Full State Funding: The Risks for Public Education

Many states have found that financing public schools through local property taxes is unlawful under their state constitutions; as a result, they must consider using state tax revenue as the primary source of local school-district funding. The recent California experience provides a sample of political economic behaviors used to respond to the limitations of full-state funding. For example, Proposition 98 enacted a minimum funding formula to safeguard public school revenues, but the cases of "CTA v. Hayes" and "CTA v. Gould" demonstrate that a formula approach may be neither effective nor efficient. This paper examines legal cases to gain insight into political economic behavior and risks to public education from full- or nearly full-state funding. The first section provides a brief background on legislation and litigation related to nearly full-state funding in California. Downs' theory of political-economic behavior, a potential theoretical explanation, is presented in the second section. The third section describes risks associated with full- or nearly full-state funding, such as funding uncertainty, a decline in per-pupil expenditures, competition for funding, funding the minimum only, legislative inaction, a tax cut, and loss of local control. Recommendations are made in regard to designing a minimum-funding formula, establishing a reserve fund, and developing accountability measures. The following conclusions about California's recent experience with full-state funding are drawn: (1) State tax revenue is perceived as an unstable source of school-finance funding; (2) minimum funding formulas are complicated to design and may be ineffective and inefficient in a state political environment; and (3) full-state funding of public schools will result in apparent and actual loss of local control over school operations. (Contains 13 references.) (LMI)