L iberals and progressives have generally believed that shifting federal authority for social programs to the states will typically lead to a "race to the bottom" as states try to attract business and keep taxes down by cutting expenditures and regulations [see Mary Graham, "Why States Can Do More"]. But a common trend of the last quarter century has also been a race to the top in which state policies can become more generous over time and even rival those of the federal government.
Education is the social enterprise for which state and local governments have always had almost exclusive responsibility. Public education has never won much federal support (only 6 percent of spending comes from the federal government, and at the height of federal involvement in 1979, it was still less than 10 percent), so if there was an inevitable trend in our federal system for competitive inadequacy, we might expect to see it in the public schools. And we did see it in the South, until about 1970 when dual school systems were finally abolished. But since then, the race has been to the top, not the bottom, in public education. With California being the stark and sole exception, all states have spent more money on their schools. What is even more surprising is that historically low-spending states have played catch-up, increasing their expenditures on schools even more than the average.
It might be supposed that a downward competitive spiral does not apply to schools because public education benefits the middle class-compared, for example, to welfare, which helps only the poor. Perhaps state governments are willing to spend more money on the education of middle-class constituents' children, but still race to the bottom where the interests of politically less powerful groups are concerned.
Yet much of the new state investment in public education has been for special education for the handicapped and for compensatory education for minorities and the poor. While some (although disproportionately few) of the beneficiaries of special education programs may come from middle-class families, these are still not majority-benefiting programs. And while there have been federal mandates and dollars for both special and compensatory education, most states have increased spending beyond what the federal government required or would reimburse. Nearly two-thirds of the states, for example, now supplement federal funds (Title I) for low-achieving students from poor families, even without a mandated federal match
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Part of the explanation for the growth in state education spending lies in coalition politics: the effective organization of parents, teachers, and interest groups (in special education, for example) to demand that state government invest in education. Yet much of the stimulus for the growth in education spending has come from state court decisions-often by conservative judges not necessarily swayed by electoral considerations-and some of these decisions, requiring higher taxes and more spending in poor districts, have not been uniformly popular.
States also have invested in education because business and government believe improved education promotes economic development by providing necessary skills with which to attract investment. But this explanation is also incomplete. The biggest destination of new funds, special education, has little relationship to economic growth. In Texas, the legislature now provides school districts with additional funds, beyond a standard supplement for children in poverty, for each pregnant teenager they enroll
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. This group, while deserving, is hardly central to business's workforce upgrade strategy.
In short, while economic self-interest has certainly played a role, popular concerns about equity and justice have also influenced state education policies. And if states have been engaged in a race to the top in education, it may suggest further examination of whether this instinct has been and can be mobilized at the state level in other social policy areas.
Kentucky, a poor state, presents an emblematic illustration of how coalition politics managed to tap both equity and economic development concerns. There, recent education-spending growth and equalization of spending have both been well above average. Kentucky benefited from broad-based demand for education reform, and a set of happy circumstances. In the latter category was the appointment, in 1980, of Edward Prichard, an "elder statesman" who had been a New Deal whiz kid and clerk to Felix Frankfurter, to head a committee to examine the state's higher education. The committee was initially comprised of 30 community activists, many from the League of Women voters, a long with small- businessmen, African-American community leaders, a few lawyer-politicians, and a couple of corporate representatives. When the committee had written its report (recommending, for example, more research capacity at the state university), it decided, on its own, to reconstitute itself to evaluate elementary and secondary schools. The committee met once a year in the early 1980s, but in 1984, it convened a series of town meetings across the state that drew 20,000 citizens concerned about what was wrong with public schools. Following this, the committee's director, Bob Sexton, embarked on a speaking tour across the state- illustrated with posters charting problems like the state's high rates of school dropouts and teen pregnancy. In 1984, a Louisville Chamber of Commerce luncheon speaker, an MIT professor, called the state a "Third World country," unable to compete economically with the rest of the nation because of its inadequate school system. The speech was widely publicized, and education became the state's major obsession for the next decade. In 1985, the state's business leadership council publicly offered to support a corporate tax increase if the money were earmarked for education.
Meanwhile, a group of 66 property-poor school districts, represented by former Governor (and Prichard Committee member) Bert Combs, filed an equalization suit in 1985. The case worked its way through the courts and a state supreme court's decision in 1989 went far beyond expectations; it not only ruled against unequal property tax financing, but found the entire system of education constitutionally inadequate
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. Both massive new funds and curricular reform would be required to fix it. By the time the decision was handed down, however, the Prichard Committee, the Chamber of Commerce, and all the education interest organizations (representing teachers, school boards, administrators, and parent activists) had reached a consensus on the reforms that would be needed. A bipartisan coalition in the legislature eventually enacted them.
HOW AND WHERE SPENDING GREW
It's difficult to know how state education spending has grown, because precise measurement tools do not exist. In 1970, for example, state and local governments spent an average of $883 per pupil on public elementary and secondary education, ranging from $485 in Mississippi to $1,395 in New York. (These figures, and those that follow, do not include any funds the states or school districts received from the federal government.) And there was a regional pattern to this variation. Even without including Mississippi or New York, other southeastern states spent an average of $629 per pupil, while other states in the mid-Atlantic spent $1,025.
These data are of limited use, however, because there is significant variation in costs between states. Providing education is less expensive in Mississippi than in New York. Because living costs are lower and there is less competition from other employers of college-educated professionals, it probably cost less in 1970 for school districts to hire comparably qualified teachers in the Southeast than in the mid-Atlantic.
Yet government statistical agencies collect and analyze no "cross-sectional" data on costs of living, comparable to data they collect on inflation (changes in the cost of living not from place to place, but from year to year). Partly this failure results from daunting conceptual problems. An inflation index can price a relatively fixed "market basket" of goods (although the frequency and methods of updating it is a subject of some dispute), but a cross-sectional index would need different market baskets in each state. (Consider, for example, whether heating costs should have the same weight for Mississippi as for Maine.)
To estimate relative costs of education in different states, the following narrative utilizes academic analyses of data initially collected for corporate personnel departments. There are several such collections, used to determine how firms should adjust salaries (to purchase a comparable lifestyle) when executives are transferred from place to place. Using these data to compare education costs is imperfect, because purchasing patterns of corporate executives differ from those of schools: Simply because it costs more to rent a three-bedroom house in one state than in another does not mean it costs more to hire a high-quality teacher. Nonetheless, the two are probably related; this appears to be the best available surrogate for a cross-sectional school price index.
Using these corporate cost-of-living data, we can convert school spending in each state to "purchasing power parity" equivalents. If we know what each dollar of a state's per pupil spending can buy in quality and quantity of teachers, pencils, and school buildings, compared to what an education dollar buys in Kansas, we can estimate how many "Kansas dollars" another state would have had to spend to purchase the teachers, supplies, and facilities that its nominal spending level actually purchased. In these terms, there was a narrower range of variation. In "Kansas dollars," southeastern states spent, on average, $663 in 1970, compared to $1,092 in the mid-Atlantic states.
To understand how this spending grew in the next 25 years, we must adjust these spending levels for inflation, estimating how many "1995 dollars" it would have taken in 1970 to purchase the same education inputs as southeastern states purchased for $663 and mid-Atlantic states purchased for $1,092 in that year. If we compare these estimates to actual spending in 1995, we can get a sense of spending growth.
Again, however, there are data limitations. The Bureau of Labor Statistics (BLS) produces a consumer price index, based on the purchases of a typical urban family, but does not produce an index for school input inflation. And there is no reason to believe that in any state the price of teachers, facilities, and supplies went up at the same rate as the prices paid by consumers for apples, used cars, and dresses. Here, the best we can do is a BLS index for all "services," probably more appropriate for schools than the consumer price index because services, like schools, are more professional-labor intensive and rely less on technology than the products purchased by consumers. The BLS services index is reported for four broad regional areas. Applying these indices, we find that southeastern states spent, on average in 1970, $3,037 in "real" 1995 purchasing power parity terms, while mid-Atlantic states spent $5,184.
One additional adjustment to these 1970 spending figures is appropriate. Schools with children from more disadvantaged home environments have to spend more to provide the same quality of education that they provide to other children. Education policymakers generally estimate that it costs from 20 to 30 percent more to educate poor children
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. While this is almost certainly too low an estimate, it is a place to start, especially because we are here concerned only with state and local funds, and schools receive additional federal money for disadvantaged children. (More than half of all federal education spending is for this purpose.
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) Using the 30 percent estimate, we can adjust downward the 1970 "real" spending figures, based on the incidence of poverty in each state, because to the extent poverty is present, it takes more money to provide a comparable quality of education in that state. The 1970 census found a poverty rate of 22 percent in the Southeast, and 10 percent in the mid-Atlantic region. "Regional Growth Patterns in State and Local Educational Spending, 1970-1995" [below] shows the results of these adjustments: "need-adjusted real-purchasing-power parity" per pupil 1970 spending in the Southeast was $2,836, and $5,023 in the mid- Atlantic.
Regional Growth Patterns in State and Local Education Spending, 1970-1995
The same figure also displays similar calculations for 1995 spending (similarly adjusted for poverty and geographic cost differences), so we can see what happened in the intervening years. Spending in the Southeast grew 71 percent in this period, while in the mid-Atlantic it increased by 48 percent. While all states increased their real per pupil spending, spending growth was highest in the lowest spending states, so the gap narrowed. Poverty in the Southeast declined in this period (from 22 to 16 percent, as reported in the 1990 census), while it remained unchanged in the mid-Atlantic states. Thus, some of this narrowing gap is attributable to the fact that southeastern states had less relative requirement for spending in 1995 than in 1970. But even if we remove the poverty adjustment, the data show a similar, though less dramatic pattern: Per pupil spending grew by 60 percent in the Southeast, compared to 44 percent in the mid-Atlantic.
For the nation as a whole, real need-adjusted per pupil spending grew by 41 percent during the last quarter century. To be sure, this increase did not signify that education has received a growing proportion of national income: The share of gross domestic product going to education remains unchanged.
And it is also true that the physical facilities of schools show the signs of inadequate capital investment over the last few decades. The growth of education spending has been in other areas-average teacher-pupil ratios, for example, have declined from 22.3 to 17.4 during these 25 years. It would, of course, have been easier for the lowest spending states to "catch up" if the highest spending states had stood still. But the highest spending quartile of states saw spending grow by 44 percent. The fact that the gap narrowed at all reflects considerable effort in the lowest spending states. In 1970, median per pupil expenditures in the lowest spending quartile of states was 60 percent of median expenditures in the highest spending quartile, compared to 66 percent in 1995.
Over the last 25 years, the regions became more equal in their education spending. The lowest spending regions, the Southeast and Southwest, are much closer now to the (much higher) national average than they were. The mid- Atlantic states are more unequal to the rest of the nation, but only because spending in these states has jumped even more than elsewhere. The Rocky Mountain states are farther below the national average now than then, but not as far below as the Southeast and Southwest were in 1970. Again, California is a unique exception to all of these generally positive trends.
THE ROLE OF THE COURTS
One early impetus for this burst in school spending, predating a more recent nationwide obsession with economic competitiveness and workforce skills, was a raft of state court litigation about the inequality of school spending between districts within a state. In most states, school districts had relied heavily for funds on local property taxes, so the level of per pupil funds raised by any district was dependent on the property wealth lying within its boundaries. A district could make greater effort (a higher tax rate per dollar of assessed value) than its neighbor, and still have more poorly funded schools. Schools with the greatest needs (children in poverty) were also often those with fewer resources-although contrary to conclusions many drew from Jonathan Kozol's book Savage Inequalities, the pattern has not been consistent. Urban metropolises, for example, are likely in many states to have both more per pupil property wealth and more poverty.
This system began to change with a 1971 California Supreme Court decision (Serrano v. Priest), which found that property-tax-based school finance violated the federal and state constitutions. In 1973, however, the U.S. Supreme Court ruled that the equal protection clause of the Constitution did not require states to equalize school spending, if they deemed local control more important. The California court then reaffirmed its decision, relying solely on the state constitution. Similar decisions followed in 14 other states.
Greater equality within states would not necessarily result in greater equality between states. The early suits did not require states to increase their school spending, only to equalize, which can be accomplished by capping or reducing expenditures in rich districts while increasing expenditures in poor ones. In such states as New Jersey and Texas, some reformers attempted to enact "Robin Hood" laws to take funds from the rich and give them to the poor school districts, but these have met with strong political resistance. After such a scheme was enacted by the legislature in Texas, it was reversed in a 1993 statewide referendum by the overwhelming margin of 63 percent to 27 percent
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. Kansas, on the other hand, disguised its redistribution plan by simply assuming control of the local property tax system, collecting all property taxes directly, and making state per pupil grants to districts.
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In general, however, state legislatures have avoided conspicuous redistribution and have reacted to equalization pressures by leveling up, approaching equality by adding money to poor districts while keeping rich districts whole, or by placing strict limits on the right of rich districts to further increase spending while poorer districts were catching up.
Some state courts have gone considerably beyond Serrano. Beginning with a New Jersey decision in 1973,
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state constitutions have been interpreted to require not only equal resources, but minimally sufficient resources-it is not enough to be equal if every district spends too little for an "adequate" education. And the Serrano court had said that the state could, if it wished, violate the requirement for nominal equality, spending more in districts where students had special needs because of poverty or other characteristics. But in other states courts have increasingly ruled that constitutional equality requires a state to spend more on low-income students than it spends on the average student. Some courts have gone further and ruled that a state must compensate districts to equalize any higher cost they may face-by giving more money to urban districts with higher costs of living, for example.
The bar is being set very high, perhaps unrealistically so. The Kentucky Supreme Court described the development of seven "capacities" (sufficient oral and written communication skills, understanding of governmental processes, grounding in the arts, and so on) to which all Kentucky children have a constitutional right.
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The Wyoming Supreme Court ordered the legislature to define the "best" educational system and cost it out; it went on to interpret the state's constitution as requiring that "all other financial considerations must yield until education is funded" under this standard.
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The Ohio State Board of Education suggests that its state courts should judge the adequacy of education by whether sophisticated parents would "be willing to have [their] children educated in any of the 612 school districts" in the state.
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Meeting this standard would end the well-established American middle-class tradition of moving to the suburbs to find better schools. But though it is difficult to imagine that this goal will ever be reached, it has increasingly become the focus of state policies.
Many states have raised school spending (in most cases, with equalization at higher levels as well) either without court orders or after court decisions upheld the existing inequalities. Several states that were subject to court- ordered reform raised spending in advance of court orders, perhaps in anticipation of them, while other states equalized funding sufficiently to permit courts to reject challenges. Thus it is difficult to say whether a litigation strategy on the part of teachers, public-interest groups, and minority activists played the critical role, or whether a progressive state political climate was more important. In recent years, business-dominated coalitions have stimulated many states' education reform efforts, but much of the increased spending took place prior to this more recent trend.
I n the 1990s, most states have pulled back, reducing per pupil spending, mostly because enrollment has been increasing very rapidly and total spending has not kept up. The only states to increase funds thus far in the present decade by more than 40 percent of their 1970 per pupil amount are Indiana, Kentucky, and West Virginia. Yet these states had a unique advantage: West Virginia has been one of the only states with declining enrollment in this decade, while enrollments in Indiana and Kentucky have been virtually unchanged.
Of the three states that boosted school funds the most from 1970 to 1995, Arkansas and West Virginia acted after state court decisions found their property tax finance system unconstitutional (although in each case, the state's progressive governors, Bill Clinton and Gaston Caperton, would undoubtedly have led an education investment campaign in any event). Only Indiana acted without an adverse court decision. A big increase came in Nebraska, where the courts upheld the school finance system after the legislature boosted state funding for schools; here, legislators were motivated mainly by a desire to head off a taxpayers' revolt over rising local property taxes. Other states that nearly doubled their real school spending over this quarter century include Connecticut and Kentucky, where courts overturned property-tax-based systems, as well as Michigan, Maine, Georgia, and North and South Carolina, where court decisions to uphold the existing schemes did not dissuade leaders from reforming them. Alabama and Mississippi also enacted big increases in school spending without being ordered to do so. Thus, the trend toward higher school spending cannot be attributed solely to judicial intervention, although the possibility exists in some states that spending was increased to avoid potential lawsuits.
In California, the Serrano decision was followed by a tax revolt. Voters may have decided that if they were going to be forced to spend money on other people's children, they would rather spend no money at all. But elsewhere, equalization decisions were followed by higher overall taxes and more per pupil spending. Taxpayer revolts in these states focused on property taxes, and permitted state governments to assume responsibility for school funding with sales, income, or business taxes. One recent academic study calculated that, in the aftermath of court-ordered reform, states increased spending in the poorest districts by 12 percent, in the median district by 8 percent, and left spending unchanged in the wealthiest districts.
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Michigan's recent experience illustrates the complexities of school finance reform. Twice, in 1973 and 1984, the state's supreme court upheld a school finance system that was among the nation's most dependent on property taxes (which provided two-thirds of all school funds). Voters in 1989 had rejected a proposal for the state to take over the school finance system by raising sales taxes.
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By 1993, rich districts like Bloomfield Hills were spending nearly $11,000 per pupil, while poor rural districts spent barely $3,000.
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Then, a small, rural, low-property-wealth district in the northern tip of the state voted to close its public schools rather than further raise its tax rate. Embarrassed, Republican Governor John Engler, supported by both Democratic and Republican legislative leaders,
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agreed to substantially replace the local property tax system with state funds, to be raised by a tripling of the state cigarette tax and an increase in the state sales tax rate from 4 to 6 percent. The tax hike was submitted to a referendum, with the threat that if the proposal was defeated, the legislature would instead raise the state income tax. (With food and heating fuel exempt, the sales tax was not fully regressive, but liberal groups like the teachers' union, allied with the tobacco industry, opposed the sales tax hike in favor of the income tax proposal.
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The field coordinator for the referendum campaign, however, was a teachers' union lobbyist, on loan.
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) The referendum passed with 69 percent of the vote, and Michigan suddenly had one of the most state-dependent school finance systems in the nation, with nearly 80 percent of school funds coming from the state.
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Michigan's new system immediately raised per pupil spending in the poorest districts by one-third. To reduce intrastate inequality further, it also prohibited such rich districts as Bloomfield Hills from raising their local property taxes more than 1.5 percent a year; yet Bloomfield Hills voters also voted for the new proposal by an 88 percent margin.
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This year the legislature added funds to reduce class sizes in inner-city schools and to pay for all-day kindergartens for children "at risk."
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There has been no uniform pattern to the political motivation and economic conditions of these changes. As noted, California has been an exception, perhaps because of conservative control of the statehouse during much of the period when the number of immigrants and poor people was soaring rapidly. Yet the Republican establishments in New York and Texas have reacted with much less stinginess to the new immigration wave. And perhaps California exceptionalism will be only temporary. This year, after California finally emerged from a recession that ended much earlier elsewhere, the state began a big new investment program in education (a program that would not be reflected in the 1995 data used in the foregoing analysis). Utilizing an unexpected budget surplus from revived state economic growth, the Republican governor and the bipartisan legislative leadership agreed to fund the reduction of class sizes to 20 in grades K-3.
THINK LOCALLY TOO
Since the New Deal, American liberal intellectuals have focused their policy energy almost entirely on the federal government. In the mid-1970s, believing that this focus was incomplete, a small group of state and local liberal political activists organized the National Conference on Alternative State and Local Public Policy to develop and apply progressive policy ideas. Its leaders were Colorado state treasurer Sam Brown, who had made the first efforts to use criteria of social responsibility in the investment of state funds; North Dakota tax commissioner Byron Dorgan; Boston city councilman Barney Frank; and New York local school board member Ruth Messinger, among others. For a half dozen years or so, the conference flourished, organizing meetings, developing policy, and recruiting progressive-minded local and state officials. Its emphasis was on public investment, economic development, and state budget policy, but there was some interest in education and welfare policy as well. (Some of the early attempts to subsidize employment for welfare recipients were developed by conference activists for the first gubernatorial administration of Michael Dukakis in Massachusetts.) But when Jimmy Carter was elected President, the attention of the conference leaders again turned to Washington. Brown became director of the volunteer program ACTION, and Dorgan and Frank went to Congress. Many of the conference activists took federal appointments. A successor organization, the Center for Policy Alternatives, endures, but much of the earlier grassroots orientation has faded away.
Conservatives had similar ideas, as Newt Gingrich's careful nurturing of local leaders into congressional candidates attests. But conservatives, too, had their eyes on Washington, so state and local policy has developed over the last 25 years with little ideological coherence, but great creativity.
This long period of neglect by the national political media has left many liberals ill prepared to understand the consequences of devolution. Yet during this time, a massive state takeover of public education took place virtually unnoticed (except by those involved), as local districts have ceded fiscal (and much policy) control to state government. In recent years, as state governments have contended with other priorities, there has been a shift back to localities as a source of revenues in education, but under much tighter state regulation than ever before. This change in control has been accompanied by much higher levels of funding and ongoing curricular experimentation and reform. Nothing resembling a "race to the bottom" has been evident. Perhaps there is a lesson here.
1 Howell, Penny L. and Barbara B. Miller, 1997. "Sources of Funding for Schools." The Future of Children 18 (forthcoming).
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2 Odden, A., 1993. "School Finance Reform in Kentucky, New Jersey and Texas." Journal of Education Finance, 18 (Spring), 306.
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3 Adams, Jacob E., Jr., 1993. "School Finance and Systemic School Change: Reconstituting Kentucky's Public Schools." Journal of Education Finance, 18 (Spring).
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4 Odden, A., 1993. "School Finance Reform in Kentucky, New Jersey and Texas." Journal of Education Finance, 18 (Spring), 304.
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5 Riddle, Wayne, 1990. Expenditures In Public School Districts: Why Do They Differ? Washington, D.C.: Congressional Research Service, Library of Congress, July 5, 90-322 EPW, p. 24.
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6 Reed, Douglas S., 1997. "Court-ordered School Finance Equalization: Judicial Activism and Democratic Opposition." In William J. Fowler, ed., Developments in School Finance 1996, Washington, D.C.: National Center for Education Statistics, p. 110.
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7 Yinger, John, 1996. Fiscal Disparities and Education Finance. Washington, D.C.: Economic Policy Institute, 25.
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8 Theobald, Neil D. and Lawrence O. Picus, 1991. "Living With Equal Amounts of Less: Experiences of States with Primarily State Funded School Systems." Journal of Education Finance, 17, no. 1 (Summer), 4.
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9 Verstegen, Deborah A., 1997. "Adequacy, Equity and New Directions in School Finance: A Judicial Perspective." Presentation at the American Education Research Association annual meeting, March 24, Chicago.
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10 Verstegen, Deborah A., 1997. "Adequacy, Equity and New Directions in School Finance: A Judicial Perspective." Presentation at the American Education Research Association annual meeting, March 24, Chicago.
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11 Pipho, Chris, 1997. "Finance Potpourri." Phi Delta Kappan, June, 737.
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12 Murray, Sheila E., William N. Evans, and Robert Schwab, 1996. "Education Finance Reform and the Distribution of Education Resources." Mimeographed, March, p. 18.
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13 Harp, Lonnie, 1993. "Broad Coalition in Michigan Backing Tax Reform and Finance Amendment." Education Week, May 26.
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14 Stecklow, Steve and Krystal Miller, 1994. "Michigan's Plan for Financing Schools May Spread, but Not to Certain States." The Wall Street Journal, March 18. The New York Times, 1994. "Rich Are Wary of Michigan's Revolt." The New York Times, March 23
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15 Harp, Lonnie, 1993. "Broad Coalition in Michigan Backing Tax Reform and Finance Amendment." Education Week, May 26.
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16 Celis, William 3rd, 1994. "Michigan Debates What Tax is Best to Pay for Education." The New York Times, March 14. Celis, William 3rd, 1994. "Michigan Votes for Revolution in Financing Its Public Schools." The New York Times, March 17.
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17 Harp, Lonnie, 1993. "Broad Coalition in Michigan Backing Tax Reform and Finance Amendment." Education Week, May 26.
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18 The New York Times, 1994. "Rich Are Wary of Michigan's Revolt." The New York Times, March 23. The New York Times, 1995. "In Michigan, Uncertainty and Unhappiness Over New Method to Finance the Schools ." The New York Times, January 18.
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19 The New York Times, 1994. "Rich Are Wary of Michigan's Revolt." The New York Times, March 23.
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20 Taylor, Ihsan K., 1997. "Mich. Spec. Ed. Decision Spurs Funding Vetoes". Education Week, 1997, Sept 7.
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