School Finance

Children from poor families or living in poor neighborhoods have less chance of succeeding in school. In addition, poor communities often lack the tax base, even with high tax rates, to provide enough revenue for their education programs. GAO found that two key factors can help reduce the size of the funding gap between poor and wealthy schools districts: (1) the extent to which a state's poor districts make a greater tax effort than the wealthy districts and (2) a state's efforts to compensate for differences in district wealth through its equalization policies. Poor districts in most states made a greater tax effort than did the wealthy districts, according to GAO's research. GAO determined the equalization efforts of 49 states in school year 1991-92. The most equalized school finance system would enable districts' per pupil funding to be 100 percent of the state's average per pupil funding for an equal tax effort in all districts. The average state equalization effort was 62 percent, according to GAO's analysis. States ranged from a high of 87 percent in Arkansas and Kentucky to a low of about 13 percent in New Hampshire. Increased equalization efforts in the four states GAO reviewed in detail--Kansas, Louisiana, Oregon, and Rhode Island--showed mixed results in reducing the funding gaps between poor and wealthy districts. To more effectively reduce disparities in education spending in rich and poor school districts, most states would have to fund a larger portion of local education expenses or target more money to poor districts. To maintain equalized spending, states may also have to impose controls over local taxes to prevent districts from perpetuating gaps by adjusting taxes.

GAO noted that: (1) two key factors help reduce the size of the funding gap between poor and wealthy districts: (a) the extent to which a state's poor districts make a greater tax effort than the wealthy districts; and (b) a state's effort to compensate for differences in district wealth through its equalization policies; (2) poor districts in most states made a greater tax effort than the wealthy districts, according to GAO's research; (3) characterizing state equalization efforts is much more complex, however, than analyzing districts' tax efforts; (4) a state's equalization effort consists of two parts: (a) the proportion of education funding financed by the state government; and (b) the degree to which states target funds to poor districts; (5) of these two, state share has more impact on state equalization policies; (6) in effect, equalization policies determine the extent to which a state enables its districts to provide the state average funding level when all districts make an equal tax effort; (7) the most equalized school finance system would enable districts' per pupil funding to be 100 percent of the state's average per pupil funding for an equal tax effort in all districts; (8) the average state equalization effort was 62 percent, according to GAO's analysis; (9) states ranged from a high of 87 percent in Arkansas and Kentucky to a low of about 13 percent in New Hampshire; (10) increased equalization effort in the four states GAO reviewed in detail showed mixed results in reducing funding gaps between poor and wealthy districts; (11) to more successfully address funding gaps, most states would have to increase state equalization effort and impose some constraints on local tax efforts; (12) the amount of money required to reduce these funding gaps and the type of constraints needed depend on the degree to which a state may want to reduce the gap and the degree to which a state wants to equalize the local tax burden among districts; (13) GAO found that without constraints on local funding, districts in Louisiana and Rhode Island adjusted their tax effort in a way that undermined increases in the state's equalization effort; (14) regarding equalization effort, a state could choose to increase its share of total education funding, increase its targeting effort so that state aid would favor poor districts to a greater extent, or increase both; and (15) relying mainly on increasing its share of total funding would allow a state to bear most costs involved with increasing equalization effort.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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