Scope and Methodology

To determine the factors contributing most to reducing funding gaps nationwide, we conducted state-level comparative analyses of states’ equalization efforts (the state share of funding and how this funding was targeted to poor school districts), the local tax effort of poor and wealthy districts, and the size of the income-related funding gap between poor and wealthy districts in the 1991-92 school year, the most recent year for which a national data set of districts was available. Extra Tax Effort of Poor Districts and State Equalization Effort Reduce Funding Gaps

Two key factors help reduce states’ funding gaps between poor and wealthy districts: (1) the extent to which a state’s poor districts make a greater tax effort than its wealthy districts and (2) a state’s effort to reduce funding gaps through its equalization policies. The most equalized school finance system would enable districts’ per pupil funding to be 100 percent of the state’s average per pupil funding for an equal tax effort in all districts. The average state equalization effort was 62 percent, according to our analysis, suggesting that states could have more impact on the funding gap if they were to strengthen their equalization policies. Poor districts in most states were making a greater tax effort than wealthy districts. Of these two, state share has a larger impact on state equalization policies. In effect, equalization policies determine the extent to which a state enables its districts to provide the state average funding level when all districts make an equal tax effort. Other states’ equalization efforts in school year 1991-92 ranged from 87 percent (Arkansas and Kentucky) to about 13 percent (New Hampshire). The increase in Rhode Island’s equalization effort reflects the relatively small increase in the state share of education funding. Which policy tools a state may choose to implement depends upon the outcomes it wants to achieve. Increasing State Share and Targeting Effort

A state’s equalization effort can provide more funding to poorer districts in two ways: by increasing the state share of total funding so that differences in local funding will have proportionately less effect on overall student expenditures and by increasing its targeting effort; that is, a state can adjust its approach so that aid goes more exclusively to poor districts. These policy options assume that a state would increase its equalization effort by increasing its share of total education funding, increasing its effort to target funding to poor districts, or increasing both. Neither program considers the extent to which a state’s equalization effort–-rather than the extraordinary tax effort of poor districts—contributes to reducing funding gaps among districts. 3.) 4.)
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed how well state funding is targeted to poor school districts.

What GAO Found

GAO noted that: (1) two key factors help reduce the size of the funding gap between poor and wealthy districts: (a) the extent to which a state's poor districts make a greater tax effort than the wealthy districts; and (b) a state's effort to compensate for differences in district wealth through its equalization policies; (2) poor districts in most states made a greater tax effort than the wealthy districts, according to GAO's research; (3) characterizing state equalization efforts is much more complex, however, than analyzing districts' tax efforts; (4) a state's equalization effort consists of two parts: (a) the proportion of education funding financed by the state government; and (b) the degree to which states target funds to poor districts; (5) of these two, state share has more impact on state equalization policies; (6) in effect, equalization policies determine the extent to which a state enables its districts to provide the state average funding level when all districts make an equal tax effort; (7) the most equalized school finance system would enable districts' per pupil funding to be 100 percent of the state's average per pupil funding for an equal tax effort in all districts; (8) the average state equalization effort was 62 percent, according to GAO's analysis; (9) states ranged from a high of 87 percent in Arkansas and Kentucky to a low of about 13 percent in New Hampshire; (10) increased equalization effort in the four states GAO reviewed in detail showed mixed results in reducing funding gaps between poor and wealthy districts; (11) to more successfully address funding gaps, most states would have to increase state equalization effort and impose some constraints on local tax efforts; (12) the amount of money required to reduce these funding gaps and the type of constraints needed depend on the degree to which a state may want to reduce the gap and the degree to which a state wants to equalize the local tax burden among districts; (13) GAO found that without constraints on local funding, districts in Louisiana and Rhode Island adjusted their tax effort in a way that undermined increases in the state's equalization effort; (14) regarding equalization effort, a state could choose to increase its share of total education funding, increase its targeting effort so that state aid would favor poor districts to a greater extent, or increase both; and (15) relying mainly on increasing its share of total funding would allow a state to bear most costs involved with increasing equalization effort.