The National Debate Over School Funding Needs a Federal Focus

The debate over how to improve America’s system of K-12 education is raging at all levels this electoral season. At the national level, Texas Gov. George W. Bush proposes a limited school-voucher plan, which Vice President Al Gore rejects in favor of more money for conventional public schools. The same issues are being debated in California, where voters will decide on Proposition 38, which would give every schoolchild a $4,000 voucher, and Proposition 39, which would make it easier for local voters to pass school bonds. None of these proposals, however, address the greatest problem facing K-12 education: the long-standing tradition of financing primary and secondary education through unpopular local or state property taxes.

You would never know it from listening to the presidential candidates, but the federal role in funding education is minuscule. Until recently, the primary source of school funding has been local property taxes, supplemented by a small amount of aid from state governments and even less from the federal government. Other countries do not organize school financing the way that we do. Among countries belonging to the Organization for Economic Cooperation and Development (OECD) in 1995, an average of 54% of funding for primary and secondary education came from central governments, 26% from regional and 22% from local. In the U.S., by contrast, the federal government supplied only 8% of funding, with the rest divided between state and local governments. The largest single federal program for schools, Title I of the Elementary and Secondary Education Act of 1965, provides only about $8 billion, less than 3% of all local, state and federal education expenditures.

The U.S. does not suffer from a lack of overall school funding. On the contrary, it spends a greater share of national income on K-12 education than any other OECD country except Canada and Denmark. But the practice of funding schools by means of local and state property taxes has resulted in vast disparities in funding among states, cities and even neighborhoods.

The perversity of the system is easy to illustrate. Suppose you have an impoverished inner city whose per-pupil taxable property base is $50,000; the per-pupil property-tax base of an affluent suburb nearby is $250,000. The inner-city would have to levy a painfully high 10% property tax to raise the same amount of money--$5,000 a student--that the suburb could raise through a mere 2% rate.

Recognizing this problem, a growing number of states have begun to assume responsibility for equalizing funding for local public schools. The trend began in 1971, when the California Supreme Court, in Serrano v. Priest, ruled that using local property taxes to finance primary education was a violation of the equal protection clause of the state constitution. Since then, 44 of the 50 states have been sued by plaintiffs claiming that unequal financing of public schools violates various state constitutions. In 19 states, state supreme courts have followed California’s lead in forcing the restructuring of school finance to meet state constitutional standards of equity. By 1997-98, the proportion of education funding provided by the states (48.4%) had surpassed that provided by local districts (44.5%).

While these state-level reform efforts are encouraging, they do not go far enough and can sometimes lead to unintended disaster. The experience of California illustrates the danger of equalizing education funding on a statewide basis without reducing or eliminating reliance on property taxes. As Californians discovered in the wake of Serrano v. Priest, affluent property owners can all too easily be tempted to take part in revolts against increases in property taxes when such revenues are suddenly diverted to pay for schools in other districts. Many analysts blame Proposition 13, which restricts the ability of California localities to raise property taxes, with the decline of the state’s once-great K-12 system.

The link between education and localism in the United States is a relic of the colonial and rural past. It is time to consider equalizing school funding on a national basis. If educational opportunity should not depend on the fortuity of a child’s residence in this or that county within a state, then surely it should not depend either on the child’s residence in this or that state in the United States. If it is unjust and inefficient for school quality to vary wildly between rich and poor neighborhoods within a state, it is equally unjust and inefficient for school quality to vary between rich and poor states within the nation as a whole. Yet, per-pupil spending in 1997-98, adjusted for cost-of-living differences across states, varied from $4,000 in Mississippi to greater than $9,000 in New Jersey. Surely, this is no way to run the education system of a modern nation, least of all one that aspires to remain at the forefront of the information revolution.

The federal government, like the central governments in virtually all other advanced nations, should pick up most or all of the tab for K-12 education--on the condition that state and local governments reduce their taxing and spending on education commensurately. It might be objected that the “rich states” would subsidize the “poor states.” But there are no rich and poor states. There are only rich and poor Americans, who are unevenly distributed across America’s continental territory. Mere political boundaries should not absolve affluent Americans from their responsibility for their less-advantaged fellow Americans, wherever they are found.

Where would the money come from to cover the roughly $300 billion now spent by state and local governments on K-12 education? The Nixon administration considered creating a new federal sales or value-added tax to fund public schools, reducing reliance on local property taxes. But a national sales tax, like today’s local property tax for school funding, would tend to hit low-income Americans the hardest. This problem could be avoided by paying for a greater federal role in school funding through various types of progressive taxes. One obvious candidate would be an expanded federal income tax. Our preference, however, would be to equalize school funding nationwide by means of a simple and progressive national consumption tax.

A well-designed national consumption tax could not only raise sufficient revenue to replace the inequitable patchwork of state and local taxes now used to fund schools, but it could also make the overall tax system simpler and more progressive, while simultaneously creating much needed incentives for greater personal savings. A person’s annual consumption would be calculated, quite simply, by subtracting annual savings and investments from annual income. Naturally, this would provide a powerful inducement for greater levels of personal savings and investment, which would help the nation’s economy. Meanwhile, generous exemptions at the bottom could make a national consumption tax quite progressive. The revenues from such a tax could then be rebated to states on an equal per-pupil basis.

Whatever method is used to pay for a new federal effort to equalize school funding across the country, the result should be welcome to all parties in the current debate: defenders of existing public schools, centrists who favor school choice when limited to charter schools and supporters of vouchers for private schools. It is possible to disagree on the merits of school choice--and yet to agree on the need to equalize funding, not only across district lines, but across state lines. Indeed, how could any national system of school choice ever be equitable if per-pupil funding is not equalized first? Similarly, proponents of raising academic standards should also embrace the goal of equalizing school funding: After all, how can standards be applied meaningfully and uniformly if educational resources remain so uneven?

The last decade witnessed a debate over statewide equalization of school funding; this decade should see a long-overdue debate about nationwide equalization. The best ways to equalize school funding should be debated. But the overall goal is clear: ensuring that the access of American children to adequate education no longer depends, as it does now, on accidents of geography. *