Association for Public Policy Analysis & Management

In the 1970s and 80s, economists devoted a great deal of attention to education finance issues. The academic interest was driven, in part, by the onset of court and legislative actions surrounding the equity of states’ finance mechanisms. The California Supreme Court in 1971 agreed with critics of reliance on local tax bases to fund schools. The California legislature responded with a plan that shifted more responsibility to the state and limited the extent to which localities could increase local taxes on property. Over the next 25 years, courts in 43 states would hear cases regarding the constitutionality of the funding system for public schooling, and these court challenges continue today.

Because of the way in which funding has been allocated to schools over the past twenty-five years, low-income and high-income districts have been roughly at parity since 2001. Baicker and Gordon (2006) found that court orders requiring more state financing of schools and more progressivity have been followed by little evidence of more resources available for low-income districts, and this is especially true when examining the effect on other public services available to those districts. Cascio, Gordon, and Reber (2013) find that federal funds have largely displaced rather than supplemented funding in low poverty school districts.

This paper looks at school finance reform in a single state, Kentucky. Kentucky is especially interesting because it is generally considered to be one of the more successful reforms in terms of the size of increase in expenditures and in terms of equalizing revenues across poor and rich districts. We examine the contributions of local school district funding decisions in reaction to more centralized state funding over a 25 year period of time. By focusing on a single state, we aim to gain insight into the characteristics of districts that may cause them to react differently even within a single state.

Early results suggest that the reaction to more state funding by localities has varied by locality within the state. Districts of equal resources have responded differently depending on locale. In particular, the Appalachian districts of Kentucky have decreased local contributions to funding to a greater extent than the non-Appalachian districts, controlling for all other characteristics of the districts. If these findings hold under more scrutiny, policy challenges for the future are even greater than normally construed. This paper aligns with the theme of the conference by utilizing data that allows the study of the long-term effects of school finance reform on issues of equity.

Baicker, Katherine, and Nora Gordon, ‘‘The Effect of State Education Finance Reform on Total Local Resources,’’ Journal of Public Economics, 90 (2006), 1519–1535.

Cascio, E. U., Gordon, N., & Reber, S. (2013). Local responses to federal grants: evidence from the introduction of title I in the South. American Economic Journal: Economic Policy, 5(3), 126-159.