide additional revenues to

recognize differences in area costs and the needs of

disadvantaged children without violating the

constitution.124

Over the next ten years, a number of state school

finance systems were invalidated by state courts for

denying equality of educational opportunity.125 The

courts' reasoning in these cases was based on the education

clause in state constitutions, equal protection guarantees,

or a combination of the two. In these states education was

found to be a fundamental right.126 Not all challenges to

state school finance systems resulted in the invalidation










of these systems by the courts.127 For example, Wisconsin

and Louisiana had their systems challenged. Both were

found to be constitutional. In these two cases, the courts

applied the rational basis test as the standard of review.

In 1989, the Supreme Courts of three states found

their systems of financing the public schools

unconstitutional.128 In Helena, the court interpreted

equal educational opportunity as a constitutional guarantee

based on the education clause of the state

constitution.129 The fiscal disparities that existed

among school districts violated the right to equal

educational opportunity. The Court rejected the various

arguments by the state of fiscal difficulties, the need for

local control, and that equality of educational opportunity

was more appropriately measured by student outputs.130

The Kentucky Supreme Court ruled the common school

system of the state was inadequate, lacked uniformity, and

discriminated against 80 percent of the student

population.131 In the Rose decision, the court wrote

that Kentucky's system of common schools is
underfunded and inadequate; is fraught with
inequalities and inequities throughout the 177
local school districts; is ranked nationally in
the lower 20-25% in virtually every category that
is used to evaluate educational performance; and
is not uniform among the districts in educational
opportunities.132

"Simply because of their place of residence," the

students of the state experienced substantial disparities

in educational opportunities between poor and affluent










school districts. These disparities included teacher pay,

instructional materials, student-teacher ratios, curricular

offerings, facilities, and per pupil expenditures.133

These disparities were the result of lack of uniformity and

lack of adequacy of the local and state funding system for

education.134

The education clause of Kentucky's Constitution read

as follows: "The General Assembly shall, by appropriate

legislation, provide for an efficient system of common

schools throughout the State."135 The court interpreted

the language as implying the fundamental interest of

education and as a requirement for equal educational

opportunity.136 One further step was taken by the court

when it not only invalidated the system of financing public

schools but held that the entire system of public education

was unconstitutional.137

Although the U.S. Supreme Court in the San Antonio

case found no constitutional violations in the Texas system

of financing its public schools, the Texas Supreme Court

ruled to the contrary in 1989. The court in Edgewood found

substantial disparities in expenditures per pupil based on

wide variations in the property wealth of local school

districts.138 These disparities resulted in "dramatic"

differences for the quality of educational programs between

affluent and poor school districts. Examples of these

differences for poor districts included no foreign language










offerings; no prekindergarten programs; no chemistry,

physics, or calculus; no college preparatory or honors

courses; and no extracurricular activities.139

As in similar cases, the court found the Texas system

of financing public schools violated the equal rights

guarantees of the state constitution as well as the

education clause mandating an "efficient system."140 The

legislature was required to take immediate action. "The

legislature is duty-bound to provide for an efficient

system of education, and only if the legislature fulfills

that duty can we launch this great state into a strong

economic future with educational opportunity for all."141

The legislature of New Jersey had an opportunity to

remedy an unconstitutional system of financing its public

schools as a result of the decision in Robinson v. Cahill.

However, the issues returned to the state's Supreme Court

in the case of Abbott v. Burke.142 Once again, the court

invalidated the system. But the focus on this occasion was

the disparities present in urban school districts.

The court referred to its decision in Robinson.

Rather than on equality, our decision was based
on the proposition that the Constitution [of New
Jersey] required a certain level of education,
that which equates with thorough and efficient;
it is that level that all must attain; that is
the only equality required by the Constitution.
Embedded in our observation that if the lowest
level of expenditures per pupil constituted a
thorough and efficient education, then the
constitutional implication that no mater how many
districts were spending well beyond the level,
the system would be constitutional.143










The state had an absolute obligation to provide a minimum

level of educational opportunity.144

Evidence of the inferior quality of education in the

poor urban districts was cited by the court. The evidence

included finances, educational programs, and student

achievement.145 Inferior finances were the result of

"municipal overburden" that effectively prevented urban

districts from raising substantially more money for

education.146 Inferior educational programs existed in

the areas of computer science, science education, foreign

languages, art, music, and physical eduction.147

The court ordered the Legislature "to assure that

poorer urban districts' educational funding is

substantially equal to that of property-rich

districts."148 Funding levels had to be "certain" and

"adequate" each year to meet the educational needs of poor

urban districts and to address their extreme disadvantage.

How to remedy the disparities in poor urban school

districts was left to the Legislature, the State Board of

Education, and the Commissioner of Education."149

In summary, the basis legal challenges to state school

finance systems began with the Brown decision that required

that educational opportunities in the public schools be

made available to all on an equal basis. Although the

rationale for the decision rested in the equal protection

clause of the Fourteenth Amendment, the Court stopped short










of a complete declaration of education as a fundamental

right. However, the legal principles in Brown gave rise to

the concept that the Federal Constitution's equal

protection clause and the requirement that educational

opportunities be made available to all on an equal basis

might be extended to a guarantee to substantially equal

funding for public school students.

Efforts to have the federal courts invalidate state

school finance systems that created fiscal inequities

failed. The school financing systems in Illinois,

Virginia, and Texas were challenged in federal court based

on the disparities in per pupil expenditures created by

their systems of funding the public schools. Because these

systems relied so heavily on the property tax, the

plaintiffs claimed discrimination against students in

school districts with low property wealth. Low property

wealth resulted in substantially fewer dollars for

education in those districts. How could educational

opportunities be made available to all on an equal basis

when the revenues to purchase those opportunities varied to

substantially? The Fourteenth Amendment was thought to

protect against such unequal treatment.

The Court's rulings in these cases found the equal

protection provision of the Fourteenth Amendment did not

extend to disparities in educational funding. Education

did not enjoy the status of a fundamental interest, nor did










the fiscal disparities create a suspect class based on

wealth. Furthermore, there was the problem of the lack of

a judicially manageable standard with which to measure

educational need.

Many state courts, though not all, proved to be more

sympathetic to funding disparities created by state school

finance systems that relied heavily on local property

taxes. The school finance systems in California, New

Jersey, Connecticut, Washington, West Virginia, Wyoming,

and Arkansas were invalidated in the second round of legal

challenges. In these instances, the right to an equal

educational opportunity was found to be a fundamental

interest that, in turn, subjected the state systems to the

strict scrutiny standard of judicial review.

In these cases, the courts established the judicially

manageable standard of fiscal neutrality. The standard

specified that the quality of educational opportunity

should bear no relationship to the property wealth of a

local school district. Educational opportunity was

measured by per pupil expenditures among the school

districts of a state.

A third round of school finance litigation occurred in

the late 1980s. The public school funding systems of

Montana, Kentucky, Texas, and New Jersey were found to be

unconstitutional by their respective state courts. The

fundamental right to an education was upheld and gross










disparities in per pupil funding were found to violate

equal protection guarantees particularly in light of the

education clause of the state's constitution. Equal

educational opportunity went beyond merely making available

substantially equal revenues. The courts looked at what

those revenues could purchase in terms of personnel,

curriculum, and facilities when comparing the educational

opportunities between wealthy and poor districts.

Summary

This chapter contained a review of the literature on

the concept of equity and the justification for the

provision of additional revenues to fund equal educational

opportunity in rural and small schools and school

districts. The chapter also contained an examination of

the litigation in the state and federal court systems that

resulted in the development of a set of legal standards for

the equitable funding of educational opportunities in the

public schools.

Notes

1. Arthur E. Wise, Rich Schools. Poor Schools: The
Promise of Eaual Educational Opportunity (Chicago:
University of Chicago Press, 1968), 147; James Coleman,
"The Concept of Equality of Educational Opportunity,"
Harvard Educational Review 38 (Winter 1968): 7-22; Michael
N. Nwabuogu, "On the Meaning and Application of Equal
Educational Opportunity: A Review Article," Journal of
Education Finance 10 (Summer 1984): 64-82.

2. R. Freeman Butts and Lawrence Cremin, A History
of Education in American Culture (New York: Henry Holt and
Company, 1953), 59.










3. Ibid., 60.

4. Ibid., 185.

5. John Rawls, A Theory of Justice (Cambridge,
Mass.: The Belknap Press of Harvard University Press,
1971), 12.

6. Ibid., 4.

7. Ibid., 7.

8. Ibid., 3.

9. John Rawls, "The Basic Liberties and Their
Priority," in Sterling M. McMurrin (ed.), Liberty.
Equality, and Law: Selected Tanner Lectures on Moral
Philosophy, (Salt Lake City: University of Uta9.h Press,
1987), 5.

10. Rawls, A Theory of Justice, 4.

11. Ibid., 4.

12. Ibid., 7.

13. Ibid., 7.

14. Ibid., 274.

15. Ibid., 15.

16. Theodore W. Schultz, The Economic Value of
Education (New York: Columbia University Press, 1963);
Burton A. Weisbrod, External Benefits of Public Education
(Princeton, N.J.: Industrial Relations Section, Department
of Economics, Princeton University, 1964); Charles S.
Benson, The Economics of Public Education, 3d ed.(Boston:
Houghton Mifflin, 1978); Roe L. Johns, Edgar L. Morphet,
and Kern Alexander, The Economics and Financing of
Education, 4th ed. (Englewood Cliffs, N.J.: Prentice Hall,
1983); Thomas H. Jones, Introduction to School Finance (New
York: Macmillan Publishing Company, 1985) 3-12; L. Dean
Webb, Martha M. McCarthy, and Stephen B. Thomas, Financing
Elementary and Secondary Education (Columbus Ohio: Merrill
Publishing Company, 1988) 22-43; David H. Monk, Educational
Finance: An Economic Approach (New York: McGraw-Hill
Publishing Company, 1990) 28-32; Elchanan Cohn and Terry
Geske, The Economics of Education (New York: Pergamon
Press, 1990), 36-40; Austin D. Swanson and Richard A. King,
School Finance: Its Economics and Politics (New York:
Longman Publishing Group, 1991), 4-5.










17. Theodore W. Schultz, The Economic Value of
Education.

18. Ibid., x.

19. Ibid., 4.

20. Burton A. Weisbrod, The External Benefits of
Education.

21. Ibid., 15.

22. Ibid., 16.

23. Ibid, 18-24.

24. Ibid., 24-39.

25. Ellwood P. Cubberly, School Funds and Their
Apportionment (New York: Columbia University, 1905).

26. Ibid., 17.

27. George D. Strayer and Robert M. Haig, The
Financing of Education in the State of New York, vol. 1
(New York: Macmillan, 1923).

28. Ibid., 174.

29. Paul R. Mort, The Measurement of Educational Need
(New York: Teachers College, Columbia University, 1924.)

30. Ibid., 6.

31. Ibid., 1.

32. Ibid., 6.


33. Ibid., 6-7.

34. Ibid., 67.

35. Roe L. Johns and Edgar L. Morphet, The Economics
and Financing of Education, 3d ed. (Englewood Cliffs, N.J.:
Prentice-Hall, Inc., 1975), 234.

36. Thomas H. Jones, Introduction to School Finance,










37. Robert Berne and Leanna Stiefel, The Measurement
of Equity in School Finance (Baltimore: The Johns Hopkins
University Press, 1984), 13-17; Johns, Morphet, and
Alexander, The Economics and Financing of Education, 4th
ed., 220-27; Webb, McCarthy, and Thomas, Financing
Elementary and Secondary Education, 148-67; Jones,
Introduction to School Finance, 149-55; Deborah A.
Verstegen, School Finance at a Glance (Denver, Colo.:
Education Commission of the States, 1990); David H. Monk,
Educational Finance, 227-33.

38. James N. Fox, "School Finance and the Economics
of Education: An Essay Review of Major Works," Educational
Evaluation and Policy Analysis 11 (Spring 1989): 70;
Richard A. Musgrave, The Theory of Public Finance (New
York: McGraw-Hill Book Company, 1959); Richard A. Musgrave
and Peggy B. Musgrave, Public Finance in Theory and
Practice, 5th ed. (New York: McGraw-Hill Book Company,
1989); James A. Maxwell and J. Richard Aronson, Financing
State and Local Government, 3d ed. (Washington, D.C.: The
Brookings Institution, 1977).

39. See also, Benson, The Economics of Public
Education, 3rd ed., 257-58; Percy E. Burrup and Vern
Brimley, Jr., Financing Education in a Climate of Change,
3d ed. (Boston: Allyn and Bacon, Inc., 1982), 9-15; Johns,
Morphet, and Alexander, The Economics and Financing of
Education, 4th ed., 181-201; Berne and Stiefel, The
Measurement of Equity in School Finance; Thomas H. Jones,
Introduction to School Finance (New York: Macmillan
Publishing Company, 1985), 198-208; Webb, McCarthy, and
Thomas, Financing Elementary and Secondary Education, 149-
67; Walter I. Garms, James W. Guthrie, and Lawrence Pierce,
School Finance: The Economics and Politics of Public
Education, 2d ed. (Englewood Cliffs, N.J.: Prentice-Hall,
Inc., 1988), 23-24; Monk, Educational Finance: An Economic
Approach, 35-61; Austin D. Swanson and Richard King, School
Finance: Its Economics and Politics, (New York: Longman
Publishing Group, 1991), 240-57; Musgrave, The Theory of
Public Finance, 19-20; Musgrave and Musgrave, Public
Finance in Theory and Practice, 5th ed., 30; Maxwell and
Aronson, Financing State and Local Government, 3d ed., 88.

40. Garms, Guthrie, and Pierce, 130.

41. Ibid.

42. Berne and Stiefel, The Measurement of Equity in
School Finance, 12.

43. Ibid.










44. Monk, Educational Finance, 44.

45. Berne and Stiefel, The Measurement of Equity, 13.

46. Ibid., 14-17.

47. Ibid., 17; John E. Coons, William Clune, and
Stephen D. Sugarman, Private Wealth and Public Education
(Cambridge, Mass.: Harvard University Press, 1970).

48. Stephen J. Carroll and Rolla E. Park, The Search
for Eauity in School Finance (Cambridge, Mass.: The
Ballinger Press, 1983), 29.

49. Berne and Stiefel, The Measurement of Equity in
School Finance, 9.

50. Ibid., 10.

51. Ibid., 15.

52. Frank H. Johnson, Assioning Type of Locale Codes
to the 1987-88 CCD Public School Universe (Washington,
D.C.: National Center for Education Statistics, 1989).

53. Ibid., 11.

54. Henry M. Levin, "The Effect of Different Levels
of Expenditure on Educational Output," in Roe L. Johns,
Irving J. Goffman, Kern Alexander, and Dewey H. Stollar
(eds.), Economic Factors Affectina the Financing of
Education (Gainesville, Fla.: National Educational Finance
Project, 1970) 173-206; J. Alan Thomas, The Productive
School (New York: John Wiley and Sons, Inc., 1971), 45-50;
James Guthrie, "Organization Scale and School Success,"
Educational Evaluation and Policy Analysis 1 (1): 17-27;
William F. Fox, "Reviewing Economies of Size in Education,"
Journal of Education Finance 6 (Winter 1981): 273-96;
McCarthy, Webb, and Thomas, Financing Elementary and
Secondary Education, 63-67; Herbert Walberg and William J.
Fowler, Jr., "Expenditures and Size Efficiencies of Public
School Districts," Educational Researcher 16 (October
1987): 5-13; Education and Urban Society 21 (February
1989): 123-231; David S. Honeyman, David C. Thompson, and
R. Craig Wood, Financina Rural and Small Schools
(Charleston, W.V.: ERIC Clearinghouse on Rural Education
and Small Schools, 1989); Deborah A. Verstegen, "Efficiency
and Economies-of-Scale Revisited," Journal of Education
Finance 16 (Fall 1990): 159-79; Gerald R. Bass,
"Isolation/Sparsity," Journal of Education Finance 16 (Fall
1990):180-91; Swanson and King, School Finance, 273-74;
Brady J. Deaton and Kevin T. McNamera, Education in a










Chanaina Rural Environment (Mississippi State, Miss.:
Southern Rural Development Center, 1984); Berne and
Stiefel, The Measurement of Eauity., 12-17; Guthrie, Garms,
and Pierce, The Economics and Politics of Public Education,
206; ; David H. Monk, Potential Effects of the Overburden
Argument on Fundina of Rural Schools (Albany, N.Y.: New
York State Executive Office, 1981), Secondary School
Enrollment and Curricular Comorehensiveness (Ithaca, N.Y.:
College of Agriculture and Life Sciences at Cornell
University, 1986), and Educational Finance, 394-413; Robert
J. Tholkes and Charles H. Sederberg, "Economies of Scale
and Rural Schools," Research in Rural Education 7 (Fall
1990): 9-15.

55. Webb, McCarthy, and Thomas, 63.

56. Monk, Potential Effects of Overburden, 4.

57. Ibid, 4-5.

58. Ibid.

59. Monk, Educational Finance, 316; Webb, McCarthy,
and Thomas, 57-63; Thomas, The Productive School, 9-31;
Swanson and King, School Finance, 179-83.

60. Monk, Educational Finance, 316.

61. Ibid, 323.

62. Ibid., 325.

63. Ibid., 8-10.

64. Webb, McCarthy, and Thomas, 63.

65. Ibid.

66. Henry M. Levin, "The Effects of Different Levels
of Expenditure on Educational Output," 184-85.

67. Ibid., 184.

68. Ibid., 185.

69. Ibid., 185.

70. William P. McClure, The Effect of Population
SDarsitv on School Costs, Columbia University Contribution
to Education, No. 924 (New York: Teachers College, Columbia
University, 1947).










71. Roe L. Johns, "An Index of Extra Costs of
Education Due to Sparsity of Population," Journal of
Education Finance 1 (Fall 1975): 160.

72. Swanson and King, 179.

73. Gerald R. Bass, "Isolation/Sparsity," 180.

74. The states are Alaska, Arkansas, California,
Colorado, Connecticut, Florida, Georgia, Idaho, Iowa,
Kansas, Kentucky, Louisiana, Maine, Minnesota, Missouri,
Montana, Nebraska, Nevada, New Mexico, North Carolina,
North Dakota, Ohio, Oregon, Pennsylvania, Texas, Utah,
Washington, West Virginia, and Wyoming.

75. Albert J. Richter, Impact of Rural Recession on
Public School Financing (Washington, D.C.: National
Education Association, 1986).

76. Paul Nachtigal, ed., Rural Education: In Search
of a Better Way (Boulder, Colo.: Westview Press, Inc.,
1982); Jonathan Sher, ed., Education in Rural America: A
Reassessment of Conventional Wisdom (Boulder, Colo.:
Westview Press, Inc., 1977); Robert E. Stephens, The
Changing Context of Education in the Rural Settina
(Charleston, W.V.: Appalachian Educational Laboratory,
1988) and "Some Reflections on Fiscal Policies for Rural
Schools," Journal of Education Finance 16 (Fall 1990): 273-
84; David Honeyman, R. Craig Wood, David C. Thompson, and
G. Kent Stewart, "The Fiscal Support of School Facilities
in Rural and Small Schools," Journal of Education Finance
13 (Winter 1988): 227-39; David S. Honeyman, David C.
Thompson, and R. Craig Wood, Financing Rural and Small
Schools: Issues of Adequacy and Equity (Charleston, W.V.:
ERIC Clearinghouse on Rural and Small Schools, 1989); Task
Force on Agriculture and Community Viability, Agriculture
and Rural Viability (Raleigh, N.C.: Department of
Sociology, Anthropology, and Social Work, University of
North Carolina, 1988); David Mulkey, Education Policy and
Rural Development: A Prospective From the Southern Region,
paper presented at Southern Regional Rural Development
Policy Workshop, Birmingham, Ala., 1988, ERIC, ED 302 359;
Neil E. Harl, The Changing Rural Economy (Washington, D.C.:
Department of Education, 1985); Kern Alexander, "Rural
Education: Institutionalization of Disadvantage," Journal
of Education Finance 16 (Fall 1990): 121-29; R. Craig Wood
and Patricia Cahape, "Demographic Shifts and State Fiscal
Capacities Affecting Public Elementary and Secondary
Education in the States of Kentucky, Tennessee, Virginia,
and West Virginia," Journal of Education Finance 16 (Fall
1990): 148-58;










77. Stephens, The Changing Context, 15.

78. Ibid., 79.

79. Brown v. Board of Education, 347 U.S. 483 (1954).

80. Plessy v. Ferouson, 163 U.S. 537 (1896).

81. U.S. Constitution, Amendment XIV, section 1.
"All persons born or naturalized in the United States and
subject to the jurisdiction thereof, are citizens of the
United States and the State wherein they reside. No State
shall make or enforce any law which shall abridge the
privileges or immunities of citizens of the United States;
nor shall any State deprive any person of life, liberty, or
property, without due process of law; nor deny to any
person within its jurisdiction the equal protection of the
laws."

82. Brown, 347 U.S. at 493.

83. Id. at 493.

84. William E. Thro, "The Third Wave," Journal of Law
and Education 19 (Spring 1990): 222-23.

85. McInnis v. Shapiro, 293 F.Supp. 327 (Ill. 1968).

86. Id. at 330.

87. Id. at 328.

88. 89 S.Ct. 1197 (1969).

89. Id. at 336.

90. Id. at 336.

91. Id. at 329.

92. Id. at 333.

93. Id. at 333.

94. Burrus v. Wilkerson, 310 F.Supp. 572 (Vir. 1969).

95. Id. at 573.

96. Id. at 574.

97. Id. at 574.










98. Id. at 574.

99. San Antonio School District v. Rodriguez, 411
U.S. 1 (1973).

100. Swanson and King, 227.

101. San Antonio, 411 U.S. at 2.

102. Id. at 16.

103. Id. at 20.

104. Id. at 28.

105. Id. at 30.

106. Id. at 35.

107. Id. at 43.

108. Id. at 40.

109. Id. at 70.

110. Serrano v. Priest, 487 P.2d 1241 (Calif. 1971).

111. Id. at 1243.

112. Id. at 1244.

113. Id. at 1244.

114. Id. at 1245.

115. Id. at 1260.

116. McInnis v. Shapiro, 293 F.Supp. at 329.

117. Thro, The Third Wave, 223.

118. Serrano, 487 P.2d at 1250.

119. Robinson v. Cahill, 303 A.2d 273 (N.J. 1973).

120. Id. at 295.

121. New Jersey Constitution, Article VIII, section
4.


122. Robinson, 303 A.2d at 277.










123. Id. at 277.

124. Id. at 297.

125. See, e.g., Horton v. Meskill, 376 A.2d 359
(Conn. 1977), Seattle School Dist. No. 1 v. State, 585 P.2d
71 (Wash. 1978), Paulev v. Kelley, 255 S.E.2d 859 (W.Va.
1979), Washakie Co. Sch. Dist. No. One v. Herschler, 606
P.2d 310 (Wyo. 1980), Dupree v. Alma School District No.
30, 651 S.W.2d 90 (Ark. 1983).

126. Id.; see also Thro, The Third Wave, 228-32.
Another principle that emerged from these cases was the
equal protection clause of state constitutions could be
more demanding than that of the Federal Constitution.

127. See, e.g., Lujan v. Colorado State Bd. of Educ.,
649 P.2d 1005 (Colo. 1982), Board of Educ.. Levittown Union
Free School Dist. v. Nyquist, 439 N.E.2d 359 (N.Y. 1982),
McDaniel v. Thomas, 285 S.E.2d 156 (Ga. 1982), Kukor v.
Grover, 436 N.W. 568 (Wis. 1989), Livinaston La. Sch. Bd.
v. La. St. Bd. of Educ., 830 F.2d 563 (La. 1987).

128. Helena Elementary School Dist. v. State, 769 P.2d
684 (Mont. 1989), Rose v, Council For Better Educ.. Inc., 790
S.W.2d 186 (Ky. 1989), Edgewood Indep. School Dist. v. Kirby,
777 S.W.2d 391 (Tex. 1989).

129. Helena, 769 P.2d at 689.

130. Id. at 690.

131. Rose, 790 S.W.2d at 198.


132. Id. at 197.

133. Id. at 198.

134. Id. at 199.

135. Ky. Const. sec. 183.

136. Id. at 212.

137. Id. at 213.

138. Edgewood, 777 S.W.2d at 392.

139. Id. at 393.

140. Id.








63

141. Id. at 399.

142. Abbott v. Burke, 575 A.2d 359 (N.J. 1990).

143. Id. at 368.

144. Id. at 369.

145. Id. at 394.

146. Id. at 393.

147. Id. at 395.

148. Id. at 408.

149. Id.














CHAPTER III
METHOD


This chapter explicates the design that was utilized

to answer the research question "what were the effects of

additional revenues ,for sparsity on the equity of a state

school finance system?" The chapter begins with a

discussion of the state school finance system selected for

the study. That discussion is followed by a description of

the development and workings of the formula that provides

additional revenues for sparsity. Last, the standard

statistical measures of equity are presented.

Florida

The system of financing public schools in the state of

Florida was selected for the study. During the 1989-90

school year, the public schools of Florida had the fourth

largest student membership in the United States. Only

California, Texas, and New York had larger memberships in

their public schools.1 Florida had almost two million

students in its elementary and secondary schools.2

In 1990, Florida was one of twenty-nine states that

recognized higher per pupil costs associated with the

sparsity of student populations by providing additional

revenues through its school finance funding formula.3 Of

64








65

the sixty-seven school districts in the state, thirty-seven

received additional revenues to compensate for higher per

pupil costs resulting from diseconomies of scale in

sparsely populated school districts.4

There were other factors that contributed to the

selection of Florida for this study. Four elements of a

comprehensive and equitable state school finance program

have been incorporated into the Florida system.5 First,

the fiscal capacity of local school districts to provide

for education was based on the relative wealth of the local

school district as measured by the local property tax

base.6 Second, the system addressed the element of

adequacy by establishing a base level of funding to provide

a minimum education program. Additional funds were

appropriated to meet specific educational needs in the form

of categorical programs.7 Third, the educational needs of

the students were taken into account by factoring into the

funding formula the costs of various educational

programs.8 Fourth, additional revenues were appropriated

to offset the differences in program costs associated with

the special characteristics of school districts (e.g.,

sparsity).9

Florida's system of financing its public schools

reflected the concern for equity: horizontal equity,

vertical equity, and fiscal neutrality. Horizontal and

vertical equity concerns were addressed by factoring into










the funding formula the costs of various educational

programs based on educational need, as well as the special

characteristics of school districts.10 Fiscal neutrality

was addressed by equalizing the fiscal capacity among the

school districts based on their relative wealth.11

In 1990, Florida was one of twenty-nine states that

provided additional revenues for sparsity. In addition,

the Florida system incorporated the elements of a

comprehensive school finance program and the three

principles of equity in school finance. It was one of the

largest school systems in the United States. Taken

together, these considerations supported the selection of

the Florida system for this study.

Overview of the Florida Education Finance Proaram

The responsibility for the establishment, maintenance,

and operation of the public schools in Florida is set forth

in the education article of the state constitution. The

Constitution of the State of Florida specified a "uniform

system of free public schools."12 In 1973, the

legislature enacted the state's most recent school finance

system to fund the public school system of the state, the

Florida Education Finance Program (FEFP).13 The intent of

the legislature was

to guarantee to each student in the Florida
public school system the availability of programs
and services appropriate to his educational needs
which are substantially equal to those available
to any similar student notwithstanding geographic









differences and varying local economic
factors.14
"To provide for the equalization of educational
opportunity" the funding formula of the FEFP recognized
"(1) varying local property tax bases, (2) varying program
cost factors, (3) district cost differentials, and (4)
differences in per student cost for equivalent education
programs due to sparsity and dispersion of student
population."15
The FEFP based financial support for the public
schools upon the number of students participating in a
specific educational program rather than the number of
teacher units or the number of classroom units. Funds were
calculated by multiplying the number of "full-time
equivalent" students (FTE) in each educational program by
the "cost factor" of that program to obtain a "weighted
full-time equivalent" (WFTE). Weighted FTE's were
multiplied by a "base student allocation" (BSA) and by the
"district cost differential" (DCD) to determine the basic
FEFP funds.16 Program cost factors were determined by the
legislature and represented the relative cost differences
among the thirty-five categories of educational
programs.17

For the 1988-89 school year, the school districts of
Florida received 53.2 percent of their financial support
from state sources; 40.4 percent of their support was from
local sources (i.e., property taxes). The remaining 6.4



A










percent was from federal sources.18 Federal sources were

not included in the calculation of the FEFP.

State support for school districts in Florida was

provided by legislative appropriation to fund the basic

FEFP, specific categorical programs, special allocations,

and capital outlay. Local revenue for the support of the

public schools was derived "almost entirely" from property

taxes in each of the sixty-seven school districts. Federal

revenues were appropriated by Congress and supported

specific programs such as school lunch, adult education,

and education of the handicapped.19

The data set for this study was the FEFP calculation

for the fiscal year 1989-90. The total FEFP calculation

for 1989-90 was approximately $7.223 billion.20 The total

did not include capital outlay and debt service. There

were 1.95 million full-time equivalent (FTE) students. The

number of weighted full-time equivalent (WFTE) students was

2.37 million.21 The number of public elementary and

secondary schools was 2,432.22

Calculation of the FEFP

Full-time equivalent (FTE) students were calculated in

accordance with Florida Statutes.23 The calculation was

based on a number of program membership surveys conducted

during the fiscal year. Surveys of each school were

conducted and the full-time equivalent student membership

was aggregated by school and district. The Florida










Department of Education established the number and

intervals of membership surveys.24

The FTE calculation was multiplied by program cost

factors. Program cost factors were determined in the

annual General Appropriations Act of the Legislature.25

These factors served to assure that each of the thirty-five

programs received an equitable share of educational funds

in relation to relative costs. Costs are reported annually

by the districts. The legislature adopted a three year

average in the computation of program cost factors. The

cost per FTE of each program was used to construct an index

of relative program costs. The cost per FTE of the Basic

Program, Grades 4-8 established a base of 1.000.26 FTE

for a program was multiplied by the cost factor and

produced weighted full-time equivalents (WFTE).

The base student allocation (BSA) was determined by

the legislature and established in the General

Appropriations Act.27 The BSA for the 1989-90 fiscal year

was $2,538.26. The BSA was multiplied by the WFTE and

represented the allocation per WFTE in each program. This

was the foundation program that set a base level of funding

necessary for a minimum education. It was one source of

FEFP revenues for school districts.

The product of BSA x WFTE was multiplied by the

district cost differential (DCD). The DCD was computed

based upon an average of the three previous years of the










Florida Price Level Index prepared by the Office of the

Governor.28 The DCD was used to adjust each school

district's FEFP allocation. The 1989 legislature provided

that each district with a value below 1.0000 on the index

would be set at 1.0000 in determining the FEFP

allocation.29 Nine school districts had values above

1.0000 on the index and qualified for additional

revenues.30

A declining enrollment supplement was added to the

FEFP allocation of eligible districts. Eligibility for the

supplement was determined by comparing the prior year FTE

with that of the current year (1989-90). In districts

where there was a decline in enrollment, 50 percent of the

decline was multiplied by the prior year's calculated FEFP

allocation per FTE and added to the district's current year

allocation. The calculated FEFP allocation, for purposes

of the supplement, was computed by multiplying the WFTE by

the BSA and then by the DCD.31 Five school districts

received a declining enrollment supplement.32

The FEFP contained a profoundly handicapped adjustment

to provide additional revenues to eligible school districts

whose prior year expenditure per FTE for profoundly

handicapped programs exceeded that year's FEFP allocation

for profoundly handicapped by at least 125 percent. Total

revenue available for the adjustment was set by the

legislature at $4,584,390. If the sum of the eligible








71

districts' adjustment exceeded that figure, each district's

allocation would be prorated. Twelve districts qualified

for the adjustment.33

A further adjustment was added to the FEFP allocation

was the sparsity supplement. The formula was designed to

recognize the relatively higher costs of a smaller school

district through a statutory formula in which the variable

was a sparsity index.34 The index was computed by

dividing the FTE of the district by the number of approved

high school centers (not to exceed three). Eligibility was

limited to districts with 17,000 or fewer FTE. Each

eligible district's supplement was adjusted for the

relative wealth of the district. The supplement was

limited to $12,500,000 statewide. If the sum of the

eligible districts' supplement exceeded that amount, the

supplement would be prorated among eligible districts.

Thirty-seven school districts received the supplement.35

The quality assurance guarantee was added to the FEFP

allocation.36 The legislature appropriated $25,000,000 to

guarantee each district a 7.068 percent per WFTE increase

in funds. The calculation of the increase was made by

comparing the FEFP allocation plus revenues per WFTE from

the discretionary tax for 1989-90 with the FEFP allocation

plus total potential revenues per WFTE from the

discretionary tax for 1989-90 excluding the declining

enrollment supplement, prior year adjustments, and extended










day allocation. If the appropriated amount was not

sufficient to provide a 7.068 percent increase, each

district's allocation would be prorated. Twelve school

districts were eligible for allocation.37

The 1989 legislature added the rapid growth supplement

to the FEFP calculation to address the needs of districts

in the event the growth in the number of FTE exceeded the

state average from the previous year. The percentage by

which each district's enrollment growth exceeded the

statewide average was multiplied by the district's 1989-90

FTE. The resulting product was used to proportionally

distribute $10,000,000. Seventeen districts were

eligible.38

The sum of the previous calculations was the total

state and local FEFP dollars ($6.3 billion). Subtracted

from this amount was the required local effort (RLE) that

was $2.3 billion. The RLE was the amount of revenue from ad

valorem taxes each school district was required to provide

to participate in the FEFP. The legislature prescribed the

aggregate RLE. The RLE was calculated in the following

manner. The Department of Revenue certified to the

Commissioner of Education the most recent estimate of the

nonexempt assessed valuation of property for school

purposes in each school district. The commissioner

computed a village rate that, when applied to 95 percent of

the state total of nonexempt assessed valuation of property








73

for school purposes generated the aggregate prescribed RLE

for all districts. The aggregate RLE was

$2,289,434,494.39

The average statewide millage rate set by the

legislature was 5.792 mills. Each district's share of the

aggregate RLE was adjusted by a factor designed to equalize

the required local effort.40 The adjustment was computed

by multiplying the equalization factor for the prior year's

assessment roll for each district by 95 percent of the

nonexempt assessed valuation for school purposes shown on

the tax roll, and by the prior year's RLE millage exclusive

of any equalization adjustment. The amount computed was

the additional RLE for equalization purposes during the

1989-90 fiscal year.

The equalization factor was computed as the quotient

of the prior year's assessment level of the state as a

whole divided by the prior year's assessment level for each

school district, from which was subtracted 1. The amount

of additional RLE for equalization for each district was

converted to a millage rate, based on 95 percent of current

year's nonexempt assessed valuation for the district, and

added to the statewide average RLE millage rate.

In addition to the required millage levy, the RLE

included an amount for fees for adult students who were not

exempt from payment.41 Additionally, an adjustment to the

RLE was made for districts that had contractual agreements










with federal correctional institutions. These agreements

were for the instruction of inmates and had the effect of

reducing the base student allocation for inmate educational

services to $1,584 per FTE.42

The amount that resulted from the calculation of the

RLE was subtracted from the total FEFP allocation. That

which remained was the state's share of the FEFP which was

$4,000,810,691.43 This amount was subject to adjustments

for the prior year. Adjustments included funds allocated

to a district for adjudication of litigation, arithmetical

errors, assessment roll changes, FTE membership errors, or

errors revealed in audit reports. The amount that resulted

was adjusted state FEFP dollars.

To adjusted state dollars was added the extended day

supplement.44 The legislature appropriated $113,894,074

for an extended day or a seven period day. A district's

share was based on FTE count and prorated. All school

districts received revenues for an extended day or seven

period day.45

An adequacy supplement was added to the adjusted state

FEFP. The supplement was appropriated to provide an 8.0

percent increase in funding per WFTE. The increase was

based on total state and local FEFP, discretionary local

funds, and major formula based categorical programs such as

K-3 Improvement, Safe Schools, Writing Skills, and










Instructional Materials. The amount appropriated was

prorated among nineteen eligible districts.46

Up to 10 percent of funds remaining in the FEFP

allocation were appropriated as the caps adjustment

supplement.47 This supplement was allocated after all

components of the FEFP had been calculated and funded. The

funds were used to supplement WFTE that were over program

group ceilings. Eighteen school districts qualified for

the supplement.48 With the addition of the extended day

supplement, the adequacy supplement, and the caps

adjustment to adjusted state FEFP dollars, the revised

total was the net state FEFP allocation. The foregoing

supplements (district cost differential, declining

enrollment, profoundly handicapped, sparsity, quality

assurance, rapid growth, extended day, adequacy, and caps

adjustment) were a second source of FEFP revenues for

school districts.

The third source of FEFP revenue for current year

operations was the discretionary tax.49 The revenues from

this source totaled $282 million. There were two types of

discretionary tax: current operations and capital outlay

and maintenance. The discretionary tax for current

operations permitted each school district to levy a non-

voted millage rate on the nonexempt assessed valuation of

property in the district. The maximum rate set by the

legislature was 0.719 mills. Districts were permitted to








76

levy a discretionary tax up to that rate. The tax rate for

capital outlay and maintenance was set at 2.0 mills and was

not included in this study.

Categorical program funds and special allocation

represented a fourth source of FEFP revenues for school

districts. The revenue from this source totaled $651

million. Categorical program funds were added to the net

state FEFP allocation. The categorical programs were

appropriated to assist in the development and maintenance

of activities that indirectly supported FEFP programs.50

The programs were Comprehensive School Construction and

Debt Service, Community Schools, School Lunch,

Instructional Materials, Library Media Materials, Student

Transportation, Student Development Services, Diagnostic

and Learning Resource Centers, and Comprehensive Health

Education.

Finally, special allocations were added to the net

state FEFP allocation. Special allocations included all

other sources of state funds for school districts. The

funds were not classified by statute as FEFP or categorical

program funds. Special allocations were for programs such

as Dropout Prevention, High Cost Science Labs, Merit

Schools, School Bus Replacement, Summer Camps, and Teachers

as Advisors.51

There were five FEFP calculations throughout the 1989-

90 fiscal year. The first calculation was completed in










June, following the legislative session. The second in

July upon receipt of the certified tax roll from the

Department of Revenue. The third and fourth were in

November and February, respectively, after receipt of

school district membership surveys. The final calculation

was made following the school district's June membership

survey.52

The Sparsity Supplement

The sparsity supplement was enacted into law and

incorporated in the FEFP in 1975.53 It was based on

research that indicated

the cost per student in sparsely settled areas
and in small districts is greater for equivalent
programs and services than in larger and more
densely settled districts. Large school
districts have economies of scale not possible in
small population districts. Sparsely settled
districts with a widely dispersed pupil
population must operate small schools, especially
high schools, which have a high per student cost
if appropriate educational programs are
provided.54

The intent of the Florida legislature, when it enacted

the FEFP, was to provide equal educational opportunity by a

guarantee of "substantially equal" programs and services

"notwithstanding geographic differences."55 To accomplish

that intent, the legislature approved a supplement for

differences in per student costs for equivalent educational

programs and services due to the sparsity and dispersion of

the student population.56 The formula for the calculation








78

of the sparsity supplement was based on the research of Roe

L. Johns.57

Johns specified four criteria for selecting the most

appropriate measure of the sparsity of the student

population. First, the measure should be computed annually

because of changes in the student population from year to

year and be based on reliable data already collected.

Second, the measure should be related to the size and

scatter of the student population and the area of the

school district. Third, the measure should have a high

correlation with the additional revenues needed to provide

equivalent educational programs in sparsely populated

districts. Fourth, the measure should be simple.58

The measure of sparsity selected was the number of FTE

in all programs divided by the number of approved high

school centers, not to exceed three. The measure met

Johns' criteria. First, the number of FTE was computed

annually in order to administer the FEFP. Second, the

measure of sparsity (FTE divided by the number of approved

high school center not to exceed three) was related to the

size criteria because it correlated with the total FTE of

the district. The measure related to the scatter and area

criteria because of the number of approved high school

centers required. More than three high school centers

indicated a district more densely populated. Third, the

measure of sparsity was easy to compute.59








79

As to the criteria that the measure should have a high

correlation to the additional revenues necessary to provide

equivalent educational programs in sparsely populated

districts, Johns selected teacher units. This measure was

used to estimate the cost for additional teachers necessary

to offer the variety of courses in sparsely populated

school districts that, on average, were offered in school

districts having a desirable economy of scale. An equation

was developed to describe the relationship between extra

costs for additional teachers and the measure of sparsity.

It was termed the "sparsity factor" and placed into statute

together with the procedure for determining the sparsity

supplement.60

Statute prescribed the following formula to compute

the sparsity supplement:

1101.8918 0.1101
2700 + district
sparsity index

Districts that had a sparsity index of 1,000 or less were

computed as having an index of 1,000. Districts that had a

sparsity index of 7,308 and above were computed as having

an index of zero and were not eligible for the supplement.

The district sparsity index was computed by dividing

the total number of FTE in a district by the number of high

school centers, not to exceed three. The centers had to be

approved in a survey conducted by the Florida Department of

Education. The sparsity index was entered into the formula










to complete the calculation of the sparsity factor. The

unadjusted sparsity supplement was the product of the

sparsity factor multiplied by the base student allocation

and funded WFTE.

A "wealth adjustment" was calculated and applied to

the unadjusted sparsity supplement. It was computed by

calculating the funds per FTE that would be generated by a

district's levying the maximum discretionary tax levy.

That value was then compared to the funds per WFTE that

would be generated statewide by the maximum discretionary

millage rate (0.719 mills) on the assessed valuation of all

nonexempt property. Districts that exceeded the statewide

value had their unadjusted sparsity supplement reduced by

an amount that was calculated by multiplying the difference

between the district and state maximum discretionary funds

per WFTE by the district's FTE count minus 1.

In 1989-90, the statewide adjusted sparsity supplement

totaled $43,835,849. However, the legislature failed to

appropriate the revenues to fully fund the supplement. The

appropriation amounted to $12,500,000 and was prorated

among the thirty-seven eligible districts.61

Research Design

The study was conducted to answer the research

question "what were the effects of additional revenues for

sparsity on the equity of a state school finance system?"

The Florida Education Finance Program (FEFP) was the state










school finance system selected for study. To answer the

question, two conditions were established as part of the

research design. Under the first condition, the equity of

the FEFP would be determined without additional revenues

for sparsity included in the calculation. Under the second

condition, the equity of the FEFP would be determined with

additional revenues for sparsity included in the

calculation. The difference between the two calculations

would be the effects of additional revenues for sparsity on

the equity of a state school finance system.

In the construction of the research design, it was

decided to divide the FEFP into the elements that

represented sources of revenue for school districts. As

elements were added to the FEFP, the accumulation of each

element had the potential effect of altering the equity of

the system. That is, the variation in the distribution of

revenues could increase or decrease depending on the

cumulative effect of each element in the formula. The

result could be a system that was more equitable or less

equitable because of the influence of the various elements.

Thus, part of the research was designed to determine the

influence of the various elements of the funding formula on

the equity of the system. The overall design would (1)

establish the equity of the FEFP and the influence of each

element and (2) determine the effects of additional








82

revenues for sparsity on the equity of the FEFP and each of

the elements.

The primary element of most systems was some form of

foundation aid designed to equalize educational revenue

among the students of a state that would provide a minimum

equal educational opportunity for all.62 Additionally,

finance systems furnished supplements based on school

district characteristics that affected the cost of

educational programs and services. Supplements were based

on such variables as experience of personnel, cost

differentials, high cost programs, school district size,

and rapid growth or decline.63 Another source of revenue

in state school finance systems was the property tax.

Property taxes represented local school districts' efforts

in support of the educational enterprise.64 A final

element was categorical aid. Categorical aid was allocated

for specific educational pruposes to further some

particular legislative intent. Unlike foundation aid that

could be used for any legitimate educational purpose,

categorical aid was to be used only for specified

purposes.65

It was decided that additional revenues for sparsity

would be included in each element of the FEFP under the

second condition. The decision was based on the

observation that additional revenues for sparsity were part

of no one element of a state school finance system. In








83

Kansas, for example, sparsity is included as an adjustment

to foundation aid.66 In Pennsylvania, sparsity is based

on instructional costs and population per square mile.67

In West Virginia, additional revenues for sparsity are

based on transportation costs, a categorical program.68

South Dakota permits districts qualifying for sparsity aid

to levy property taxes at a lower rate.69 Arizona allots

additional pupil weights for sparsity of student

population.70

Accordingly, the FEFP was divided into the four

elements that were sources of revenues for school

districts: (1) foundation program, (2) supplements, (3)

discretionary levy, and (4) categorical and special

allocations. Measures of equity were applied to each

element under two conditions. Under the first condition,

additional revenues for sparsity were not included. Under

the second condition, revenues for sparsity were included.

In summary, the research design consisted of the

division of the FEFP into the four elements that

represented sources of revenue for school districts.

Measures of equity were applied to each under two

conditions--no sparsity and sparsity. The difference in

the values of the measures of equity between the two

conditions represented the effects of additional revenues

for sparsity on the equity of the FEFP.










Elements of the FEFP

The first element of the FEFP was the foundation

program. The foundation program was designed to provide

all students an equal minimum educational offering.

Revenues for the foundation program were calculated as the

product of the number of weighted full-time equivalent

students in each district multiplied by the base student

allocation (BSA) of $2538.26. The product ($6.046 billion)

was divided by the number of weighted full-time equivalent

(WFTE) students in each district to determine the revenues

per pupil per district from the foundation program.

Supplements to the foundation program composed the

second element of the FEFP. Supplements were the district

cost differential, declining enrollment allocation, quality

assurance guarantee, profoundly handicapped allocation,

rapid growth supplement, adequacy supplement, and extended

day supplement. The supplement had a value of $250

million. A district's supplements were added to district

revenues from the foundation program and divided by WFTE.

The calculation was performed for all districts and

resulted in revenues per pupil per district from the

foundation program and supplements.

The third element was the revenue that districts

generated from the discretionary tax levy of 0.719 mills.

Revenues from the discretionary levy were calculated as the

product of the maximum discretionary millage rate










multiplied by the assessed valuation of nonexempt property

in each school district. The levy had a statewide value of

$252 million. The district levy was added to each

district's revenues from the foundation program and

supplements and divided by the number of WFTE in the

district. The calculation was performed for all districts

and resulted in revenues per pupil per district from the

foundation program, supplements, and discretionary levy.

The fourth element in the FEFP that provided revenues

for school districts was categorical and special

allocations ($650 million). Categorical and special

allocations for each school district were added to the

district's revenues for the foundation program,

supplements, and discretionary levy and divided by the

number of WFTE in the district. The calculation was

performed for all districts and resulted in revenues per

pupil per district from the foundation program,

supplements, discretionary levy, and categorical and

special allocations. The calculation represented all

sources of revenues from the FEFP with the exception of

capital outlay.

The data set for the design was the 1989-90 Florida

Education Finance Program Final Calculation. All sixty-

seven public school districts were included. For purposes

of the study, the analysis was based on a fully funded










sparsity supplement. The maximum discretionary levy was

applied to all districts in the calculation.

Measures of Equity and Fiscal Neutrality

The standard measures of equity used in this study

were the mean, range, restricted range, federal range

ratio, variance, standard deviation, coefficient of

variation, McLoone Index, and Gini coefficient. The

variable measured was revenues per weighted pupil per

district. These were measures of horizontal and vertical

equity.

Simple regression and correlation were used to measure

fiscal neutrality. The independent variable was revenues

per pupil per district. The dependent variable was the

assessed valuation of nonexempt property in each district.

Mean

The mean is a measure of the central tendency of the

distribution of observations. It represents the average

value in the distribution of revenues per pupil per

district. The mean takes into account all the observations

in the distribution, unlike the previous measures. The

mean was calculated with the following formula:

SUM Xi / N

where SUM is the sum of all districts, Xi is revenues per

pupil in district i, and N is the number of districts.71










Range

The range is the difference between the highest and

lowest observations in a distribution.72 The range

calculated in this study was the difference between the

highest and lowest revenues per pupil per district. The

smaller the value of the range, the smaller the variation

in the distribution of revenues per pupil per district.

The smaller the variation, the better the equity of the

distribution of revenues. As a measure of equity, the

usefulness of the range is limited. It is based on only

two values, does not indicate the pattern of variation, nor

is it sensitive to changes within the distribution.73

The range was calculated with the following formula:

Highest Xi Lowest Xi

where Xi is the average revenues per pupil in district i.74

Restricted Range

The restricted range is the difference between the

observation at the 95th percentile of the distribution and

the 5th percentile. Due to the sensitivity of the range to

extreme values, the restricted range eliminates values

below the 5th percentile and above the 95th percentile.

The smaller the value of the restricted range, the smaller

the variation in the distribution of revenues per pupil per

district. The smaller the variation, the better the equity

of the distribution of revenues. However, like the range,










the restricted range is subject to the same limitations as

a measure of equity.75

The restricted range was calculated with the following

formula:

Xi at 95 percentile Xi at 5 percentile

where Xi was the revenue per pupil in district i.76 The

revenue per pupil per district was arranged in ascending

order.

Federal Range Ratio

The federal range ratio is the restricted range

divided by revenues per pupil per district at the 5th

percentile. The value is expressed as a ratio. The

smaller the value of the federal range ratio, the smaller

the variation in the distribution of revenues per pupil per

district. The smaller the variation, the better the equity

of the distribution of revenues. As a measure of equity,

the federal range ratio is subject to the same limitations

as the restricted range.77

The federal range ratio was calculated with the

following formula:

Restricted Range / Xi at 5 percentile

where Xi was the revenue per pupil in district i.78

Variance

The variance is the average of the squared deviations

from the mean. The smaller the value of the variance, the

smaller the variation in the distribution of revenues per










pupil per district. The smaller the variation, the better

the equity of the distribution of revenues. The advantage

of the variance over the measures previously discussed is

that the variance takes into account all observations.

However, the variance is not expressed in original units

and is sensitive to outliers.79

The variance was calculated with the following

formula:

SUM Pi (Xp Xi)2 / SUM Pi

where SUM is the sum of pupils in all districts, Pi is

number of students in district i, Xp is the mean revenues

per pupil for all pupils, and Xi is the revenues per pupil

in district i.80

Standard Deviation

The standard deviation is the square root of the

variance. The smaller the value of the standard deviation,

the smaller the variation in the distribution of revenues

per pupil per district. The smaller the variation, the

better the equity of the distribution. The advantage of

the standard deviation is that all observations are

included in the calculation and the units of measurement

are in the original scale. However, it is sensitive to

outliers.81

The standard deviation was calculated with the

following formula:

square root of the variance










Coefficient of Variation

The coefficient of variation is the standard deviation

divided by the mean or the square root of the variance

divided by the mean. It is expressed as the ratio of the

standard deviation of the distribution to the mean of the

distribution. The smaller the value of the coefficient of

variation, the smaller the variation in the distribution of

revenues per pupil per district. The smaller the

variation, the better the equity of the distribution of

revenues. It is sensitive to outliers but not to changes

in scale.82

The coefficient of variation was calculated with the

following formula:

square root of the variance / Xp

where Xp is the mean revenues per pupil for all districts.

McLoone Index

The McLoone Index is the ratio of the sum of revenues

per pupil per district for all districts below the median

to the sum of revenues that would be required if all

districts below the median were at the median level of

revenues. The larger the value of the McLoone Index (up to

1), the closer the lower half of the distribution is to the

median of the distribution.

The McLoone Index was calculated with the following

formula:


SUM (1...j) PiXi / Mp SUM (1...j) Pi










where districts 1 through j are below the median, SUM is

the sum of pupils in all districts 1 through j, Pi is the

number pupils is district i, Xi is the revenues per pupil

in district i, and Mp is the median revenue per pupil for

all districts.83

Gini Coefficient

The Gini coefficient indicates how far the

distribution of revenues is from providing each percentage

of students with the same percentage of revenues. The

smaller the value of the Gini coefficient, the more

equitable the distribution of revenues in providing a

specified percentage of students with the same percentage

of revenues. Values range from zero to one. The

coefficient compares revenues at each level with revenues

at every other level and is sensitive to changes throughout

the distribution, though not to outliers.84

The Gini coefficient was calculated with the following

formula:

SUMi SUMj PiPj [Xi Xj] /

2(SUMi Pi)2 Xp

where SUM is the sum for all pupils in districts i and

district j, Pi is the number of pupils in district i, Pj is

the number of pupils in district j, Xi is the revenues per

pupil in district i, Xj is the revenues per pupil in

district j, and Xp is the mean revenue per pupil for all

districts.85










The foregoing measures dealt with the dispersion or

variation of a single variable, revenues per pupil per

district.86 There are other measures that describe a

relationship between two variables and are regression-based

measures. Correlations and slopes are such regression-

based measures.87

Simple Correlation

Simple correlation describes the degree to which two

variables are associated. In the present study the two

variables are wealth (assessed valuation of property) in

each school district (independent variable) and the

corresponding revenues per pupil (dependent variable). In

the study of school finance, the two variable are used to

describe the fiscal neutrality of a state school finance

system.88 A system that is fiscally neutral is indicated

by no relationship between wealth and revenue per pupil for

education.

The correlation coefficient has values that range from

-1.0 to +1.0. When two variables are positively

associated, larger values of one tend to be accompanied by

larger values of the other. Conversely, when two variables

are negatively related, larger values in one tend to be

accompanied by smaller values of the other. A value of

+1.0 indicates a perfect positive linear relationship and a

value of -1.0 a perfect negative linear relationship. A

value of 0 indicates no linear relationship between the two