A. Introduction

Nothing is more symptomatic of the recent renaissance in state government than the new role of states in public school finance. States in every region since 1970 have been compelled to assume a much broader responsibility for funding public education due to the convergence of several powerful forces. Local property taxes have mounted as school employees and spokesmen for children with high-cost educational needs became increasingly effective in winning greater dollar outlays. Long-simmering dissatisfaction with local property tax burdens has erupted into well-orchestrated campaigns for state relief, especially in areas with large concentrations of farmers or elderly persons. State revenue collections have fluctuated drastically; with fiscal surpluses first generating new state budget commitments while recently lagging collections have created strong pressures for greater state budget control. But most important of all, both state and federal courts have rendered decisions which have given the proponents of school finance reform a powerful lever for change. From the landmark Serrano decision of 1971 to more recent rulings in Robinson and Horton, the courts have made it clear: public school finance laws which make the quality of a child's education dependent on local wealth are constitutionally suspect and vulnerable to judicial challenge.

The central features of the new state role in public school finance have been fourfold. First, most states with new laws have assumed substantial increases in raising public school dollars, by tapping budget surpluses, and by raising the rates of traditional state taxes. Second, many of the states with new laws have cut local school tax rates and in several instances have reduced property tax bills substantially. Third, all of the school finance reform states of the last five years have taken steps to insure a considerably closer fit between the distribution of state school aid and the presence of unusual educational needs or costs, these steps being most visible in the comprehensive pupil weighting systems implemented in five states. And finally, the great majority of post-Serrano reform states have imposed systematic controls on the growth of local school budgets, either by setting strict limits on local taxes or by establishing ceilings on school expenditures.

This report describes and evaluates the record of reform in several states which have revised their school finance systems since 1971. This introductory chapter provides an overview of reform's recent successes, short

comings, and prospects. Six subsequent chapters offer a close look at its main features. Chapters II and III analyze new school aid legislation designed to place additional dollars behind high-cost children or to channel greater state aid into urban and rural areas. Chapters IV and V examine the fiscal management of new reform laws, the former focusing on taxing and spending controls, the latter on revenue needs. Chapters VI and VII deal with two new issues that state legislators are facing in their efforts to build more equitable school finance systems. Chapter VI discusses the issues involved in developing a cost of education index that will enable more state aid to be directed to areas with extraordinary education costs. And Chapter VII relates the issues involved in meshing of state and federal education aid programs to bring about more fiscal equity for local taxpayers and poor children. In sum, this booklet is intended to help the concerned state legislator and his staff to better understand how states can improve their basic school finance laws.

B. School Finance Reform: The Accomplishments and Shortfalls

The issues faced by state legislators, courts and chief executives in reforming education finance are complex and difficult to resolve without considerable political compromise. The outcomes of this bargaining process, however, have been basically positive and progressive. New finance laws, on balance, have improved the equity of this nation's school finance system. School property taxes have been reduced in many poorer communities and school tax burdens have been distributed more equitably among local taxpayers. State-imposed school tax and budget controls have kept school taxes down and expenditure increases manageable in a time of declining enrollments.

At the same time, reform has permitted a greater than average increase in school expenditures in many poor school districts. More state monies have been allocated to children who are costly to educate, and many states have developed new aid programs to meet the pressing school finance needs of urban centers and rural areas. In short, poor taxpayers and educationally disadvantaged children have been the main beneficiaries of new school finance laws.

But the record of school finance reform needs improvement. In some cases, school tax and expenditure controls have prevented bridging expenditure gaps between rich