THE EQUALITY AND PRODUCTIVITY OF STATE AID TO ELEMENTARY AND SECONDARY EDUCATION

The purpose of the study was to measure the impact of state aid on educational revenue disparities (equality) and educational output (productivity). The analysis identified equality and productivity as joint goals of state aid to education programs. Since the objectives of a multiple-goal program may be incompatible, the study also measured the tradeoff between the equality and productivity of state aid to education. Forty-four state aid plans were analyzed. Perfect equality was defined as fiscal neutrality: the absence of relationship between school revenues and district wealth, measured as both average family income and equalized property valuation per pupil. The relationship between revenues and wealth within each state was measured by a linear regression coefficient and a linear elasticity coefficient. The model compared the fiscal neutrality of local educational revenues across school districts within a state to the fiscal neutrality of local plus state revenues. Any change in equality was attributed to the presence of state aid. State aid was considered equalizing if its introduction reduced the prior positive relationship between revenues and wealth that is due to the heavy reliance on property taxes in school finance programs. The absolute change in fiscal neutrality and the relative change (which adjusts for the initial level of inequality) were calculated and states ranked on the equality of their aid plans. The productivity model utilized production function literature to specify the determinants of educational output defined as school holding power. The independent variables were measures of a student's family environment and community environment, school service conditions, and local, state, and federal educational revenues per pupil. The variables were entered into a linear multiple regression equation and the model was run for each state and for the country as a whole. State aid was considered productive if the regression coefficient for state aid was positive. The states were rank ordered on the level of productivity of state aid: the higher the coefficient, the more productive the state aid plan. The tradeoff between equality and productivity was measured by bivariate correlation analysis. A Pearson correlation coefficient was computed testing the association between the level of equality and productivity in the states. A Kendall correlation coefficient was calculated to measure the association between the equality and productivity rankings. A negative correlation coefficient indicated a tradeoff between equality and productivity. A variety of conclusions and policy implications were drawn from the analysis. Concerning equality, the aid programs in most states were equalizing. However, the relative increase in equality was only moderate. State aid completely eliminated the wealth-revenue relationship in only three states. Future state aid programs must have a greater impact on wealth equalization and must also target more dollars to school districts with unusually high needs and costs. State aid increased educational output in only slightly more than one half of the states. In those states, the level of productivity was quite small. There are numerous theories why state aid to education was, at best, minimally productive. One prominent theory is that bureaucrats have no incentive to be efficient since their salaries are not dependent on output gains or cost savings. A second theory attributes the lack of productivity of state aid to the absence of competition in the public school system. The study found no tradeoff between the equality and productivity of state aid programs. This added credence to the theory that confounding variables, such as the actions of bureaucrats, are responsible for the lack of productivity of state aid to education.