ALL SCHOOL FINANCE: Categorical Aid as an Add-On 3


The stringency of a foundation aid program is greater as the foundation level,/ rises relative to per-pupil spending in the state (making / rise relative to r). A state that imposes a foundation aid program in which the foundation level is, say, at the 75th percentile of the per-pupil spending distribution is a state in which nearly all property taxes from nearly all districts have to go towards funding the foundation grant. In such a case, only few districts would want to set a rt higher than / in order to raise additional local revenue to pay for spending beyond the foundation level. It is, of course, theoretically possible to set /and/so high that no district wants to spend more than the foundation level.
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Below, I explain why foundation aid schemes are fundamentally different from, say, categorical aid schemes that attempt to achieve a similar amount of redistribution. This explanation only makes sense after a Tiebout-style model of school spending determination is presented (in the next section).

Power Equalization/Guaranteed Tax Revenue Schemes

Most states that attempt stringent equalization do so through variants of guaranteed tax revenue schemes or power equalization schemes. These two types of schemes are fundamentally similar, so hereafter I use just the name “guaranteed tax revenue,” which is more intuitive. Although all schemes of this type share certain key properties, the actual schemes tend to have very complicated and diverse formulas.

Guaranteed tax revenue schemes are like matching grant categorical aid schemes except that flat grants and the matching rate are based on property value per pupil. Most of school finance experts, however, do not express the logic of guaranteed tax revenue schemes in this way. Instead, they tend to say that guaranteed tax revenue schemes attempt to make the same tax rate т generate the same revenue for each school district in the state, regardless of the district’s own property value per pupil. Most guaranteed tax revenue formulas show this (latter) logic in the way they are written.

Many guaranteed tax revenue schemes provide stronger redistribution among districts that have higher tax rates. For instance, the scheme might guarantee average per-pupil revenue in the state (this would be the first guarantee, or g}) for the first i?1 mils of districts’ property tax rates, guarantee per-pupil revenue at the 65 percentile in the state (this would be the second guarantee, or g2) for the next tf2 mils of districts’ property tax rates, and guarantee per-pupil revenue at the 85 percentile in the state (this would be the third guarantee, or g3) for any remaining mils of the property tax rate.