Jesse Goldman, Andy Halpern-Manners, Chelsea Lepley, Sele Nadel-Hayes, Nick Scheibel

FOOTING THE BILL:

Equitable School Finance Reform in the 21^st Century

“In these days it is doubtful that any child may reasonably be expected to succeed in life if he is denied the opportunity of education. Such an opportunity, where the state has undertaken to provide it, is a right which must be available to all on equal terms.”

—Supreme Court Decision, Brown v Board of Education, 1954.

Introduction

It is valuable to begin by acknowledging that we cannot solve problems by simply throwing money at them and hoping they go away. Money itself cannot revive our public education system, but its allocation can play a significant part in equalizing a system besieged with financial disparity. It is this 'enhancement of equality' that we hope to gain by changing the funding structure of public schools to include a statewide common fund to be bankrolled through a revamped and reapportioned system of property taxation. This new tax scheme will provide for improved overall education funding, especially in Minnesota's fiscally starved urban and rural school districts.

Besides the intangible equality, we expect this reform initiative to yield other important results. As a direct function of the property tax reapportionment, for example, students in economically impoverished districts will enjoy increased access to materials and technology, and thereby frustrate a budding trend toward corporate sponsorship within public schools. Likewise, with better funding comes the luxury of focusing on other, more theoretical aspects of education. That is to say, with essential materials already in hand, students from all socio-economic backgrounds can be primed for more of an intellectual and cultural life, rather than being fitted with only their eventual entry into the workforce in mind. In theory, this means that in the short-term students across districts will receive a more rigorous education, while in the long term, they will develop into better citizens.

To frame this proposal, we will begin with a brief discussion of the political economy as it relates to Minnesota's public school system. This practical grounding will help to accentuate the mounting need for financial parity within Minnesota's disparate public school system. With this footing in place, we will then shift the analysis toward the virtues and limitations of recent tax reapportionment measures in three states—Michigan, Washington, and Illinois—with the intent of modeling our own measure on the merits of their successes.

Minnesota and the Political Economy

Ideally, the political economy of the information age would, as some scholars argue, produce an educational vision that reflects both the polity and the economy's need for individuals who hold a large knowledge base, are well versed in problem solving techniques, and who are eager to contribute. Sadly, this almost romantic proposition is the exception rather than the rule—especially in Minnesota's financially strapped school districts.

Schools statewide are being forced to radically reconsider their curriculum and instructional delivery systems in the face of a corporate capitalist political economy dependent upon increasingly high levels of technical expertise and wherewithal. To be sure, these new considerations are expensive and require a much greater capital investment in education. A recent study by the National Education Association (NEA), for example, projected that the cost to outfit Minnesota public schools with modern technology alone would run taxpayers nearly 5.4 billion dollars.

The consequences stemming from the emphasis on specialization in the work force, coupled with a school finance formula bereft of sufficient funding equity, are easily foreseeable—children who are educated in Minnesota's impoverished school districts are at a supreme competitive disadvantage in today's advanced capitalist political economy.

Models of School Finance Reform

On average, states use a combination of sales taxes, income taxes, corporate taxes, and fees to provide about 49 percent of elementary and secondary schools’ budgets. Local governments account for roughly 44 percent primarily through property taxes, while approximately 7 percent of the budget comes from the federal government. Because of the huge disparity between localities’ property tax bases, this model can never provide equitable public school financing. Some states have chosen to examine other models in hopes of circumventing this conundrum.

Michigan

In 1994, Michigan moved to more equal spending for its various school districts by adopting Proposal A. This proposal shifted most of the spending for schools from localities to the state by cutting property taxes for homeowners by about 42 percent and 14 percent for businesses, while also increasing the state sales tax from 4 to 6 percent. The state subsequently adopted a “foundation” grant for public schools, which guarantees a minimum per pupil spending amount across the state. In addition, through local taxes, local districts are allowed to raise money above the minimum amount of per pupil spending.

After adoption of this finance reform, Michigan did in fact achieve much of the equity that they were seeking in their schools. While in 1993 the state provided 32 percent of school funds (which ranked 48th for state funding of schools compared to the rest of the United States), it currently provides 80 percent of funding for schools (this ranks as 2nd in the US). As a result of this shift in funding, the minimum in per pupil spending in the 2001 – 2002 school year is $6,500 per student as compared to 1994 when 55 percent of Michigan schools were spending less than $4,500 per student.

While Michigan's school finance reform has been a push in the direction of equity, its method of raising the sales tax has negative externalities that widen the gap between the rich and the poor. Because everyone pays the same amount for sales tax, the sales tax inherently places a greater burden on those with lower incomes. However, Michigan's property was unusually high before the reform—33 percent above the national average—and their sales tax was particularly low before the reform: 30 percent lower than the national average. Therefore, the adjustments in these taxes are somewhat realistic in Michigan, but perhaps less relevant in states with sales and property taxes that are closer to the national averages.

Washington

Article IX of the Washington state constitution, “Education”, begins as follows: “It is the paramount duty of the state to make ample provision for the education of all children residing within its borders, without distinction or preference on account of race, color, caste, or sex.” It goes on to state, “the entire revenue derived from the common school fund and the state tax for common schools shall be exclusively applied to the support of the common schools.” In light of these statements, it should come as no surprise that the Washington State government provides almost 75 percent of public school funding. 53 percent of public school support comes from sales tax revenue, with business and property taxes providing most of the remaining funds. Financial support is provided through a state general fund, and local school districts are given complete control over its final allocation.

While Washington state has always provided exceptional support for its public schools, Initiative 728, passed in 2000, provides for greater school financial reform. This initiative shifted a portion of state property tax and lottery revenue to public school funding. In 2001-2002, the initiative generated an additional $194 in state spending per student. By 2004-2005, this number will be increased to $450. The initiative has already demonstrated positive results, with a marked reduction in overall class sizes. Around 60 percent of Initiative 728 funds have been used for new teacher hires. Current reform efforts in Washington center on applying effective assessment standards in public schools, operating under the premise that “increased accountability for student achievement should be accompanied by additional flexibility in the use of resources.” Washington’s reform efforts have not been as radical as those in Michigan, but the voters have shown and continue to express fiscal support for their education system.

Illinois

Illinois has more than 6,000 units of local government with the authority to impose property taxes, more than any other state. School districts account for more than 900 of these, and collect 60 percent of all property taxes. Because taxation is such an important way of funding schools and school districts, two bodies of government in the states, the Governor's office and the House of Representatives, have recently identified tax reform as a high priority and directed staff-members to formulate alternatives to the current system of taxation.

The Governor's Commission on Tax Reform examined many proposals for tax reform that would lead to more equitable spending among schools throughout the state. These proposals included dollar-for-dollar replacements, property tax relief coupled with increased income tax, restructuring of sales tax requirements, and a revised sliding scale of taxes for residents and commercial businesses. Some discussion also centered on limiting growth in local government spending and thus in property taxes. The Commission emphasized in the report that consideration should be given to improving efficiency in local government by elimination or consolidation of taxing bodies in Illinois.

State Representative Wyvetter Younge of the Illinois House of Representatives Committee on Elementary and Secondary education proposed IL HR 399. The resolution called for the creation of a legislative task force to (i) review educational programs to improve instruction in inner-city schools; (ii) evaluate those programs; (iii) determine the cost of implementing those programs; (iv) determine what changes in tax policy are necessary to provide all schools with adequate resources in order to meet educational standards; (v) determine what tax policy changes are necessary in areas where schools are under-funded. The report results are due back to the House in early May 2002, but preliminary progress reports show the Task Force's recommendations as a multi-faceted plan that includes capping local property taxes and creating an education equalization fund from new state property taxes.

Findings

All three of the reforms detailed above represent progressive measures by state governments to provide greater fiscal equality for their public schools; however, they cannot be judged on this merit alone. It is essential that reforms aimed at improving equal access to education also protect the equality of all citizens. For example, while Michigan’s Proposal A established a foundation grant to equalize per pupil spending across the state, it did so through implementation of a regressive sales tax. True, taxes in Michigan before Proposal A were for from the national averages, but it seems clear that a measure such as this would unfairly affect Minnesota’s poorer citizens.

School reform proposals in Washington demonstrate the importance of public support for public schools. Voters in this state have repeatedly demonstrated widespread acceptance of school reform initiatives. This support allowed the state to effectively collect new taxes in order to provide fiscal equalization in the public schools, without undergoing a severe tax relief backlash. Washington’s current focus on accountability standards is a reminder that without some measure of a school’s success, it is impossible to determine the effectiveness of increased fiscal support.

It is with great hope that we look to current school reform proposals in Illinois. The forthcoming recommendations of the legislative task force seem to represent some of the most progressive action on school finance reform in America today. By shifting property tax revenues from localities to the state, and by collecting these taxes on a sliding scale, the Illinois state government could feasibly provide equitable spending for all of its students without creating inequitable taxation structures for its citizens. By capping local property tax rates and decreasing municipal spending, this reform could be implemented without greatly increasing the tax burden among poorer individuals. It must be remembered that these guidelines are so far only recommendations, and none of these measures have yet become law in Illinois; but, they represent an exciting and groundbreaking new attitude towards school financing. The state legislature of Minnesota should strongly contemplate creating a task force of its own to consider these initiatives, established with the idea in mind that for education to be equitable, school funding must be both collected and distributed with equality in mind.

Recommendations

With the above findings in mind, we propose the following recommendations.

- The state legislature of Minnesota should create a task force to research options of broad based tax reform and school finance reform.

- A general state fund should be established to provide equitable per student spending statewide. This fund should be bankrolled by progressive state property tax revenues.

- Local property taxes should be capped, but localities should not be prohibited from providing additional school financing.

- The State should continue to examine progressive accountability standards, keeping in mind previous disparities between public school districts.

During a special session in June of 2001, the Minnesota State Legislature voted to re-structure the current taxation system. The changes would reduce property taxes by $804 million in fiscal year 2002 and allocate up to $415 per pupil from property tax to state funding. This model approaches an appropriate measure toward more equitable funding among schools, but falls short in its reliance upon income and sales taxes in the creation of the new funding stream.

References

Brouillette, Matthew J. “School Finance Reform Lessons from Michigan.” Online, available URL: http://www.mackinac.org/article.asp?ID=3802. Last accessed 2 May 2002.

DeLeon, Virginia. “Initiative 728 showing good returns Educators pleased with funding, smaller class size.” Spokane Spokesman-Review. 7 September 2001, B1.

Minnesota House of Representatives Tax Reform website. Online, available URL: http://www.taxes.state.mn.us/. Last accessed 2 May 2002.

National Education Association. “Modernizing Our Schools: How Much Would it Really Cost,” 1 May 2000.

ORGANIZATION AND FINANCING OF WASHINGTON PUBLIC SCHOOLS. Online, available URL: http://www.k12.wa.us/safs/pub/org/02/orgfin02.pdf. Last accessed 28 April 2002.

Washington State Constitution. Online, available URL: http://www.courts.wa.gov/education/constitution/article09.cfm. Last accessed 28 April 2002

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