Rethinking the Fiscal Role of the States in Public Education.

• Author: Wong, Kenneth K.
• Position: Statistical Data Included

This article offers an empirical examination of the variation in state funding responsibility for K-12 education, considering its impact on equity and innovation in the public school system.

With federal funds accounting for only 7 percent of public elementary and secondary education revenue, funding responsibility for K-12 education is split between state and local governments. Since the 1980s, state governments have generally assumed primary fiscal responsibility, with local governments supplying the rest of the necessary revenue. [1] There is, however, noticeable variation in the level of funding responsibility across the 50 states. This article examines the variation in state funding responsibility for K-12 education, considering the impact of this variation on equity and innovation in the public school system.

"State funding responsibility" can be defined as the percentage of annual K-12 education revenue provided by the state. This percentage is determined using data from the U.S. Department of Education's National Center for Education Statistics (NCES), which makes available the annual amount of each state's revenue that comes from state, local, federal, and other sources. From a policy perspective, state funding responsibility can be understood as an important component of the political and power dynamics that shape the formation of education policy. Put simply, the larger a state's share in the K-12 education pie, the more influence that state will have each year in determining how that pie will be divided (equity) and what ingredients will be used (innovation).

Equity and innovation have emerged over the past decade as two of the most important education issues to be considered at the state level. As such, varying levels of state funding responsibility may significantly affect the formation of equity and innovation policies. Improving equity--in the form of per-pupil expenditures and comparable distribution of resources across school districts in the state--is a goal that may require a greater degree of central direction, namely, when state government provides a greater percentage of education revenue. [2]

With more control over revenue, a state would have greater capacity to "redistribute" funds from wealthier districts to their less affluent counterparts. If the funds were generated primarily from local governments, this task might not be as feasible. While greater state funding responsibility can promote resource equity, it might also make innovation more difficult. With greater state direction on the use of funding, individual districts might have little discretion to innovate. Further, states may be hesitant to fund educational experiments in one district, fearing that other districts also may demand the same level of resources.

Based on a database of school finance, reform initiatives, and institutional characteristics across all 50 states during the 1990s, the authors examine equity and innovation policies to see if there is empirical evidence linking these school reforms to state funding responsibility. Specifically, two guiding questions are used: 1) What is the relationship between state funding responsibility and disparity, as measured by a set of five different inequity indicators? and 2) How does state funding responsibility affect a state's willingness to adopt innovative policies such as standards and accountability measures, charter schools, and school district takeover? Regression analysis is used to address each of these questions.

Background and Policy Context

Variations in State Funding Responsibility

States have maintained relatively constant levels of funding responsibility over the past decade. The average percentage of elementary and secondary revenue provided by states is approximately 49 percent, but there is much variation to be noted. In Exhibit 1, the 50 states are assigned into five groups, according to the level of funding responsibility. These groups are labeled "high, mid-to-high, mid, low-to-mid, and low" responsibility states. At the extremes are Hawaii, where almost 90 percent of elementary and secondary school revenue is provided by the state, and New Hampshire, where less than 10 percent of revenue came from the state during the 1990s. [3] The 10 states with the highest funding responsibility, on the average, account for nearly two-thirds of annual education revenue, while states with low funding responsibility supply only one-third of the state's education budget.

Measuring the Funding Gap in Education

Over the past 25 years, states have worked hard to create a more equitable distribution of educational resources within the states. School finance equalization is a policy that has had a significant impact on schools and districts in every state. [4] Despite these efforts to reduce inequality, there are still significant disparities within and across states. [5] There are many different methods available to define and measure "equity."

One set of measures focuses broadly on intra-state inequity, or inequity between different districts in a given state. Some intrastate measures focus on the gap between the richest and poorest districts, while others look at the level of variation amongst the districts. A second set of measures focuses on inter-state inequity, or differences between states. These measures compare levels of educational resources offered by different states. Intra- and inter-state measures of inequity must both account for variations in costs and purchasing power. [6] For instance, equity measures that might compare New York and Alabama must make adjustments to reflect the significant differences in the cost of living in these two states.

The Drive for State-led Education Innovation

State-led educational initiatives have gained prominence across the nation in recent years. Almost all 50 states have now developed accountability frameworks for student achievement, emphasizing standardized tests and grade level benchmarks. In addition, a growing number of states are passing...