Page 2 LEAP/NCSL also administers a competitive cost-sharing program which directly funds legislative policy studies in States attempting to improve their finance laws. These efforts have been unusually successful with the enactment this year of reform legislation in Missouri, South Carolina, South Dakota and Tennessee. Michigan and Ohio have also received cost-sharing awards and the state legislatures in Florida, Illinois, Kansas, New York and Utah are presently engaged in NIE supported finance research. Policy Studies NCSL and ECS also provide NIE with a series of policy papers each year which are a direct outgrowth of their technical assistance activities. During the past year these have included studies of: The Regressivity of the Property Tax, The Impact of State Controls on Local School Spending, O State Support of Capital Expenditures, and o The Fiscal Effects of Declining Enrollment. In addition, the Institute has funded two major longitudinal multi-state analyses of the fiscal and organizational efforts of form. In both cases the Institute is breaking new ground. Examination of finance reforms has previously focused on simulations of potential effects and individual state studies of actual effects. The fiscal effects study attempts to isolate three factors: the impact of new funding, the components of the formula, and the fiscal response of local school districts; this work will provide legislators with a better appreciation of the choices available to them. The organizational effects project will examine the impact of reform legislation at the local level, with special emphasis on shifts in state/local intergovernmental relations. An examination of the effects of finance reform on poor and minority children is also in progress. Under the direction of Intercultural Development Research Associates this investigation of finance reform in six states is designed to determine if these new laws have in fact proved beneficial to those students who were the anticipated beneficiaries of the numerous judicial rulings that began with the Serrano suit in California. Page 3 We are also examining the California School Finance Simulation Model and have supported an international comparative study of finance practices at the primary school level. This latter effort, conducted at OECD/CERI, promises to challenge the common wisdom that centralized financing must ultimately lead to the diminution of local autonomy. While most of our efforts are targeted at interdistrict equalization, the question of equalization among schools within a school district remains important and challenging; equalization at higher levels of government may mean little if not translated into operational terms at the school building level. Accordingly, the Institute is supporting the National Urban Coalition in an examination of "school site lump sum budgeting" in Florida and California; this budgeting technique is intended to provide greater autonomy at the school building level and to assist the process of intradistrict equalization. Historically, an important policy for achieving equalization within States has been the consolidation of school districts, particularly in rural areas. An NIE funded study, Education in Rural America: A Reassessment of Conventional Wisdom, questions the utility of such efforts, and suggests that an approach other than consolidation may be preferred to achieve fiscal equalization in rural areas. Fundamental Research This work, which includes building theoretical frameworks and refining methodological approaches has largely grown out of our initial technical assistance and policy studies activities. NIE has funded studies of alternative measures of wealth, the viability of pupil weighting systems, the creation and utility of cost-of-education indices, the measurement of equalization effects and the development of local response models. The ability to obtain equitable and comparable measures of local wealth for each Local Education Agency (LEA) in a state is particularly important when local revenues are based almost exclusively on the property tax. These investigations, to date, have focused on the effects of employing alternative measures of local wealth in various equalization schemes. Page 4 Pupil weighting systems are based on the idea that equal educational opportunity does not mean equal per pupil expenditures, as it is widely acknowledged that the financial need of each district depends on the mix of students enrolled. These systems, now in existence in Florida, New Mexico and Ugah and just legislated in South Carolina and Tennessee, attempt to equalize disparities by reflecting differential needs among districts. NIE is examining how these systems were designed and initiated, and is attempting to identify the costs and benefits of pupil weighting vs. categorical funding plans. Cost-of-education indices play a similar role by compensating for price differentials between districts. Florida is the only state to adopt such an index, although interest in them is growing. This work is largely exploratory as the methodology is still limited, but should result in, an index that is both technically acceptable and readily understandable. The measurement of interdistrict disparities has received attention from the research community for some time and is a slowly-evolving art. A – number of attempts have been made to characterize the status of state finance systems with only modest success. There is a spirited debate on this issue as it bears on the question of how well new finance laws meet judicial mandates, a subject of substantial concern to state policy makers. This issue has also been raised by the Office of Education's standards as required for the Impact Aid Program. 2 Given the current environment and the importance of this subject, NIE has recently decided to commission a study that will examine a set of such measures from the perspective of their suitability for making interstate comparisons. The question of how local districts behave in the face of new dollars is a subject that has been with us for some time and has often frustrated the designers of school finance simulation systems. Improving the utility of these simulations is crucial, for they are a tool upon which State Legislatures place heavy reliance in fashioning new finance laws which must inevitably reflect the political realities of each State. 1 These two criteria have more often than not been honored in the breach. This study will analyze several alternate methods of constructing costof-education indices with an eye toward their technical merit, their differences from one another, and their acceptability for actual use by a state. 2 States whose finance systems satisfy the USOE standards are allowed to treat Impact Aid funds as local revenue, while those states that fail to meet the standard may not. States in the second category, that make state aid a function of local wealth, therefore find Impact Aid to have a disequalizing effect. Page 5 NIE has therefore decided to sponsor research on the development of models of local response to finance reform legislation. The new laws, more often than not, result in changes in the tax price of education and present LEAs with the opportunity to trade-off school expenditures for property tax relief. The choices that are made then, directly influence the degree to which expenditure equalization is achieved. It is therefore quite important that local response be well understood when new finance legislation is being drafted. Dissemination NIE supports the publication of the ECS quarterly newsletter, Finance Facts, which is designed to keep the school finance community abreast of current developments in the courts, the Congress, state legislatures and academia. For the past two years ECS has produced a summary of the 50 state finance systems displayed on a giant wall chart titled "School Finance at a Glance"; this publication serves as a ready reference to legislative staff and scholars working in this field. The Institute also attempts to make a special effort to insure that important research findings reach key policy makers at the local, state and federal level who are responsible for the shape, structure and fiscal health of elementary and secondary education in the United States. For example, the Legislators' Handbook has been distributed to key legislators in every state in the union. Budget The following table displays the amounts spent in the two and one half years that NIE has supported school finance and organization research. Although the total expenditure is not explicitly directed at equalization questions, each of NIE's school finance and organization projects has incorporated equalization issues. Appendix A displays the full complement of SF&O projects, with short titles and budget figures. Project resumes are available. Page 6 As indicated earlier in this report, NIE's contract with NCSL/LEAP and the ECS School Finance Center are matched by foundation and institutional grants. In addition, the school finance work supported at OECD/CERI is matched by institutional and country contributions. At the same time, NIE, through an interagency agreement, supports a portion of the school finance policy center of the Assistant Secretary for Education. These various cooperative efforts help to assure a full exchange of information, avoid duplication and provide greater return on the investment of NIE research dollars. The most recent activity of this kind is one which is particularly promising. The Bureau of Indian Affairs (BIA) is under Congressional mandate to develop a system of direct funding for BIA schools; to accomplish this objective, BIA transferred $110,000 to NIE, which allowed NIE to conduct a research competition this past summer. Because of NIE's substantial interest in the questions raised by this study, the Institute will provide a modest supplement to the BIA award. The Future As a research program in school finance equalization issues becomes firmly established at NIE, a number of pertinent questions are being added to the Institute's research agenda this year. Equalization and Excellence - From the outset of the schoot Finance reform movement the question has been raised as to whether interdistrict equalization must inevitably threaten schools of excellence. An examination of tax rate and expenditure controls is nearing completion and should shed some light on this issue. In addition, NIE and the Woodrow Wilson International Center for Scholars have sponsored a seminar to determine if there is an inherent incompatability in jointly pursuing the goals of equalization and excellence. The seminar is designed to suggest new lines of research on this matter. Education Personnel The nation's teaching population is becoming increasingly older, less mobile and more highly paid. Declining and shifting enrollments, inflation, generous collective bargaining settlements with costly fringe benefit packages, and underfunded and minimally vested pension systems contribute to this problem. The Institute will embark on a research program designed to examine various strategies to address these issues. This would include plans to encourage teacher mobility through early retirement, increased pension portability, voluntary exchange programs and other mechanisms. A broad review of pension systems may also be in order. The same set of factors raise questions of certification and staff development as seniority rules strip the |