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Journal Issue: Financing Schools Volume 7 Number 3 Winter 1997

Financing Schools: Analysis and Recommendations
Donna L. Terman Richard E. Behrman


Schooling matters. Decades of research confirm that both the quality and the quantity of schooling are strongly associated with increased income, better health, lower levels of criminal activity, and less reliance on public assistance.1 The justification for public financial support of schooling is both civic and personal. Schools are expected to prepare children for the responsibilities of citizenship and to improve their individual economic prospects and quality of life.

Yet schooling costs a great deal. Americans are taxed more than $900 per capita annually to support public elementary and secondary schools.2,3 This amounted to $265 billion (excluding construction) in the 1993–94 school year to educate 43.5 million students.4 Of every dollar spent by a government agency in the United States—local, state, and federal combined—almost nine cents goes to elementary and secondary education.5 Public school expenditures dwarf all other state and local government expenditures for children, including expenditures on health and welfare.6

The cost of educating a single student—the per-pupil expenditure—has been climbing for decades. When dollars are adjusted using the Consumer Price Index, per-pupil spending increased from $1,299 in 1949-50 to $5,734 in 1993-94.7 Guthrie in this journal issue discusses at length some of the reasons for this increase in expenditures. A large share of the increase occurred during the baby boom years between 1950 and 1972, when per-pupil expenditures rose from $1,299 to $3,517.8 This increase was largely the result of teachers' pay increases and improved student-teacher ratios. Expenditure increases in the past 25 years have been partly due to additional services provided by schools, such as compensatory education for disadvantaged students, special education for students with disabilities, and a longer school year. Lawsuits to eliminate segregation and to increase equity in state funding have also contributed to higher total costs.

While costs are rising, academic results are also improving, especially for minorities. Since 1971, student scores at all grade levels and in most subjects on the National Assessment of Educational Progress (NAEP) have gradually risen, with the greatest increases shown by black and Hispanic students.9 Graduating seniors of all races in 1992 completed an average of two more year-long academic courses than their 1982 predecessors.10 Between 1982 and 1992, the number of seniors planning to enroll in college right after high school rose from 60% to 77% of whites, from 58% to 75% of blacks, and from 46% to 75% of Hispanics.11

Nevertheless, the media regularly publish accounts of school failures which raise questions about how well tax dollars are being used. For example, accounts abound about schools with dropout rates exceeding 50%,12 high school graduates unable to read,13 school buildings in disrepair,14 and gross disparities in services between neighboring districts.15

Accounts also highlight hard-won successes.16,17 Even in the most impoverished neighborhoods, some schools bloom. And across the nation's 80,000 schools, even with their widely varying funding levels, many provide a good education to virtually all of their students. Again, some argue, insufficient funding is not the problem so much as poor use of available dollars.1

In short, the key questions concerning education financing are the following:

First, is the right amount of money being spent on public schools? It is impossible to answer this question without deciding what schools are expected to accomplish.

Second, is the money spent on public schools being distributed in a fair manner? This analysis concludes that some states distribute funding more fairly than others. It recommends establishing a reasonable basis for each state's foundation funding level and for special needs, rewarding local tax effort above the minimum funding level, and removing inequities in school construction funding.

Third, can the education dollar be spent more efficiently? Among the nation's more than 80,000 schools, certainly there are instances where efficiency could be improved. In any event, an effective system should routinely investigate ways to improve efficiency. This analysis summarizes some major areas of effort to increase accountability and efficiency.

As a starting point, it is important to consider what schools are expected to accomplish and who is responsible for the task.