Chapter 8Equity and Adequacy

Two other sides of

Fiscal Effort: Equity &

Adequacy.

Equity Should Not be Confused with Equality

• Equality means treating everyone the same under the law

• Equity involves giving people the treatment they need

Spending Equality ?

• If equality governed school spending, everyone would receive the same level of funding

• Everyone cannot be treated the same because needs differ

• Equality cannot be the sole principle to govern school finance.

Spending Equality ?, cont.

• Inherent inequities exist within school districts, schools, and within classrooms

• Staffing a special education classroom costs more than

staffing a general education classroom

Equity: A Medical Model• A patient suffering with a

rare form of cancer costs more to treat than

the well one who needs only a flu shot • No one would expect both

patients’ bills to be the same. One will necessarily cost

more than the other

• So it is with education. Some of our patients’ needs will cost more to care for than others.

2 Hypothetical School Systems

1st - Urban school system with:• 25% of its students identified

as eligible to receive special education services

• 50+% of the student body reading more than two years below grade level

• 90% of the students eligible for free or reduced-price lunch

2 Hypothetical School Systems, cont.

2nd -Suburban school system with:• 99% of its students reading on

or above grade level• 2% identified as eligible to

receive special education services

• 0% eligible for free and reduced-price lunch

2 Hypothetical School Systems, cont.

• To provide funds necessary for each school systems to be successful will be more costly for the first school system

• For both to be funded equally, at some arbitrary level, would be inherently INequitable

The second school system has much greater needs and subsequently greater costs.

School Finance & EQUITY• School finance must be concerned with

equity – providing what students need • Measuring equity becomes complicated & requires sophisticated statistical procedures • Measuring equity has also been the

basis of legal challenges of many states’ finance formulae

Equality Is an Important Principle

• When schools or school systems are considered equal, their funding should be equal

Schools A & B• Both secondary schools in the

same school district. • Both have 1,500 students. • Both have the same % of students:

– On free and reduced lunch – Eligible for special education– Going on to higher education

upon graduation

• Both schools have similar facilities and programs

Schools A & B, cont.If the funding for

School A were 20%

higher than for School

B, we would consider

there to be a fundamental

unfairness in the funds

allocation.

Horizontal Equity

• Students who are alike should receive equal shares (of funding)

• Horizontal equity is measured by calculating the dispersion, or inequality, in the distribution of funds

• When there is no dispersion in funds, one can assume there is perfect horizontal equity

Horizontal Equity, cont.

• When this occurs, there are equal expenditures in funding levels such as in per pupil expenditures, student/teacher ratios, equal teacher resources, and the like across various measures.

Horizontal Equity, cont.

• Horizontal equity can be applied broadly in comparing large and similar subgroups of students

For example, we can compare:• All vocational students at the high

school level • All full-day kindergarten students• All students in general education

elementary classrooms

In this case, we would expect spending, or resource allocation, to be substantially similar for each of these rather large subgroups.

Research Trends Unclear• One 50-state study revealed that between 1970

and 1975,spending disparities among states increased

• Another study showed that several states involved in school finance reform improved horizontal equity & fiscal neutrality, 1970-75

• A 1997 General Accounting Office study found substantial improvements in equity over time

• Other studies show that significant financial disparities still remain in horizontal equity among the states

Vertical Equity

• Vertical equity recognizes that students and schools are different and that the treatment of unequals requires appropriate unequal treatment

• While horizontal equity is rather easy to quantify, vertical equity choices are based on value

Vertical Equity, cont.

“Appropriate treatment”

varies from one school division

to another.

“Appropriate Treatment”

Legitimate factors must be identified that can be used to allocate resources differently based on:

• The characteristics of the students • The characteristics of the schools or the

school districts• The characteristics of various programs

Legitimate Factors Include:• Percent of eligibility for free and reduced lunch • Percent of students speaking English as a second language • Percent of students involved with special education services

Most educators would agree that serving these students’ needs requires additional services if they are to meet the challenges of high-stakes testing programs such as No Child Left Behind.

Fiscal Neutrality

• Equity is achieved when the distribution of services is determined by the taxpayers’ preferences for education and not by the fiscal capacity of the locality or state

• This is also known as taxpayer equity or wealth neutrality

Reconciling Fiscal Neutrality & Equity

• How do states provide for fiscal neutrality while assuring equity?

By calculating a lower cost for services to those who can least afford to pay for the services =Equalization of Funding.

Equalizing Funding

• Each state provides some method for equalizing the funding within its boundaries

• More than 2/3 of the 50 states have had their state funding formula contested in court

• The equalization concept is a continuum that ranges from total equalization to no equalization

Absolute & Approximate Fiscal Equalization

• Absolute fiscal equalization is more of a theoretical goal than a practical achievement

• While it is possible in theory, it is virtually impossible to achieve politically

Absolute Fiscal Equalization

• Absolute fiscal equalization is achieved whenever the following three objectives are achieved:

• Variance in fiscal position among local school districts has been neutralized

• Variance in fiscal effort among local school districts has been eliminated

• Variance in educational needs due to incidence of clients has been accommodated

Absolute Fiscal Equalization, cont.

• Absolute fiscal equalization is achieved whenever the following three objectives are achieved:

• Local school divisions have equal resources to fund schools

• Local school divisions make equal effort to fund schools

• Schools spend what is needed to educate students with special learning needs

Absolute Fiscal Equalization, cont.

• This definition achieves fiscal neutrality and addresses the issues of horizontal and vertical equity

• This is a theoretical and not a practical concept

Approximate Fiscal Equalization

• Approximate fiscal equalization is achieved whenever the following three objectives are achieved:

• Variance in fiscal position among local school districts has been neutralized

• Constrained variance in fiscal effort among local school districts is permitted

• Variance in educational needs due to incidence of clients has been accommodated

Approximate Fiscal Equalization, cont.

• Approximate fiscal equalization is achieved whenever the following three objectives are achieved:

• Local school districts have equal resources to fund schools

• Local school divisions have some leeway in how they raise & spend money for schools

• Schools spend what is necessary to educate students with special learning needs

Absolute & Approximate Fiscal Equalization

The two definitions are similar except:

• The 2nd condition allows for constrained or controlled spending by the local school districts

• Neutralized fiscal position and meeting clients’ educational needs in spite of the local capacity are still required

State Aid Grants to Districts

• Each state equalizes for the fiscal capacity of local districts through its method for funding localities

• This funding usually comes through grants of various types

State Aid Grants Continuum

Inequity Equity

Non- Matching Flat Equalization Full StateEquilization Grants Grants Grants FundingGrants

Nonequalization Grants

• Non-equalization grants make no attempt to equalize funding for the capacity of local school districts

• Grants may be categorical aid to school divisions allocating a constant dollar amount on a per pupil basis based on an application process

• Poorer school divisions may not have the personnel to write the grants enabling them to qualify for the funds

Flat Grants

• Flat grants provide a fixed amount of funding per pupil to each school district in the state

• This funding is not based on the locality’s fiscal capacity

• Most states do not use flat grants as the primary vehicle for distributing funds to localities

Examples of Flat Grants

• California’s Constitution requires $120 of state funding per pupil to each locality – regardless of the locality’s fiscal position

• Virginia’s Constitution requires that

the locality fund

no more than

80% and no less

than 20% of

state standards,

regardless of

the locality’s capacity

Equalization Impact of Flat Grants

School Local Local Flat Grant Total SpendingDistrict Property Revenue Amount Per Pupil Value

A $ 5,000 50 2,000 2,050B $ 50,000 500 2,000 2,500C $250,000 2500 2,000 4,500D $500,000 5000 2,000 7,000

Flat Grants with Increased State Support

School Local Local Flat Grant Total SpendingDistrict Property Revenue Amount Per Pupil Value

A $ 5,000 25 4,000 4,025B $ 50,000 250 4,000 4,250C $250,000 1250 4,000 5,250D $500,000 2500 4,000 6,500

Flat Grants with Increased State Support, cont.

Greater burden placed on the state to provide for education services reduces the disparity in total per pupil spending, increasing equalization.

Equalization Grants

• Equalization grants provide for greater state funding for the localities with less capacity to raise their own funds and

provide for less state funding for the localities with greater capacity

Foundation Programs

• Foundation programs are a means of providing equalization grants to school systems

• A foundation program establishes some minimum level of per-pupil funding that must be met with a combination of local and state funding

• No district can fall below this foundation level

Foundation Programs

• Once the foundation level has been met, local districts are free to supplement funding, called leeway funds, to achieve a higher level of per-pupil spending if they so elect

Foundation Grants

Local State Foundation Local Total Capacity Aid Level Leeway Funding

A $ 1,000 9,000 10,000 0 10,000

D $ 7,500 2,500 10,000 2,500 12,500

E $ 10,000 0 10,000 2,500 12,500

Foundation Grants Equalize Funding

• In this scenario, school district E has ten times the capacity of school district A, yet spends only 25% more on a per pupil basis

• Where the capacity differential was initially 10 to 1, the spending differential due to the foundation formula is now only 1 to 1.25

What This Means for Students

• The poorest school district (A) now has the financial means to provide the state’s the minimum foundation level – regardless of their capacity to fund education services

• This enables school district A to compete with district E in terms of programs, in effect raising the education bar for all students in that state

“Minimum” Funding?• State legislatures

frequently see the word minimum as the spending limits

• Too often “minimum” becomes the target level of funding and does not advance beyond the minimum

“Minimum” Funding?, cont.• Localities may elect not

to add sufficient leeway funds (based either on values or available resources) while higher capacity systems may add substantially higher dollar amounts, exacerbating the per pupil spending disparity

“Minimum” Funding?, cont.• State governments

may be reluctant to set adequate levels of spending for a foundation program because elected officials cannot agree on what is “adequate” 

Guaranteed Tax Base Programs

• A second type of equalization grant is the Guaranteed Tax Base program (GTB)

• GTB programs guarantee that each locality can operate as if all school districts had an equal per pupil property tax base

Guaranteed Tax Base Programs, cont.

• The state determines its share of spending for the total cost of education

• The formula then provides a means for deciding how much funding would come to each locality, based on a measure of their wealth

• More state funding goes to low capacity systems while less aid goes to high capacity systems

Guaranteed Tax Base Programs, cont.

• Once the state aid is calculated, the tax rates are equalized so the same tax yield is achieved for rich or poor districts

Guaranteed Tax Base Programs, cont.

• A recapture clause provides that the state recaptures extra funds generated by wealthy localities and dispenses them to poorer localities, effectively increasing the state’s floor level of services

Combination Programs

• Other equalization formulae exist as hybrids between foundation programs and equalization programs

• These programs take the best of other formulae and apply those components to their particular conceptual framework

Calculating Vertical Equity

• Vertical equity means providing what people need

• Vertical equity recognizes that students and schools are different, and that the treatment of unequals requires appropriate unequal treatment

Weighted Pupil Approach

• Determining a base cost for various categories of students

• Once the lowest base cost is determined it is given a weight of 1.0

Weighted Pupil Approach Example

• Florida bases a weighting of 1.0 for the students in basic programs in grades 4 through 8

• Kindergarten and grades 1 through 3 are weighted slightly higher with high school grades being even higher

• Weightings for vocational and special education are significantly higher ranging up to a factor of 15

Determining Adequacy by “Costing Out”

• After determining a “weight” for different services and learning needs, many school districts established means for “costing out” related services with state and federal funds

• Method used to determine the “costing out” of services can vary from state to state, district to district

Example: “Costing Out” Special Education Services

Special Education Category Weighting

Emotionally Disturbed 3.7Socially Maladjusted 2.3Deaf 4.0Specific Learning Disability (part time) 7.5Visually Disabled (part time) 10.0Hospitalized and Homebound (part time) 15.0

Fiscal “Adequacy” is a Value-Driven Concept

• What is “enough” money to fund a school district?– To what standard of academic excellence for all pupils?– For what unique learning needs of this student population?– With which academic elective, extra- and co-curricular offerings?

Fiscal Adequacy Attempts to quantify

“adequacy” and how much a state or school district needs to spend for its students remains ambiguous.

The “adequacy” concept has been challenged in court since the 1990’s.

Fiscal Adequacy, cont.

Recent legal challenges have shifted from disparities in school funding to adequacy issues.

A Definition of “Adequacy”

• “…providing sufficient funds for the average district/school to teach the average child to state standards, plus sufficient additional revenues for students with special needs to allow them to meet performance standards as well.”

Odden, A. and Piccus, L. (2004). School Finance: A Policy Perspective, 3rd ed. New York: McGraw-Hill.

Fiscal AdequacySchool finance experts refer to four methods for

discussing the concept of fiscal “adequacy”:

      • Economic cost function• Successful school district• Professional consensus• Cost of effective school-wide strategies (also

known as state of the art or best practices)

Economic Cost Function Approach

• This statistical approach is used more frequently in business than in education

• Economic cost function tries to answer how much money per pupil is needed in a given school district to produce a certain level of student performance

Economic Cost Function Approach, cont.

• The result demonstrates the per pupil expenditure necessary to achieve certain levels of student performance given the student and district characteristics

Economic Cost Function Approach, cont.

• This model reflects certain values in determining adequacy

• Some individuals or community values play a role in deciding how much a community is willing to spend to achieve a certain level of student achievement

Research Shows Wide Variation in Adequacy Levels

The adequacy spending levels ranged from 49 % to 460 % of the average in Wisconsin & 75 % to 158 % in Texas.

In Wisconsin and Texas, the adequate expenditure level for large urban school districts ranged from three to four times that of the average district.

Successful School District • This method identifies school districts which have had success in bringing student performance to state proficiency standards • This approach then sets the adequacy

spending level to the weighted average of the expenditure level of the successful districts

Problems with Successful School District Approach

• This method omits outliers (atypical districts) from the equation

• Unfortunately, virtually all large, urban areas, very wealthy and very poor districts, as well as small, rural systems are eliminated

• It also may inaccurately represent the actual costs of delivering adequate services in the atypical districts

Limitations: Successful School

District Method• Districts that have been identified as

successful are generally average in size, non-urban, with little diversity in their student make up

• These districts also tend to spend less than the state average

Limitations: Successful School

District Method, cont.• Omitting schools that must address the major

challenges that one finds in the “real world” artificially lowers the level for achieving success, raising questions about its usefulness and validity

Professional Consensus (“Judgment”) Approach

• Educational professionals identify the components of a “prototype” school they believe would enable the staff to teach students to some predetermined performance level

• The costed-out factors (number of professional and support staff, technology, instructional resources, etc.) add up to determine a school’s adequate financial base (that can be adjusted for varying student demographics)

Limitations: Professional Consensus Approach

• Provide little differentiation for the average school and one with a high concentration of at-risk students • In spite of this drawback, the professional

consensus approach is gaining interest at the state level

State-of-the-Art Approach • Selects research findings on student

achievement, frequently seen in high-achieving schools

• Identifies all ingredients needed for those research-identified teaching and learning strategies

• Determines a cost basis for each of the strategies

• Determines what an adequate base of spending for the school should be

State-of-the-Art Approach, cont.

• Funding determination is made for the school level and not as an average for the school division

• This approach allows the school to use a number of school-wide strategies that state-of-the art researchers and practitioners claim are most effective