MAKING MONEY MATTER

Financing America's Schools

Committee on Education Finance

Helen F. Ladd and Janet S. Hansen, Editors

Commission on Behavioral and Social Sciences and Education

National Research Council

NATIONAL ACADEMY PRESS
Washington, D.C.



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Making Money Matter: Financing America's Schools MAKING MONEY MATTER Financing America's Schools Committee on Education Finance Helen F. Ladd and Janet S. Hansen, Editors Commission on Behavioral and Social Sciences and Education National Research Council NATIONAL ACADEMY PRESS Washington, D.C.

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Making Money Matter: Financing America's Schools NATIONAL ACADEMY PRESS 2101 Constitution Avenue, N.W. Washington, D.C. 20418 NOTICE: The project that is the subject of this volume was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the volume were chosen for their special competences and with regard for appropriate balance. This volume was supported by Contract No. RF95194001 between the National Academy of Sciences and the U.S. Department of Education. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the organizations or agencies that provided support for this project. Library of Congress Cataloging-in-Publication Data Making money matter : financing America’s schools / Helen F. Ladd and Janet S. Hansen, editors ; Committee on Education Finance, Commission on Behavioral and Social Sciences and Education, National Research Council. p. cm. Includes bibliographical references and index. ISBN 0-309-06528-3 (casebound) 1. Education—United States—Finance. 2. Educational productivity—United States. 3. Educational equalization—United States. 4. Educational change—United States. I. Ladd, Helen F. II. Hansen, Janet S. III. National Research Council (U.S.). Committee on Education Finance.  LB2825+ 379.1'1'0973—dc21 99-050424 Suggested citation: National Research Council (1999). Making Money Matter: Financing America's Schools. Committee on Education Finance, Helen F. Ladd and Janet S. Hansen, editors. Commission on Behavioral and Social Sciences and Education. Washington, DC: National Academy Press. Additional copies of this volume are available from: National Academy Press 2101 Constitution Avenue N.W. Washington, D.C. 20418 Call 800-624-6242 or 202-334-3313 (in the Washington Metropolitan Area). This volume is also available on line at http://www.nap.edu Printed in the United States of America Copyright 1999 by the National Academy of Sciences. All rights reserved.

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Making Money Matter: Financing America's Schools THE NATIONAL ACADEMIES National Academy of Sciences National Academy of Engineering Institute of Medicine National Research Council The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. William A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. William A. Wulf are chairman and vice chairman, respectively, of the National Research Council.

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Making Money Matter: Financing America's Schools COMMITTEE ON EDUCATION FINANCE HELEN F. LADD (Cochair), Terry Sanford Institute of Public Policy, Duke University THOMAS SOBOL (Cochair), Teachers College, Columbia University ROBERT BERNE, Vice President for Academic Development, New York University DENNIS N. EPPLE, Graduate School of Industrial Administration, Carnegie Mellon University SUSAN H. FUHRMAN, Graduate School of Education, University of Pennsylvania EDMUND W. GORDON, Department of Psychology, Yale University (emeritus) JAMES W. GUTHRIE, Peabody College, Vanderbilt University STEPHEN P. KLEIN, RAND, Santa Monica, California DIANA LAM, Providence Public School District, Providence, Rhode Island LAURENCE E. LYNN, JR., School of Social Service Administration and Harris Graduate School of Public Policy Studies, University of Chicago GARY NATRIELLO, Teachers College, Columbia University ALLAN R. ODDEN, School of Education, University of Wisconsin-Madison TED SANDERS, President, Southern Illinois University ROBERT M. SCHWAB, Department of Economics, University of Maryland-College Park KENNETH A. STRIKE, Department of Education, College of Agriculture and Life Sciences, Cornell University STEPHEN D. SUGARMAN, School of Law, University of California at Berkeley JOAN E. TALBERT, School of Education, Stanford University AMY STUART WELLS, Graduate School of Education and Information Studies, University of California, Los Angeles JANET S. HANSEN, Study Director ROSEMARY CHALK, Senior Program Officer NEAL D. FINKELSTEIN, Senior Program Officer ANNE MARIE FINN, Research Associate THOMAS A. HUSTED, Senior Consultant PAUL A. MINORINI, Senior Consultant NATHANIEL TIPTON, Senior Project Assistant

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Making Money Matter: Financing America's Schools PANEL ON SPECIAL EDUCATION FINANCE DAVID W. BRENEMAN (Chair), Curry School of Education, University of Virginia MARY-BETH FAFARD, Northeast and Island Regional Educational Laboratory, Brown University MARGARET E. GOERTZ, Consortium for Policy Research in Education, University of Pennsylvania MARGARET J. McLAUGHLIN, Institute for the Study of Exceptional Children and Youth, University of Maryland THOMAS B. PARRISH, Center for Special Education Finance, American Institutes for Research, Palo Alto, California

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Making Money Matter: Financing America's Schools Acknowledgments Many people contributed in important ways to the completion of this report; and we are most grateful for their efforts. First, we appreciate the support provided by the study's sponsor, the U.S. Department of Education, and the individuals within the Office of Education Research and Improvement with whom we worked during the project: Kent McGuire, assistant secretary, James Fox, and Duc-Le To. The committee was assisted in its review of the voluminous literature related to education finance by a number of individuals who prepared background papers. We previously published eight of these papers related to issues in equity and adequacy.1 Authors (who were not also committee or staff members) included Melissa C. Carr, William D. Duncombe, William N. Evans, Margaret E. Goertz, Sheila E. Murray, Richard Rothstein, Leanna Stiefel, and John M. Yinger. These papers, plus the comments of reviewers selected by the National Research Council (NRC) in accordance with its report review procedures, were extremely helpful in preparing the analysis in this report. We again thank the reviewers of the previous volume: John Augenblick, Dominic Brewer, William Buss, David Figlio, Eric Hanushek, David Monk, Richard Murnane, Lawrence Picus, Andrew Reschovsky, Julie Underwood, and Arthur Wise. Unpublished background papers that also greatly assisted us in our work were prepared by Ronald Fisher, Kenneth Godwin, Laura Hamilton, Jane 1   National Research Council, Equity and Adequacy in Education Finance: Issues and Perspectives, Committee on Education Finance. Washington, DC: National Academy Press, 1999.

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Making Money Matter: Financing America's Schools Hannaway, Jennifer Hochschild, Jack Jennings, Frank Kemerer, Therese McGuire, Michele McLaughlin, and Cecilia Rouse. In addition to the many scholars whose written work informed our deliberations and is acknowledged in the report's reference list, many individuals met with us to extend our understanding of specific issues. A technical panel on special education, set up by the committee, met four times over a year to review the particular issues involved in financing education for students with disabilities. We thank panel chair David Breneman and members Mary-Beth Fafard, Margaret E. Goertz, Margaret J. McLaughlin, and Thomas B. Parrish for their hard work and excellent analysis. We also benefited from the advice of 23 researchers and practitioners who joined us for a one-day workshop to discuss data needs related to education finance. Participants included John Augenblick, Dominic Brewer, Jay Chambers, Matthew Cohen, Thomas Downes, Jerry Fastrup, David Figlio, Pascal Forgione, William Fowler, Jr., Michael Garet, David Grissmer, Nancy Heiligman, Linda Hertert, Philip Kaufman, David Monk, Martin Orland, Lauri Peternick, Lawrence Picus, Paul Planchon, Richard Rothstein, Leanna Steifel, Duc-Le To, and Eugenia Toma. In addition, William Clune, Ronald Ferguson, Christopher Jencks, and William Taylor joined the committee to discuss issues of adequacy and equity and student achievement. The report was reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC's Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their participation in the review of this report: Christopher Cross, Council for Basic Education, Washington, D.C.; William H. Danforth, Chairman, Board of Trustees, Washington University, St. Louis; G. Alfred Hess, Jr., School of Education and Social Policy, Northwestern University; Caroline Hoxby, Department of Economics, Harvard University; James A. Kelley, National Board for Professional Teaching Standards, Southfield, Michigan; Cora Marrett, Vice Chancellor for Academic Affairs and Provost, University of Massachusetts, Amherst; David H. Monk, Dean of the College of Education, Pennsylvania State University; Anita A. Summers, Wharton School, University of Pennsylvania; David Tyack, School of Education, Stanford University; and James H. Wyckoff, Rockefeller College of Public Affairs and Policy, University at Albany, New York. Although the individuals listed above have provided constructive comments and suggestions, it must be emphasized that responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Making Money Matter: Financing America's Schools Finally, we wish to express our appreciation for the efforts of the staff at the NRC in supporting the committee's deliberations and in preparing this report for publication. Alexandra Wigdor, director of the Division on Education, Labor, and Human Performance, provided valuable guidance throughout the project. Rosemary Chalk served as staff for the technical panel on special education as well as chief editor of the previously published volume of papers on education equity and adequacy. Neal Finkelstein, Thomas Husted, and Paul Minorini provided analytical support on school finance, economic, and legal issues, respectively. Anne Marie Finn brought her incomparable organizational skills to the important tasks of organizing and managing the project library, preparing briefing notes for the committee, checking the accuracy of facts and references in the report, and overseeing final preparation of the manuscript for publication. Sharon Vandivere and later Nat Tipton provided administrative support for the committee, both in arranging its meetings and in preparing this and the earlier published volume. The report also benefited from the editorial attention of Christine McShane. The committee extends its sincere thanks and appreciation to all those who assisted us in our work. Helen F. Ladd, Cochair Thomas Sobol, Cochair Janet S. Hansen, Study Director Committee on Education Finance

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Making Money Matter: Financing America's Schools CONTENTS EXECUTIVE SUMMARY   1     The Committee's Charge and Approach   4     Fairness and Productivity in School Finance   6     Strategies for Meeting the Goals   7 PART I INTRODUCTION   13 1   INTRODUCTION   15     Charge to the Committee   16     Shifting Expectations of School Finance   17     Education, Values, and the Role of Expertise   22     Overview of the Report   25 2   SETTING THE STAGE   26     Roles and Responsibilities in American Education   26     Goal 1: Facilitating Higher Levels of Achievement for All Students in a Cost-Efficient Manner   34     Goal 2: Breaking the Nexus Between Student Background Characteristics and Student Achievement   44     Goal 3: Raising Revenues Fairly and Efficiently   53     Strategies for Meeting the Goals   61

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Making Money Matter: Financing America's Schools PART II FAIRNESS AND PRODUCTIVITY IN SCHOOL FINANCE   65 3   EQUITY I-SPENDING ON SCHOOLS   67     The Meaning of Equity   69     Pursuing Finance Equity Through the Courts   71     Other Approaches to Spending Equity   81     Reform and Spending Inequities   89     Equity at the Dawn of the New Century   98 4   EQUITY II-THE ADEQUACY OF EDUCATION   101     Possible Meanings of Adequacy   102     The Shift Toward Adequacy   107     State Responses to the Adequacy Movement   110     Conceptual and Technical Challenges   112     Promises and Pitfalls   131 5   IMPROVING THE PRODUCTIVITY OF SCHOOLS   134     Defining and Measuring Productivity   135     Understanding Educational Productivity   138     Using Finance-Related Strategies to Improve School Performance   161 PART III STRATEGIES FOR MEETING THE GOALS   163 6   ACHIEVING GOAL 1: PROMOTING HIGHER ACHIEVEMENT IN A COST-EFFICIENT WAY   165     Reducing Funding Inequities and Inadequacies   165     Investing in Capacity   167     Changing Incentives to Make Performance Count   176     Empowering Schools or Parents or Both to Make Decisions About the Use of Public Funds   183     Conclusions   195 7   ACHIEVING GOAL 2: BREAKING THE NEXUS   196     Reducing Funding Inequities and Inadequacies   196     Investing in Capacity   202     Changing Incentives to Make Performance Count   214     Empowering Schools or Parents or Both to Make Decisions About the Use of Public Funds   227

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Making Money Matter: Financing America's Schools 8   ACHIEVING GOAL 3: RAISING REVENUE FAIRLY AND EFFICIENTLY   232     Evaluation of the Property Tax   233     Should the Mix of Local Taxes Be Changed?   239     Would State Taxes Be Better?   243     Should States Play a Bigger Role in Revenue Raising?   247     Should a Greater Share of Funding for Education Come from the Federal Government?   258     Conclusion   261 9   CONCLUSION   263     Balancing Values   263     Focusing on Adequacy   264     Promoting Fair Spending and Revenue Raising   265     Making Money Matter More   267     New Research Initiatives for Urban Areas   267 REFERENCES   276 APPENDIXES     A Data Needs   315 B Biographical Sketches   326 INDEX   335

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Making Money Matter: Financing America's Schools MAKING MONEY MATTER

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