the adjustments are distance. A necessary small school can be defined as one in which a student must travel a specified distance, say more than two miles, in order to attend. States have also attempted to impose a criterion for distance between schools. If schools are located within a specified radius of one another, then it is thought that this is a sign of a preferred, not a necessary, circumstance.

Adjusting for Inflation

After the challenges of determining what an adequate education costs in any given year are met, another task remains: adjusting for inflation each year so appropriations tied to adequacy keep up with changes in the costs of education. Failure to adjust for inflation was one key reason why state foundation grants, a common finance mechanism earlier in the century, over time fell badly below the amounts districts needed to meet basic educational needs.

Disagreements among analysts about how to take account of inflation make it hard to draw conclusions about how the production efficiency of schools has changed over time. The same conceptual dilemmas will face analysts seeking to adjust adequacy levels for inflation. On one hand, school inflation will generally be more rapid than consumer price or gross national product inflation. The latter are heavily influenced by improvements in manufacturing productivity that cannot be matched by schools that rely heavily on labor and where opportunities for technological improvements are comparatively limited. Therefore using consumer price or gross national product indices to adjust for inflation in education will underestimate the real increase in education costs. On the other hand, efforts to develop price indices specifically for education have been few (the major example being an index developed by Halstead [1983; Research Associates of Washington, 1993] that extends back to 1975) and are controversial. In particular, treatment of teacher salaries in education-specific indices has been questioned. The Halstead index is based on actual salary changes and therefore does not reflect the fact that teacher pay reflects district choices about whether to pay teachers more or less than comparable workers, choices that are presumed to affect teacher quality (Rothstein and Mishel, 1997). Efforts to develop inflation adjustments that can be used in specific states to update adequacy levels are in their infancy. An early example for Wyoming is described in Guthrie and Rothstein (1999); the authors also note that how best to account for inflation in any given state may depend on specific characteristics of that state, such as the competitiveness of its teacher labor market.

PROMISES AND PITFALLS

The shift toward adequacy as the equity standard to be sought is appealing because it offers the promise of reorienting debates over school finance toward fundamental issues of education reform.

Adequacy focuses school finance discussions squarely on issues of educa-



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