STATEMENT OF DR. ALAN GINSBURG Dr. GINSBURG. Mr. Chairman and members of the subcommittee: I am pleased to have this opportunity to discuss my views on the School Finance Act of 1977 - H.R. 1138. This Act addresses the mounting concern over how elementary and secondary education can be more equitably financed. A principal aim of the Act is to encourage States to reduce disparities in the educational resources of their local school systems. It is on this aim of equalization that I propose to focus. In this connection I will draw extensively on the preliminary results of a recent study of school finance reform. Evidence analyzed in this study makes it possible to evaluate the extent of existing disparities in educational expenditures between the districts of a State, the amount of progress toward equalization achieved independently by the States in recent years, and finally, by implication, the need for further initiatives in school finance reform at this time. Estimates of the total cost of achieving specific national equalization goals will also be presented. In concluding, I will offer a few comments on some questions of policy and strategy raised by H.R. 1138. Evidence on Need, Progress to Date, and Probable Costs. The discussion which follows is based on preliminary findings from a collaborative study involving staff from Killalea Associates, the Office of the Assistant Secretary for Planning and Evaluation, and the Office of Education. This study utilizes 1970 and 1975 expenditures, revenue, and property valuation data for nearly 5,000 districts in order to estimate prevailing levels of within-State disparities, and the extent of reduction in these disparities over the five-year interval. As of 1975, the prevalence of interdistrict disparities in per pupil expenditures may be summarized as follows: In 40 States, expenditures in the highest spending districts (pupils at the 95th percentile with respect to spending) exceeded those of the lowest spending districts (pupils at the 5th percentile) by at least 50 percent. In four States, per pupil expenditures in high-spending districts were more than double those in low-spending districts. Clearly, much remains to be accomplished. It is possible, however, that the impetus for change already exists. Over the period 19701975, 20 States passed school finance reform legislation. Granted, then, that the situation as of 1975 leaves something to be desired, we may nevertheless ask whether it does not represent substantial improvement over 1970. By and large, the answer is no (Table 1): Only 15 States show clear evidence of reduced disparities between highest and lowest districts. In 15 States, relative disparities actually increased between 1970 and 1975. In 19 States, there is no clear evidence of change with respect to disparities. Among the 20 States enacting reform legislation between 1970 and 1975 only 8 show evidence of substantial reductions in disparities. The lack of overall progress does not mean, however, that reform efforts were without effect. On the evidence in Table 1, reform efforts appear to have helped to offset a general trend toward increased disparities. Specifically: Most of the States where disparities showed substantial increases are nonreform States (by a ratio of 7:1). Most of the States where disparities were substantially reduced are reform States (by a ratio of 6:3). The States that reformed were, as a group, those most in need of reform in 1970. By 1975, however, the reform States had reversed the situation, and the non-reform States exhibited the most disparity. Turning to the question of costs associated with achieving specified levels of within-State equalization (Figure 1) we find that costs increase exponentially as complete equalization is approached: The cost of leveling up all lower-spending districts to achieve a 40 percent maximum disparity would have been a little over $2-1/2 billion in 1975. Leveling up to a 10 percent maximum disparity would have cost more than four times as much, or $10.4 billion. Table 2 compares the equalization cost function depicted in Figure 1 with the costs that would have been experienced five years earlier in 1970. Costs are also expressed as a percent of State and local outlays for elementary and secondary education, thus providing an implicit adjustment for rising education costs. The results of this comparison confirm our earlier conclusion about the lack of relative progress between 1970 and 1975. For all levels of equalization, costs, as a percent of current State and local outlays, have risen. Equalization is now a relatively more expensive proposition, because disparities have increased slightly over the five-year period in question. Questions of Policy and Strategy Raised by H.R. 1138. I want to point out that the Department is currently reviewing the available alternative approaches to school finance reform. Neither the Department nor the Administration has considered the question of what role the Federal Government could or should play in assisting the States to achieve reform of shool finance. My comments are intended as expert analysis of the bill and in no way indicate the position of the Department on H.R. 1138. Let me now turn to some specific considerations raised by this proposed legislation. The results of our disparity analysis have established a need for the States to equalize educational opportunity. Part I of H.R. 1138 provides a basic grant of $100 for each child. The grant is reduced by the percentage of non-Federal per pupil expenditures exceeding 115 percent of the State average. Part II establishes equalization grants of up to $600 per child to States with a five-year plan to guarantee that: 1. The quality of education is a function of the wealth of the State as a whole, not of individual school districts, and, 2. Non-Federal spending (after adjustments for needs and costs) shall not vary across the districts of each State by more than 10 percent. I shall limit my comments to Part II, the principal component of this bill. Creating and enforcing generalized criteria for judging whether a State has in place a school finance system that adequately equalizes educational opportunities across its school districts is by no means an easy or straightforward task. One major consideration in designing school finance reform measures is the problem of achieving a reasonable balance between the standard of equalization that is desired and the added costs engendered by reform. The simple inescapable fact for State governments is that, in the absence of additional Federal aid, equalization requires new school spending and becomes increasingly costsly as disparities in per pupil expenditures are reduced to narrower limits. A bill such as H.R. 1138 would authorize massive new Federal aid of over $25 billion; Federal budgeting limits would be likely to reduce actual grants to amounts that are only a small fraction of this authorized amount. The problem then would be to establish realistic standards that achieve a reasonable degree of equalization at a price most States could afford. On the basis of our analysis of equalization costs, a goal of reducing expenditure disparities to 30 or 40 percent would be a more realistic goal than the 10 percent standard required by H.R. 1138. Another particularly difficult design problem would be the need to develop standards that strike a proper balance between control and flexibility. On the one hand, standards must be specified well enough to permit their use in identifying or eliminating questionable practices. On the other hand, they must be flexible enough to treat the many different but equally valid State aid formulas in a neutral, even-handed manner. In this respect, a basic criticism of the expenditure restriction in H.R. 1138 is that it may discriminate against States that have adopted equal revenue yield formulas which allow spending to vary with local preferences for schooling. The fiscal neutrality test contained in section 5(d)(2) of the impact aid legislation offers one possible solution of these difficulties. Equalization standards—particularly strict ones-could serve a useful purpose by establishing performance goals for States to aim at when they design their school finance programs. The danger, however, is that such standards might be applied inflexibly, with differences of degree between the States giving rise to unreasonable differences of kind in the Federal response. Clearly, minimum standards could be desirable, provided they are established with a realistic appreciation of the costs involved. Beyond this minimum, however, some recognition should be given to the degree of progress made by States toward the goal of full equalization. The proposed legislation fails to provide this type of graduated incentive. H.R. 1138 recognizes that differentials in the price of school inputs and the special needs of certain students for higher cost programs are all considerations that should enter into the design of an equitable equalization policy. In particular, center city districts could be heavy losers under traditional school finance reform proposals that fail to adjust for these special circumstances. As a practical matter, if H.R. 1138 became law, it would be difficult to penalize State governments for inadequate adjustments. Experts are in considerable disagreement over the methods and even the feasibility of measuring differential needs and costs. Thus, even with passage of a bill such as H.R. 1138, it might still be left to the Federal Government to deal with cost differentials directly through programs such as Title I, ESEA. In one respect, the bill recognizes this imperative by requiring a $3 billion appropriation for Title I as a trigger for the equalization grant provision. In addition to the form of the equalization requirement, the amount of additional compensation to States would be another major consideration, if an equalization initiative were undertaken. Since interdistrict disparities are basically State created, the costs of equalization should be met primarily from the States' own resources. Nonetheless, some Federal incentive to encourage States to adopt appropriate reform measures might be found desirable. In summary, H.R. 1138 recognizes that gaps remain in the equalization of school finance within the States, and provides one possible approach to filling those gaps. Other approaches shold also be considered-approaches that are perhaps less costly and restrictive. In any event, our study indicates that State initiatives alone have not succeeded in eradicating within-State resource disparities. [The tables follow:] Table 1: TRENDS WITH RESPECT TO WITHIN-STATE DIFFERENCES IN PER-PUPIL This categorization of States is based on a simple average of two separate measures of change. For details, see Table 1 of "The Effects of School Finance Reform, 1970 to 1975," Lawrence Brown, Alan Ginsburg, Neil Killalea, and Esther Tron, Department of Health, Education, and Welfare, 1977. **The State of Hawaii is excluded because 97 percent of total expenditures are State financed. |