School finance: a critical primer, pt. 1
Two years ago I pitched a primer-like essay on critical school finance to the excellent political economy website Phenomenal World. They accepted the pitch, gave me some edits, and I sent them back a new draft. They never responded. After multiple emails, they had ghosted me. This can happen sometimes, but it left the essay in limbo.
Then some friends expressed interest in it for a special issue of another journal they were editing, but it didn't work out there either (the editors leaving some excellent comments for me as well). This poor essay has been searching for an audience for years now!
So I'm sending it along to you this week. It's a bit lengthy, but it's a good summary of some of the things I've found in my research on school finance. It's a little long so I'll do it in two parts. Here's part 1. Enjoy!
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What does school finance look like from a critical perspective?Generally speaking, money for schools comes from specific kinds of grants (money that doesn’t have to be backed back) and debt (money that has to be paid back). The grant money comes from three kinds of tax revenues: local governments taxing real estate, state government taxes on sales and other transactions (distributed through weighted or unweighted formulas), and paltry federal government programs such as Title 1 of the Elementary and Secondary Education Act. I say paltry because the local taxes account for 45% of school funding, state taxes 47%, and the federal government 8% (see Figure 1). But there’s more than just grants: the loans school districts take out are bond issuances approved by local vote or school governance entities, which are then transacted on Wall Street in the private municipal bond market, where school districts and state governments must sell themselves as investment commodities to wealthy people looking to make profits on fixed-income portfolios.
Have you stopped reading yet? Did your eyes gloss over? Indeed, this stuff is boring. When Ben Stein, playing a high school economics teacher, did his famous “Bueller? Bueller?” bit in Ferris Bueller’s Day Off—the textbook definition of boring—he was standing in front of a chalkboard that said monetary policy and fiscal policy. While Stein was clowning around in the movie, the scene’s humor derives from the fact that he’s talking about the economic lifeblood of our society and that it’s boring on purpose. People in power have an interest in us not knowing how the money stuff works when it comes to schools and beyond— or, touching on the theme of this issue, the knitty gritty of school finance, the cell structure of racial capitalism. So, in this primer on school finance, I look at each of the funding streams I mentioned above, but from the perspective of lesser-known social and political movements that have challenged them, with an eye towards building on those movements and organizing in this essential but esoteric arena.
Local taxes
Citizens Action Program (CAP) organizers discovered something strange in 1971. They were doing research for a campaign against United States Steel in Chicago and wanted to pressure the company to reduce its air pollution, which was harming working class Chicagoans. But in the process of looking through plat maps of US Steel’s properties, they saw very low property valuations. Intrigued, they found that assessors employed by the Cook County municipal government had valued the factories way below what they were worth. Organizers calculated that US Steel had gotten a 73% discount on the assessed value of their property compared to similar properties in other areas. This discount, at the behest of the city government’s corrupt administration, had saved the Steel giant more than $100 million in ten years. The revenue was supposed to go to Chicago’s schools.
CAP changed gears. Instead of an air quality campaign they launched a school funding campaign. They got interested in systematic under-assessment of property value in the Chicago region, going through records for other steel mills, racetracks, banks, corporate headquarters, and even suburbs. They found the same story over and over again: undervalued property sapping tax revenues for programs like schools. (They also found over-assessment in working class real estate, apparently done to compensate for the under-assessments.) CAP organizers brought their findings to those in power and forced a change in how property was valued. Rather than young stooges in the assessor’s office eyeballing values with pressure from the bosses that appointed them, the County switched to a fair market valuation system, or sale value, calculated with computers.
According to the historian of education Tracy Steffes, whose incisive research on Illinois school finance was published in 2020, this anecdote is evidence of the politics of school funding. Hidden within the wonky details of public finance, local and state and federal school funding policies are deployed to serve the interests of particular groups. Rather than a technical system, it is a social-political system. The CAP anecdote illustrates this very well. Schools are partly funded--in the US, the number is 42% with wide variations depending on the region--through local property taxes. The local property tax to fund schools might be familiar to readers, but the apparatuses making this happen are more opaque. What assessment tools do local governments use to calculate assessed value? How different are those values from market value? Where do the assessors sit in the wider city or county government? To whom are they accountable? And how does that property tax work, exactly? Are property valuations in rem (merely property) or in personam (inclusive of all personal assets)? If in rem, which is more likely, are they specific valuations by acreage or ad valorem valuations that do not consider acreage?
These esoteric distinctions can determine how much tax revenue comes into a school district, but they can also determine how tax revenues are distributed in a region. The historian Esther Cyna’s research on North Carolina shows that wealthy elite whites in Halifax County knew this. In 1972, there was a debate at the county level over whether to use an ad valorem, which distributes according to district property wealth, or per capita, which distributes money based on student population approach to distribute sales tax revenues to school districts. According to Cyna, white elites in a smaller white district within the county pushed for the ad valorem method. The superintendent saw what was going on and said the distribution should be per capita. The white district won. With its higher property values it would receive more sales tax dollars. Cyna is clear: “The ad valorem decision was a process of counting lives through property wealth and thus attributing more value to white lives.” (31) Dominant groups benefit from these practices and they actively lobby to make sure they benefit from them. Some school districts don’t have what they need to educate their students and thus they get into debt, either educational (owing their students something they can’t provide) or financial debt (having to take out loans to plug budget gaps).
The local property tax itself is an example, of course. While early American working class populists fought hard to win the local property tax as a dominant school funding policy in the 1800s, it has significant drawbacks. Chief among them is its regressiveness. Taxpayer revolters may complain about their high taxes because they pay a lot in absolute terms. But this is false. Consider the millage rate, which districts and local governments use when calculating how much they will tax their district’s property. The millage rate is how many dollars will be taxed per $1,000 of property. Districts with low property values have to tax at high millage rates to bring in relatively small amounts for their schools, which serve higher need students. The opposite is true for districts with high property values. They tax at lower millage rates to get more money for students who need less. The inequities breakdown along racial lines in many urban regions, but not always: rural school district poverty in small majority white areas is significant. Thus large diverse urban districts share something very important in common with small homogeneous rural districts: low taxable property. Organizers and activists have yet to take advantage of this feature of school finance terrain in the US.
State governments have tried to intervene and remedy this inequity. It is a difficult task. Steffes shows how Illinois’s equalizer formula worsened the situation. Vermont’s Act 60 was perhaps the most direct and effective policy, but this law was defeated in a spectacular fashion and illustrates the lengths wealthier groups will go to protect their property from redistribution.
State grants
We can start the story of Vermont with a cast of characters who were strangely castigated. Carol Brigham, parent of an elementary school student in rural Vermont, had her family stop talking to her. The superintendent of Brigham’s school district got his tires slashed. A father, reporting on what was happening, had to explain to his daughter why their neighbors were calling them sharks and tying ropes across state roads preventing them from entering their towns. The popular fiction author John Irving felt his children were being threatened by ‘trailer envy’, pulled them out of their public schools, and started his own private school using his own money.
Brigham’s local school, the Whiting School, could not afford a new roof. It could not afford the extra teacher students needed. They could not afford it because they could not wring enough revenue out of their low property values. Just across the Green Mountains, Kilington schools had more money than they knew what to do with. That’s because Kilington is a ski town with high property values. It could spend 25% more per pupil than Whiting. So Whiting’s superintendent worked with a coalition of other districts to sue the Vermont state government for being in violation of its own constitution, which guarantees an education to all its students.
Vermont’s school funding was highly unequal. Average per pupil spending was nearly $15,000 in rich towns and less than half that in poor towns, at $6,500. The court found in their favor. Judge John J. Meeker skipped the appeal stage and wrote a scathing opinion. (It is worth a read) calling local control a “cruel illusion,” since districts where property values are low don’t have control over the education they provide. ‘Local control’ is only for rich districts.
As happens with successful school finance equalization court cases, Meeker ordered the state legislature to come up with a new funding structure. The result was Act 60. According to the law, every district levied a property tax to fund its schools. The law set a state standard millage rate. Every district had to tax their property at about one dollar for every $100,000 of assessed value. At the same time, the state calculated funding allotments to each district. Any amount of revenue a district raised above the state allotment went into a statewide pool and got distributed to poorer districts. This policy forced the rich districts to tax their property at a relatively (though not outlandishly) high rate, and then, given the state allotment, the state captured excess revenue and redistributed it. It also ensured that poor districts did not have to tax their property overmuch. Rich districts became ‘giving towns’ and poor districts became ‘receiving towns’.
At the height of its powers, Act 60 equalized the tax burden. Before Act 60, average town tax burdens varied from .1% to 8.2% on assessed property. After Act 60, they ranged from 2-4%. Average differences in per pupil spending between districts went from 37% to 13%. Districts that had historically spent less increased spending at a greater rate than districts that had spent more. According to education researcher Jane Fowler Morse’s account of the policy and its evaluation, Vermont’s achievement gaps closed significantly between 1998-2001. Vermont was structurally avoiding both educational debt and financial debt through redistribution.
The wealthy districts responded with great fury. They slashed superintendents’ tires, put up ropes blocking roads to their neighborhoods, and called towns like Whiting shark towns. But they had more financially savvy methods. In the giving towns, wealthy people formed private foundations and donated ‘voluntary levies’ for their schools. This meant the money couldn’t be recaptured by the state and shared. They basically created a shadow privatized funding structure. They formed alliances, initiatives, and organizations that supported these foundations. One example was the Freeman Foundation of Stowe, which promised to match any district’s private fundraising each year. In all, they matched $20 million of private voluntary levies. Act 60 was at the center of the 2000 gubernatorial election. The Republican candidate won on a promise of making ‘struggling taxpayers’ whole. Act 60 was largely gutted.
Act 60 was perhaps the strongest attempt to remedy the problem of local school funding inequity. There are states with policies that are better than others. Rather than a redistributive formula, most states have a funding formula that distributes sales tax dollars to districts. These formulas range from simple and inequitable to complex and less inequitable. Some states try to protect their districts from debt, others just create a district-eat-district fight for resources. Bruce D. Baker and colleagues oversee the School Finance Indicators Database. One of Baker’s conclusions after decades of work as a progressive expert on school funding is that states should be the ones to shoulder the burden. This is largely because the federal government is absent, providing an average 8% of public school grants. Yet that 8% was hard fought and those seeking federal interventions in school finance should understand where it comes from and how it works.
(See next week's newsletter for part 2!)