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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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viii, 161 leaves : ill. ; 29 cm.

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Education ( jstor )
Equity ( jstor )
Finance ( jstor )
Public schools ( jstor )
Rural schools ( jstor )
School districts ( jstor )
Schools ( jstor )
State schools ( jstor )
Student costs ( jstor )
Students ( jstor )
Education -- Finance -- Florida ( lcsh )
Government aid to education -- Florida ( lcsh )
Rural schools -- Finance -- Florida ( lcsh )
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Thesis (Ph. D.)--University of Florida, 1992.
Bibliography:
Includes bibliographical references (leaves 144-150).
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Typescript.
General Note:
Vita.
Statement of Responsibility:
by Joseph Michael O'Loughlin.

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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




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
DKIV31SITY OF FLORIDA U


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
ii


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
iii


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.
iv


TABLE OF CONTENTS
Page
ACKNOWLEDGEMENTS ii
ABSTRACT vii
CHAPTERS
IINTRODUCTION 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
IIREVIEW 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
IIIMETHOD 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 8 6
Range 87
Restricted Range 87
v


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
vi


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,1 'efficient,1 'effective,1 [and] 'equal1
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


2
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


4
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


5
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?
Significance 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


7
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.


8
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


9
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).


10
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
Adequacy 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), Paulev 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. Garins, 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.
12


13
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.1 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.1,5 Society, on the other hand, was "a more or


14
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


15
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


16
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


17
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.1,19
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.


18
Schooling benefits employers seeking a trained
labor force; and it benefits the society at large
by developing the basis for an informed
electorate.22
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


19
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


21
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


22
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


23
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


24
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


25
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.1,49
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.53
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
27
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


28
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.


29
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


30
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


31
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.1,71 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


32
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.


33
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


34
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


35
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 Plessv v. Ferguson.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 Plessv. 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


36
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 Mclnnis 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
90
student.


38
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.1,93
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


39
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 Mclnnis 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. Rodriquez.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


40
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,


42
"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.1,107
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


43
protection is not addressed to minimal sufficiency but
rather to the unjustifiable inequalities of state
action.1,109
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


44
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. 14
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 Mclnnis, 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


45
sufficient to produce the revenue that more affluent
districts reap with minimal tax efforts.1,118 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


46
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


47
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 Kentuckys 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


48
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 Edaewood 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
49
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


50
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.1,148 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


51
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


52
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


53
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 Equal 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.


54
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.
Priority,
Eguality,
John Rawls, "The Basic Liberties and Their
" in Sterling M. McMurrin fed.). Liberty,
and Law: Selected Tanner Lectures on Moral
PhilosoDhv. Salt Lake Citv: University of Uta9.h Press
1987), 5.
10.
Rawls,
A Theorv 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.


55
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.
142.


56
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 Eguitv 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 Eguitv in
School Finance. 12.
43.Ibid.


57
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 Equity 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, Assigning 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 Affecting 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, Financing 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


58
Changing Rural Environment (Mississippi State, Miss.:
Southern Rural Development Center, 1984) ; Berne and
Stiefel, The Measurement of Eguitv. 12-17; Guthrie, Garms,
and Pierce, The Economics and Politics of Public Education.
206; ; David H. Monk, Potential Effects of the Overburden
Argument on Funding of Rural Schools (Albany, N.Y.: New
York State Executive Office, 1981), Secondary School
Enrollment and Curricular Comprehensiveness (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
Sparsity on School Costs. Columbia University Contribution
to Education, No. 924 (New York: Teachers College, Columbia
University, 1947).


59
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 Wav (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 Setting
(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 Adeguacv and Eguitv (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;


60
77. Stephens, The Changing Context. 15.
78. Ibid., 79.
79. Brown v. Board of Education. 347 U.S. 483 (1954).
80. Plessv v. Ferguson. 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
Education 19 (SDrinct 1990): 222-23.
." Journal of Law
85.
McTnnis v. ShaDiro. 293 F.Sudd.
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.Sudd.
572 (Vir. 1969).
95.
Id.
at 573.
96.
Id.
at 574.
97.
Id.
at 574.


61
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. 19711
111.
Id. at 1243.
112.
Id. at 1244.
113.
Id. at 1244.
114.
Id. at 1245.
115.
Id. at 1260.
116.
Mclnnis v. ShaDiro. 293 F.Sudd. 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. 19731.
120.
Id. at 295.
121.
4.
New Jersey Constitution, Article VIII, section
122.
Robinson. 303 A.2d at 277.
4.


62
123.
Id.
at
277.
124.
Id.
at
297.
125.
See,
, e.
.a.. Horton v. Meskill. 376 A.2d 359
(Conn. 1977), Seattle School Dist. No. 1 v. State. 585 P.2d
71 (Wash. 1978), Pauley 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., Luian v. Colorado State Bd, of Educ.
649 P.2d 1005 (Colo. 1982), Board of Educ. Levittown Union
Free School Dist. V. Nvauist. 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), Livingston 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), Edaewood 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.
Edaewood. 777 S.W.2d
at 392.
139.
Id.
at 393.
140.
Id.


63
141.
Id.
at
399.
142.
Abbott
v. Burke.
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.
A.2d 359 (N.J. 1990).


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


66
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 Program
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


67
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 FTE1s 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


68
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


69
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 eguitable 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


70
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


72
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 millage 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


74
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


75
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


77
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 eguivalent
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.1,55 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


80
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


81
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
conditionsno 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
84
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


85
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 distict. 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


86
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


87
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,


88
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 Xj^ 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


89
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


90
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 (l...j) PiXi / Mp SUM (l...j) Pi


91
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


Full Text
UNIVERSITY OF FLORIDA



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