Assume that the base data for the 20-district sample on the school finance simulation represents the condition of school finance in your state. A taxpayer rights group has conducted an analysis of that system and, based on that analysis, has sued in state court arguing that school spending levels are a function of district wealth. The group has asked the court to invalidate the state’s funding structure. You are the chief of staff of the state legislature’s school finance committee. In analyzing a printout of the base data from the simulation, you see that per-pupil revenue ranges from $3,480 to $7,527, with a tax rate in the lowest-revenue district of 39.64 mills and in the highestrevenue district of 25.5 mills. The state share of total educational revenue is under 40 percent. Moreover, you note that the correlation of revenue and wealth per pupil is 0.991, and the wealth elasticity is far above 0.10. Looking carefully at a graph of revenue versus wealth per pupil for the base data, you conclude there is substantial likelihood the court will invalidate the state finance structure.

Additionally, a number of years ago, the state’s voters approved an expenditure limitation. As a result, the state is unlikely to have more than $50 million in additional funds to devote to education next year.

Using the school finance simulation, design a school finance foundation program that reduces the relationship between wealth and revenue, with increased state spending of $50 million. Experiment with different combinations of foundation level and required tax rates. Also experiment with combinations of high and low foundation levels and high and low RTRs. Find more than one foundation level/RTR combination that costs the state $50 million. Identify different foundation programs at this state cost that benefit poorer districts more than wealthy districts, and then identify foundation programs that spread the additional $50 million to most districts. Once you have three or four possible options, answer these questions:

a. How do each of these combinations meet the fiscal-neutrality criteria that might be used in the lawsuit?

b. What impact does each of these options have on the horizontal equity of the system?

c. How does total revenue for education change under each of these options? How does the state’s share of total revenue change?

d. Which foundation program option would you recommend to the legislature? Why?

e. How will you address legislative questions about districts that gained and lost state aid?

f. If the state suddenly found that it could devote $60 million to education next year rather than $50 million, how would you change your recommendations?

Answer rating: 100% (QA)

aFiscal neutrality refers to a principle or goal of public finance that fiscal decisions taxing spending or borrowing of a government can or should avoid distorting economic decisions by businesses wo... View the full answer