Although increasing state equalization aid 10% would improve the distribution of education funding and local fiscal capacity, state equalization aid does not ensure equitable funding at levels commensurate with affluent districts. This approach tries to ensure equal local property tax burden and more equal total educational funding benefitting districts with low local fiscal capacity. However, state equalization aid does not achieve equity with affluent districts spending at higher levels. State equalization aid improves housing in traditionally low property value per pupil districts by improving the resources the district needs to provide an improved educational quality. The higher quality education provided by the district is capitalized improving property values. Although state equalization aid programs can lead to greater per pupil spending in traditionally under resourced districts, state equalization aid programs can result in lower average per pupil spending or a leveling down (Hoxby, 2001).
Typical state equalization aid programs have caps on the amount of state aid a district can receive which disadvantage economically challenged districts. Caps prevent the provision of a high level of equal educational opportunity stemming from equitable allocation of educational funds. Caps set below the per pupil aid level necessary to equitably fund education commensurate with affluent districts function like foundation aid programs. Metzler (2003) found that various approaches to improving equity in state aid including flat grants, foundation grants, percent equalization aid, guaranteed tax base, guaranteed yield, and full state funding result in no significant difference in the equitable distribution of education resources among districts. Metzler (2003) summarized “that while a state’s school finance approach is unrelated to equity outcome measures, it is significantly related to both the total spending per pupil and the percentage of that spending that comes from the state (rather than local districts)” (p. 588). Metzler (2003) concluded that “Percentage equalizing programs … are mathematically equivalent to a flat grant approach if states impose a ceiling on equalizing aid” (p. 591).
States often distribute aid using various approaches in addition to their state school funding formula which can offset programs intended to increase the equitable distribution of resources. Metzler (2003) describes how New York State manipulates its state school funding formula which uses a percentage equalizing approach to such an extent that the approach becomes “functionally equivalent to a foundation program” (p. 592). New York State’s school funding formula manipulation results in “one of the most inequitable allocations of resources in the country, with a wealth neutrality score of .17 (5th highest in country) and a coefficient of variation of .20 (2nd highest in the country)” (Metzler, 2003, p. 593). Thus, New York State reduces its state school funding formula to a minimal adequacy level with a basic guaranteed state funding level that is relatively constant for all districts regardless of aggregate student need.
Hoxby, C. M. (2001). All school finance equalizations are not created equal. Quarterly Journal of Economics, 116(4), 1189-1231.
Metzler, J. (2003). Inequitable equilibrium: School finance in the United States. Indiana Law Review, (36)3, 561-608.