Chapter 8
Equity and Adequacy
Two other sides of
Fiscal Effort:
Equity &
Adequacy.
Equity Should Not be
Confused with Equality
• Equality
• Equity
means
involves
treating
giving
everyone the
people the
same under
treatment
they need
the law
Spending Equality ?
• If equality governed school
spending, everyone would receive
the same level of funding
• Everyone cannot be treated the
same because needs differ
• Equality cannot be the sole
principle to govern school finance.
Spending Equality ?, cont.
• Inherent inequities exist within
school districts, schools, and within
classrooms
• Staffing a special education
classroom costs more than
staffing a general education
classroom
Equity: A Medical Model
• A patient suffering with a
rare form of cancer costs
more to treat than
the well one who
needs only a flu shot
• No one would expect both
patients’ bills to be the
same. One will
necessarily cost
more than the other
• So it is with
education.
Some of our
patients’
needs will cost
more to care
for than
others.
2 Hypothetical
School Systems
1st - Urban school system with:
• 25% of its students identified
as eligible to receive special
education services
• 50+% of the student body
reading more than two years
below grade level
• 90% of the students eligible
for free or reduced-price
lunch
2 Hypothetical
School Systems, cont.
2nd -Suburban school system with:
• 99% of its students reading on
or above grade level
• 2% identified as eligible to
receive special education
services
• 0% eligible for free and
reduced-price lunch
2 Hypothetical
School Systems, cont.
• To provide funds
necessary for each
school systems to be
successful will be more
costly for the first
school system
• For both to be funded
equally, at some
arbitrary level, would be
inherently INequitable
The second school
system has much
greater needs and
subsequently
greater costs.
School Finance & EQUITY
• School finance must be concerned with
equity – providing what students need
• Measuring equity becomes
complicated & requires
sophisticated statistical procedures
• Measuring equity has also been the
basis of legal challenges of many
states’ finance formulae
Equality Is an
Important Principle
• When schools
or school
systems are
considered
equal, their
funding should
be equal
Schools A & B
• Both secondary schools in the
same school district.
• Both have 1,500 students.
• Both have the same % of students:
– On free and reduced lunch
– Eligible for special education
– Going on to higher education
upon graduation
• Both schools
have similar
facilities and
programs
Schools A & B, cont.
If the funding for
School A were 20%
higher than for School
B, we would consider
there to be a fundamental
unfairness in the funds
allocation.
Horizontal Equity
• Students who are
alike should
receive equal
shares (of
funding)
• Horizontal equity is
measured by calculating
the dispersion, or
inequality, in the
distribution of funds
• When there is no
dispersion in funds, one
can assume there is
perfect horizontal equity
Horizontal Equity, cont.
• When this occurs, there
are equal expenditures in
funding levels such as in
per pupil expenditures,
student/teacher ratios,
equal teacher resources,
and the like across
various measures.
Horizontal Equity, cont.
• Horizontal
equity can be
applied
broadly in
comparing
large and
similar
subgroups of
students
For example, we can compare:
• All vocational students at the high
school level
• All full-day kindergarten students
• All students in general education
elementary classrooms
In this case, we would expect
spending, or resource allocation,
to be substantially similar for each
of these rather large subgroups.
Research Trends Unclear
• One 50-state study revealed that between 1970
and 1975,spending disparities among states
increased
• Another study showed that several states involved
in school finance reform improved horizontal
equity & fiscal neutrality, 1970-75
• A 1997 General Accounting Office study found
substantial improvements in equity over time
• Other studies show that significant financial
disparities still remain in horizontal equity among
the states
Vertical Equity
• Vertical equity recognizes that students
and schools are different and that the
treatment of unequals requires
appropriate unequal treatment
• While horizontal equity is rather easy to
quantify, vertical equity choices are
based on value
Vertical Equity, cont.
“Appropriate treatment”
varies from one school division
to another.
“Appropriate Treatment”
Legitimate factors must be identified
that can be used to allocate resources
differently based on:
• The characteristics of the students
• The characteristics of the schools or the
school districts
• The characteristics of various programs
Legitimate Factors Include:
• Percent of eligibility for free and reduced lunch
• Percent of students speaking English as a
second language
• Percent of students involved with special
education services
Most educators would agree that serving these
students’ needs requires additional services if
they are to meet the challenges of high-stakes
testing programs such as No Child Left Behind.
Fiscal Neutrality
• Equity is achieved when the distribution
of services is determined by the
taxpayers’ preferences for education
and not by the fiscal capacity of the
locality or state
• This is also known as taxpayer equity
or wealth neutrality
Reconciling Fiscal Neutrality
& Equity
• How do states
provide for
fiscal neutrality
while assuring
equity?
By calculating a
lower cost for
services to those
who can least
afford to pay for
the services =
Equalization of
Funding.
Equalizing Funding
• Each state provides some method for
equalizing the funding within its
boundaries
• More than 2/3 of the 50 states have had
their state funding formula contested in
court
• The equalization concept is a continuum
that ranges from total equalization to no
equalization
Absolute & Approximate
Fiscal Equalization
• Absolute fiscal
equalization is more
of a theoretical goal
than a practical
achievement
• While it is possible in
theory, it is virtually
impossible to achieve
politically
Absolute
Fiscal Equalization
• Variance in fiscal position
• Absolute fiscal
equalization is
achieved
whenever the
following three
objectives are
achieved:
among local school districts has
been neutralized
• Variance in fiscal effort among
local school districts has been
eliminated
• Variance in educational needs
due to incidence of clients has
been accommodated
Absolute
Fiscal Equalization, cont.
• Absolute fiscal
• Local school divisions have
equal resources to fund
equalization is
schools
achieved
• Local school divisions make
equal effort to fund schools
whenever the
following three • Schools spend what is
needed to educate students
objectives are
with special learning needs
achieved:
Absolute
Fiscal Equalization, cont.
• This definition achieves
fiscal neutrality and
addresses the issues of
horizontal and vertical
equity
• This is a theoretical and
not a practical concept
Approximate Fiscal
Equalization
• Approximate
fiscal
equalization
is achieved
whenever the
following
three
objectives are
achieved:
• Variance in fiscal position
among local school districts has
been neutralized
• Constrained variance in fiscal
effort among local school
districts is permitted
• Variance in educational needs
due to incidence of clients has
been accommodated
Approximate Fiscal
Equalization, cont.
• Approximate
fiscal
equalization
is achieved
whenever the
following
three
objectives are
achieved:
• Local school districts have
equal resources to fund
schools
• Local school divisions have
some leeway in how they raise
& spend money for schools
• Schools spend what is
necessary to educate students
with special learning needs
Absolute & Approximate
Fiscal Equalization
The two definitions are
similar except:
• The 2nd condition allows
for constrained or
controlled spending by
the local school districts
• Neutralized fiscal position and
meeting clients’ educational
needs in spite of the local
capacity are still required
State Aid Grants to Districts
• Each state equalizes for the fiscal
capacity of local districts through its
method for funding localities
• This funding usually comes through
grants of various types
State Aid Grants Continuum
Inequity
NonEquilization
Grants
Equity
Matching Flat
Equalization Full State
Grants
Grants Grants
Funding
Nonequalization Grants
• Non-equalization grants make no attempt to
equalize funding for the capacity of local
school districts
• Grants may be categorical aid to school
divisions allocating a constant dollar amount
on a per pupil basis based on an application
process
• Poorer school divisions may not have the
personnel to write the grants enabling them to
qualify for the funds
Flat Grants
• Flat grants provide a fixed amount of
funding per pupil to each school district
in the state
• This funding is not based on the
locality’s fiscal capacity
• Most states do not use flat grants as the
primary vehicle for distributing funds to
localities
Examples of Flat Grants
• California’s
Constitution requires
$120 of state funding
per pupil to each
locality – regardless
of the locality’s fiscal
position
• Virginia’s Constitution
requires that
the locality fund
no more than
80% and no less
than 20% of
state standards,
regardless of
the locality’s capacity
Equalization Impact of
Flat Grants
School
District
A
B
C
D
Local
Property
Value
$ 5,000
$ 50,000
$250,000
$500,000
Local
Revenue
Flat Grant Total Spending
Amount
Per Pupil
50
500
2500
5000
2,000
2,000
2,000
2,000
2,050
2,500
4,500
7,000
Flat Grants with Increased
State Support
School
District
A
B
C
D
Local
Property
Value
$ 5,000
$ 50,000
$250,000
$500,000
Local
Revenue
Flat Grant Total Spending
Amount
Per Pupil
25
250
1250
2500
4,000
4,000
4,000
4,000
4,025
4,250
5,250
6,500
Flat Grants with Increased
State Support, cont.
Greater burden placed
on the state to provide
for education services
reduces the disparity
in total per pupil
spending, increasing
equalization.
Equalization Grants
• Equalization grants provide for greater
state funding for the localities with less
capacity to raise their own funds and
provide for less state
funding for the localities
with greater capacity
Foundation Programs
• Foundation
programs are
a means of
providing
equalization
grants to school
systems
• A foundation program
establishes some
minimum level of perpupil funding that must
be met with a
combination of local and
state funding
• No district can fall below
this foundation level
Foundation Programs
• Once the foundation
level has been met,
local districts are
free to supplement
funding, called
leeway funds, to
achieve a higher
level of per-pupil
spending if they so
elect
Foundation Grants
Local
Capacity
State
Aid
Foundation Local
Total
Level
Leeway Funding
A
$ 1,000 9,000
10,000
0
10,000
D
$ 7,500 2,500
10,000
2,500
12,500
E
$ 10,000
10,000
2,500
12,500
0
Foundation Grants
Equalize Funding
• In this scenario,
school district E has
ten times the
capacity of school
district A, yet spends
only 25% more on a
per pupil basis
• Where the capacity
differential was
initially 10 to 1, the
spending differential
due to the foundation
formula is now only 1
to 1.25
What This Means for Students
• The poorest school district (A) now
has the financial means to provide
the state’s the minimum foundation
level – regardless of their capacity
to fund education services
• This enables school district A to
compete with district E in terms of
programs, in effect raising the
education bar for all students in
that state
“Minimum” Funding?
• State legislatures
frequently see the
word minimum as the
spending limits
• Too often “minimum”
becomes the target
level of funding and
does not advance
beyond the minimum
“Minimum” Funding?, cont.
• Localities may elect not
to add sufficient leeway
funds (based either on
values or available
resources) while higher
capacity systems may
add substantially higher
dollar amounts,
exacerbating the per
pupil spending disparity
“Minimum” Funding?, cont.
• State governments
may be reluctant to
set adequate levels
of spending for a
foundation program
because elected
officials cannot
agree on what is
“adequate”
Guaranteed
Tax Base Programs
• A second type of equalization grant is
the Guaranteed Tax Base program
(GTB)
• GTB programs guarantee that each
locality can operate as if all school
districts had an equal per pupil property
tax base
Guaranteed
Tax Base Programs, cont.
• The state determines its
share of spending for the
total cost of education
• The formula then
provides a means for
deciding how much
funding would come to
each locality, based on a
measure of their wealth
• More state
funding goes to
low capacity
systems while
less aid goes to
high capacity
systems
Guaranteed
Tax Base Programs, cont.
• Once the state aid is
calculated, the tax
rates are equalized so
the same tax yield is
achieved for rich or
poor districts
Guaranteed
Tax Base Programs, cont.
• A recapture
clause
provides that the state
recaptures extra funds
generated by wealthy
localities and dispenses
them to poorer localities,
effectively increasing the
state’s floor level of
services
Combination Programs
• Other equalization formulae exist as
hybrids between foundation programs
and equalization programs
• These programs take the best of other
formulae and apply those components
to their particular conceptual framework
Calculating Vertical Equity
• Vertical equity means providing
what people need
• Vertical equity recognizes that
students and schools are different,
and that the treatment of
unequals requires appropriate
unequal treatment
Weighted Pupil Approach
• Determining a base
cost for various
categories of
students
• Once the lowest
base cost is
determined it is
given a weight of 1.0
Weighted Pupil Approach
Example
• Florida bases a
weighting of 1.0 for
the students in basic
programs in grades 4
through 8
• Kindergarten and
grades 1 through 3
are weighted slightly
higher with high
school grades being
even higher
• Weightings
for vocational
and special
education are
significantly
higher
ranging up to
a factor of 15
Determining Adequacy by
“Costing Out”
• After determining a “weight” for
different services and learning needs,
many school districts established
means for “costing out” related services
with state and federal funds
• Method used to determine the “costing
out” of services can vary from state to
state, district to district
Example: “Costing Out” Special
Education Services
Special Education Category
Weighting
Emotionally Disturbed
Socially Maladjusted
Deaf
Specific Learning Disability (part time)
Visually Disabled (part time)
Hospitalized and Homebound (part time)
3.7
2.3
4.0
7.5
10.0
15.0
Fiscal “Adequacy” is a
Value-Driven Concept
• What is “enough” money to fund a
school district?
To what standard of academic
excellence for all pupils?
– For what unique learning needs
of this student population?
– With which academic elective,
extra- and co-curricular offerings?
–
Fiscal Adequacy
Attempts to quantify
“adequacy” and how much a
state or school district needs
to spend for its students
remains ambiguous.
The “adequacy” concept has
been challenged in court
since the 1990’s.
Fiscal Adequacy, cont.
Recent legal
challenges have
shifted from
disparities in school
funding to adequacy
issues.
A Definition of “Adequacy”
• “…providing sufficient funds for the
average district/school to teach the
average child to state standards, plus
sufficient additional revenues for
students with special needs to allow
them to meet performance standards as
well.”
Odden, A. and Piccus, L. (2004). School Finance: A Policy Perspective,
3rd ed. New York: McGraw-Hill.
Fiscal Adequacy
School finance experts refer to four methods for
discussing the concept of fiscal “adequacy”:
• Economic cost function
• Successful school district
• Professional consensus
• Cost of effective school-wide strategies (also
known as state of the art or best practices)
Economic Cost Function
Approach
• This statistical approach is used more
frequently in business than in education
• Economic cost function tries to answer
how much money per pupil is needed in
a given school district to produce a
certain level of student performance
Economic Cost Function
Approach, cont.
• The result demonstrates the per pupil
expenditure necessary to achieve
certain levels of student performance
given the student and district
characteristics
Economic Cost Function
Approach, cont.
• This model reflects certain values in
determining adequacy
• Some individuals or community values
play a role in deciding how much a
community is willing to spend to achieve
a certain level of student achievement
Research Shows Wide
Variation in Adequacy Levels
The adequacy
spending levels
ranged from 49 % to
460 % of the average
in Wisconsin & 75 %
to 158 % in Texas.
In Wisconsin and
Texas, the adequate
expenditure level for
large urban school
districts ranged from
three to four times
that of the average
district.
Successful School District
• This method identifies school
districts which have had success
in bringing student performance
to state proficiency standards
• This approach then sets the adequacy
spending level to the weighted average
of the expenditure level of the
successful districts
Problems with Successful
School District Approach
• This method omits outliers (atypical districts)
from the equation
• Unfortunately, virtually all large, urban areas,
very wealthy and very poor districts, as well as
small, rural systems are eliminated
• It also may inaccurately represent the actual
costs of delivering adequate services in the
atypical districts
Limitations: Successful School
District Method
• Districts that have been identified as
successful are generally average in size, nonurban, with little diversity in their student make
up
• These districts also tend to spend less than the
state average
Limitations: Successful School
District Method, cont.
• Omitting schools that must address the major
challenges that one finds in the “real world”
artificially lowers the level for achieving
success, raising questions about its usefulness
and validity
Professional Consensus
(“Judgment”) Approach
• Educational professionals identify the components
of a “prototype” school they believe would enable
the staff to teach students to some predetermined
performance level
• The costed-out factors (number of professional
and support staff, technology, instructional
resources, etc.) add up to determine a school’s
adequate financial base (that can be adjusted for
varying student demographics)
Limitations: Professional
Consensus Approach
• Provide little differentiation
for the average school and
one with a high concentration
of at-risk students
• In spite of this drawback, the professional
consensus approach is gaining interest at
the state level
State-of-the-Art Approach
• Selects research findings on student
achievement, frequently seen in highachieving schools
• Identifies all ingredients needed for
those research-identified teaching
and learning strategies
• Determines a cost basis for each of
the strategies
• Determines what an adequate base
of spending for the school should be
State-of-the-Art Approach,
cont.
• Funding determination is
made for the school level and
not as an average for the
school division
• This approach allows the
school to use a number of
school-wide strategies that
state-of-the art researchers
and practitioners claim are
most effective