NCPA - National Center for Policy Analysis

Equalizing School Funding May Reduce Spending

April 30, 1999

Since the early 1970s, states have attempted to equalize the funding of public schools between wealthy and poor school districts. Harvard University economist Caroline Hoxby has shown that districts with good schools have higher property values because of the demand for those schools -- not that they spend more per pupil because they are wealthier.

Nevertheless, and often under court orders, states have pursued various equalization strategies. Hoxby recently examined per pupil spending and student achievement in 1972, 1982, and 1992 for nearly every school district in the 48 continental states with a school finance equalization plan.

  • She found that equalization plans can level per-pupil spending either up or down, but only those that level spending down result in nearly equal per-pupil spending across a state's school districts.
  • Further, where financing is leveled down, more parents tend to send their children to private schools.
  • But equalization programs have weak effects on student achievement; for example, the high school dropout rate increased only slightly in states where per-pupil spending was leveled down.
  • She also found that property tax rates fall when equalization programs penalize school districts demonstrating a commitment to education through higher local tax rates.

And while per-pupil spending increased in poor school districts under most equalization programs, these districts actually receive less per-pupil in states that leveled spending down a lot -- such as California and New Mexico -- even though their programs appeared to be more generous than the categorical aid programs they replaced.

Hoxby suggests it is possible to minimize the negative effects of school finance equalization by redistributing funds among school districts on the basis of income and/or other demographic variables and allowing school districts to use local property taxes for additional spending.

Source: Lester A. Picker, "All School Finance Equalizations Are Not Created Equal," NBER Digest, March 1999, National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, Mass. 02138, (617) 868-3900.


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