A Framework for Assessing Equity and Adequacy in School Finance

1. A Framework for Assessing Equity and Adequacy in School Finance School Finance: A Policy Perspective, 4e Chapter 3

2. Defining & Measuring School Finance Equity & Adequacy • Basics about Public School Revenues, Expenditures and Pupil Counts • Berne & Stiefel’s Updated Equity Framework • Measures of School Finance Equity and Adequacy • Approaches to Determining School Finance Adequacy

3. Public School Revenues • Derive primarily from local (42%) and state (51%) sources, with about 7 % from the federal government • State revenues derive from a variety of state taxes – income both personal and corporate, sales, fees. • States rarely dedicate any tax or portion thereof to education. When they do, it is only small amounts.

4. Public School Revenues • Local revenues derive largely from local property taxes • Local property taxes are a result of a property tax rate – %, dollars per hundred, mills – levied against a property tax base • The local property tax base is assessed value of property • Revenues or yield is the product of the rate times the base – see Chapter 3

5. Public School Revenues • Sometimes assessed value is only a percent of market value – in Wisconsin, it is supposed to be market value • Since local assessments vary in their ability to identify the precise value, states often adjust local evaluations to a common base, using assessment-sales ratio studies, and use the “equalized” valuation in the school aid formula

6. Public School Revenues • Revenues are identified as from local, state, federal or other sources, and whether for general purposes or restricted or “categorical” purposes, such as aid for disabled students, transportation, the federal Title I program for students coming from families with low incomes, etc.

7. Public School Expenditures • Expenditures are divided into total, which includes capital, and operating, which excludes capital (buildings, buses, computers?) • “Educational” expenditures are generally instruction, instructional support, and administration, and exclude transportation, operations and maintenance, food, etc.

8. Public School Expenditures • Current operating expenditures are reported by: • Object: salaries, benefits, etc. • Function: instruction, instructional support, administration, operation and maintenance, transportation, food, debt service, etc. • Program – regular education, special ed, bilingual ed, comp ed, gifted & talented, instructional support (which could have a professional development program), central admin, site admin, transportation, operations and maintenance, etc.

9. Public School Expenditures • Beginning to report expenditures by numbers, types and deployment of professionals – core academic teachers, instructional facilitators/mentors, non-core teachers (art, music, pe, library), tutors, resource room teachers, inclusion teachers, counselors, instructional aides – and how deployed

10. Pupil Counts • Enrollment – students enrolled as measured on a day, month, or whatever • ADM – average daily membership – closer to an enrollment figure • ADA – average daily attendance – measure of number of students who attend school • Weighted pupil counts – wada or wadm – give extra “weight” to students with special needs who require more help and thus expenditure

11. Berne & Stiefel’s Six Equity Principles • Ex ante v. ex post analysis • In theory • In practice • Unit of analysis • State • District • School • Student

12. Berne & Stiefel’s Six Equity Principles • Objects of interest • Fiscal variables • Educational process variables • Class size, curriculum, instructional practices • Student achievement variables • The group of concern • Children • Taxpayers • Others?

13. Berne & Stiefel’s Six Equity Principles • Equity concepts • Fiscal neutrality • Horizontal equity • Vertical equity • Adequacy • providing adequacy also improves equity

14. Fiscal Neutrality • Educational objects (expenditures/revenues per pupil, etc.) cannot be a function of local wealth • Measure connection between property wealth per pupil (or family income) and object • Measures • correlation coefficient • simple wealth elasticity (slope) • standard is less than or equal to 0.1

15. No Fiscal Neutrality

16. Fiscal Neutrality

17. Measures of Horizontal Equity • Range • Difference Highest minus Lowest • Pros • Includes all observations • Cons • Only measures two observations • Outliers not accounted for • Sensitive to Inflation

18. Measures of Horizontal Equity • Restricted Range • Difference Between Observation at 95th Percentile and 5th Percentile • Pros • Generally avoids problems of Outliers • Cons • Still only two observations • Sensitive to Inflation • Preferred to Range, but Still not Great

19. Measures of Horizontal Equity • Federal Range Ratio 95th - 5th 5th • Indicates how much larger the observation at the 95th percentile is than the observation at the 5th percentile

20. Coefficient of Variation • CV = STD / Mean • Describes the amount of variation around the mean • Often expressed as a percent • For Example 0.1 = 10% • 67% of values within 1 SD • 95% of values within 2 SD

21. Coefficient of Variation

22. Coefficient of Variation • Pros • Includes all values in the data set • Does not change with inflation • Easy to understand • Cons • What is the value that determines a fair or equitable distribution? • Use a relative or absolute standard? • We suggest a target goal of 0.1 (absolute standard) • SD =10% of average • Example: If average is $7,000: • 2/3 of values will be between $6,300 and $7,700 • 95% of values will be between $5,600 and $8,400

23. Gini Coefficient • Value of Gini: A / (A+B) • Value ranges from 0 to 1 • Smaller Values Represent Greater Equity • If expenditures are completely equal, A = 0 and the Gini Coefficient becomes 0 • Aim for 0.5

24. Gini Coefficient

25. McLoone Index • Unique to School Finance • Measures Equity for the Bottom Part of the Distribution • It is the Ratio of the Sum of the values of all observations below the median to the corresponding sum if all observations had the value of the median • Value of 1 means perfect equity

26. McLoone Index • Steps to calculate • Order data by revenues • Find the median student and the revenues going to that student (Median revs) • For each district with revenues below the median: • N = (#students x District Revs) • D = ((#students x Median Revs) • Sum N & D for each district below the median • Divide N/D

27. Verstegen Index • Essentially the opposite or symmetrical version of McLoone • Measures inequity of the distribution for districts spending above the median • Ideal measure would be 1.0

28. Vertical Equity • Caused by varying student (low income, disability, English proficiency), district (large or small size, price differences) or school needs (size, etc.) • Former can be addressed with pupil weights that indicate degree of additional need, or by categorical programs • we can make size adjustments but controversial • we do have geographic price indices, but ….

29. Measuring Equity with Vertical Equity Adjustments • Exclude state and federal categorical programs when calculating fiscal neutrality or horizontal equity statistics • Include state and federal categorical programs but then weight the students • use actual state weights OR • use weights from research (GAO; Odden, Busch and Kucharz, WI research) – 1.9 for disabled, 1.25 for low income and LEP are the common pupil weights

30. Odden Picus Adequacy Index • McLoone type computation to get at funds required to reach adequacy • Identify “adequate” spending level • Determine percent of students above that level=A • Compute a McLoone ratio but using the adequate level rather than the median • Multiply by the percent below adequacy level =B • Add A + B • See Example on next slide

31. Odden Picus Adequacy Index • 60% above adequate level • McLoone type computation is 0.8 • Multiply by percent below adequate • 0.8 x 0.4 = 0.32 • Add to percent above adequate level • OPAI  0.32 + 0.60 = 0.92 • Revenue increase of 8% to districts below adequacy level would fund adequacy for all districts

32. Approaches to Determining an Adequate Fiscal Base • Difficult, could argue this is THE school finance research issue today • And currently, there are many approaches • Successful district approach – expenditures where students meet performance targets (IL, OH, KS) • Economic cost function – research NY, WI, TX, IL, NB • Professional judgment on quality inputs – WY, WI, MD, KY, SC, NY, MS, NB, KS, MT – 2nd generation approaches needed • Evidence-based approach – NJ, KY, AR, AZ, WY – and in the future, other possibilities, including WI

33. Approaches to Determining an Adequate Fiscal Base • Successful district and cost function approaches produce an expenditure number but no information on how the dollars would be used • Professional judgment and evidence-based approaches provide both an expenditure number and information on how the dollars could be used, or at least how the expenditure number was determined

34. Successful District • Use expenditure and achievement data to identify “successful” districts -- districts that produce desired results • Eliminate “unusual” districts from analysis – very high wealth, very large, very small, very high spending, etc. • From the reduced universe, find districts that actually produce the performance desired, e.g., have >70% of children scoring at or above proficiency on the state test • Calculate a “weighted average” of the expenditures per pupil for these districts, as well as their average SES characteristics -- % minority, % poverty (usually free and reduced price lunch), % ELL, etc. • Assume that if these districts can meet a state performance benchmark, other districts could too • Use the calculated expenditure as the expenditure in a foundation school finance formula • Adjust the calculated expenditure per pupil for the special needs of other districts – small rural, sparse, large urban, etc.

35. Successful District • Advantages: • Provides a clear link between a $/PUPIL level and a result level • Relatively simple and straightforward – policymakers can understand the method • Draws from actual state districts • Disadvantages: • Too many “atypical” districts excluded from analysis • The successful districts are usually relatively homogeneous, “urban”/ rural districts • Results are difficult to “adjust” for larger (>2500 students) urban and poorer rural areas, and thus often are hotly debated • Results can be manipulated • Also does not identify the educational delivery system • Is not now being used by any state – disadvantages have led to too much controversy

36. Cost Function • Economic approach using regression analysis to identify the cost ($/pupil) to produce an outcome • Dependent variable: expenditures per pupil, which can be used as the foundation expenditure • Independent variables: characteristics of students and districts (% disabled, % ELL, % poverty, size, sparsity, geographic price indices, performance level desired, etc.) • Average expenditure varies with performance level • Calculate an overall “cost” adjustment to account for district and student needs • Results are simple: an average expenditure and an overall cost adjustment

37. Cost Function • Advantages: • Clearly links a cost level to a result level • Sophisticated • Accounts for most key factors that impact costs • Disadvantages: • Complicated: few policymakers understand or trust the methodology and not used in any state • Some scholars question the methodology • Provides a dollar amount but no indication of a delivery strategy • Also assumes no resource reallocation of existing resources • Huge increments for low income/ELL students – 4 + times the average for Milwaukee

38. Next Two Approaches get inside the “Black Box” of Schools • Identify the educational delivery strategies that can produce the desired results • This means creating detailed specifications of resources needed to support the delivery strategies • At the school level • Need prototypic designs for each of elementary, middle and high schools • To the degree possible, the designs must be supported by research and evidence-based best practices that produce improvements in student learning • Much more detailed specifications and costing than are included in most general education reform recommendations

39. Professional Judgment • Education professionals make judgments on what is needed at the school level to teach students to proficiency standards • Panels of teachers and administrators identify the resource needs for prototypical elementary, middle and high schools • State panels review and revise the proposals of various local/regional panels • State panels also create prototypical district design

40. Professional Judgment • Advantages: • Draws from the expertise of the best educators in the state, and perhaps from around the country • Proposals tailored to the state context • Disadvantages: • Reflects just professional judgments, no clear link to student learning gains • Being somewhat “co-opted” as the word gets out, meaning many proposals are too generous • And too many professional judgment panels unable to identify “evidence” or “research” that supports their proposals, which often reflect personal belief or personal philosophy

41. Evidence-Based Model • Draws from research and evidence-based best practices to identify those educational delivery strategies and their resource needs that are linked to student learning gains • Attempts to “back” each resource recommendation with reference to research and/or best practices • Given the development of several comprehensive school reforms, can draw from those designs, which themselves often are based on compilations of research-supported practices • Can also draw from a synthesis of the best professional judgment panels • Can “speed up” and therefore reduce the cost of conducting an adequacy study • “Squares” with the evidence-based practice required by No Child Left Behind

42. Evidence-Based Model • Advantages: • Produces a detailed staffing for prototypic schools to address all key educational issues, with all proposals having a research and/or best practices base • Draws from previous research and adequacy studies already conducted around the country – each element has an “evidence” rationale • Avoids educator predilection to make proposals on individual philosophy rather than engage in “evidence-based” practice • Parsimonious but robust – a “Ford” – not a “Cadillac” – not a “Yugo” • Generally, additional costs are less than other approaches • Disadvantages: • Not all school elements have a research base, or a strong research base • Should not “stand alone”: needs a state panel of leading educators and policymakers to review and tailor to any particular state context • Hard to link all recommendations combined to a specific performance target

43. Outcome of Latter Two Approaches • Prototypical school designs & staffing needs • Elementary • Middle or Intermediate • High School • Estimated cost per pupil of each prototype • Estimate of the student, district and price adjustments needed • Provides resources adequate to enable schools/districts to determine most powerful educational strategy

44. Components of Prototypical Elementary, Middle, and High Schools • School size • Administration • Regular instruction – class size • Specialist instruction/planning & prep • Instructional materials, textbooks, library books • Strategy for struggling students – disabled, low income, ESL, GATE – such resources will vary by incidence of such students in each school – tutoring, ELL, extended day, summer school • Professional development • Pupil support

45. Key School Components … • Technology – school computers & software including upgrading and maintenance costs • Student activities • Secretarial • Operations and maintenance • Food services PLUS: • District design • Preschool • New Performance Pay Structure and salary levels • Adjustments for all prototypic designs for schools with more and fewer students, and with greater and lesser poverty, so each design is tailored to size and demographics of each school