Wealthy Districts Had More Education Funding per Weighted Pupil Than Poor Districts in Most States

Although most states pursued strategies to supplement the local funding in their poorest districts, the strategies generally did not offset the advantage of wealthy districts in raising local funds. Targeting State Funds to Poor Districts Helped Reduce Funding Gap

State targeting efforts typically helped to reduce but did not eliminate the gap in total funding between wealthy and poor districts. These results occurred even after adjusting for geographic differences in education costs and student need. State School Finance Policies Reflected in Implicit Foundation Level and Equalization Effort

To determine the effects of state school finance policies on the funding gap between poor and wealthy districts, we analyzed states’ school finance data. In 14 states, the implicit foundation level was less than half the state average. Twenty-Five States Reported Making Little or No Changes Since School Year 1991-92

We contacted state education officials to determine the extent to which the states had changed their targeting effort and state share between school years 1991-92 and 1995-96. States that want to further reduce the funding gap between poor and wealthy districts would have to continue to increase the state share of total funding, increase their targeting effort to poor districts, or increase both. Scope and Methodology Overview

The objectives of this study were to determine (1) the size of the gap in total (state and local combined) funding between poor and wealthy school districts for each state, (2) the key factors that affect the size of states’ funding gaps, and (3) the effect of states’ school finance policies on the funding gaps. On average, wealthy districts had about 24 percent more total funding per weighted pupil than poor districts. Under this assumption, the funding gap occurs because wealthy districts can generate more local funding than poor districts when the tax effort for all districts is equal. To estimate the extent to which the three factors—elasticity of local tax effort, state share, and state targeting (see table III.6)—accounted for the variation in the funding gap between wealthy and poor districts, we constructed a regression model that used these three factors to explain cross-state differences in fiscal neutrality scores: fiscal neutrality score = a state’s elasticity of total funding per weighted pupil relative to income per weighted pupil state funding percentage = state funding as a percentage of total (state and local) funding state targeting effort = a state’s elasticity of state funding per weighted pupil relative to income per weighted pupil elasticity of local tax effort = a state’s elasticity of local tax effort relative to income per weighted pupil  = an error term that reflects the variation in funding gaps that cannot be accounted for by the other variables in the model. In 35 states, poor districts made a higher tax effort than wealthy districts. Results

States’ implicit foundation levels varied widely. In addition, each profile provides information in tabular and graphic form on (1) the actual distribution of state and local funding to regular school districts in school year 1991-92 and (2) how the funding would have been distributed if the state share of total funding had remained the same and the targeting of state funding had been changed so that districts could spend the state average of total funding on each student with an average tax effort. These two factors affect the implicit foundation level that all districts in a state can finance with the same minimum tax effort—the greater the targeting effort to low-wealth districts or the greater the state share, or both, the greater the implicit foundation level.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed funding gaps between poor and wealthy school districts, focusing on the: (1) size of the gap in total (state and local combined) funding between poor and wealthy school districts for each state; (2) key factors that affect the size of states' funding gaps; (3) effect of states' school finance policies on the funding gap; and (4) implications of this information for state policies.

What GAO Found

GAO found that: (1) although most states pursued strategies to supplement the local funding of poor school districts, wealthier districts in 37 states had more total (state and local combined) funding than poor districts in the 1991-92 school year; (2) this disparity existed even after adjusting for differences in geographic and student need-related education costs; (3) on average, wealthy districts had about 24 percent more total funding per weighted pupil than poor districts; (4) three factors affected the funding gap between a state's poor and wealthy districts; (5) first, the extent to which a state targeted funding to poor districts affected the funding gap; (6) although targeting efforts typically reduced funding gaps, they did not eliminate them; (7) second, a state's share of total funding can reduce the funding gap, even when the targeting effort is low; (8) finally, the local tax effort to raise education funding affected the funding gap; (9) at the local level, the greater the tax effort that poor districts were willing to make compared with wealthy districts, the smaller the gap in funding between these two types of districts; (10) poor districts in 35 states made a greater tax effort than wealthy districts; (11) because all three of these factors can affect the funding gap, analyzing the effects of state school finance policies required excluding the effects of the local tax effort; (12) to do this, GAO estimated the foundation level each state's school finance policies implicitly supported, which estimates the minimum total funding per pupil that districts could finance if they were to make the same local tax effort; (13) GAO's resulting analysis showed wide variations in the implicit foundation level that state school finance policies supported in school year 1991-92; (14) the implicit foundation levels of almost all states were less than their state average funding levels; (15) in 14 states, the implicit foundation level was less than half the state average funding level; (16) although the relative tax effort of poor and wealthy districts greatly affects the funding gaps between these districts, higher implicit foundation levels can help reduce the gaps; (17) therefore, states can further reduce the funding gaps by increasing their targeting effort to poor districts, increasing the state share of total funding, or increasing both; and (18) officials in a number of states reported making such changes between school years 1991-92 and 1995-96, although 25 states reported making little or no changes in their targeting of poor districts or state share.