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services such as health, public safety, sanitation, public works, transportation, public welfare, public housing, and recreation.313 Due to municipal overburden, cities only devote approximately 30 percent of their budgets to their schools, as compared to more than 50 percent by the suburbs.314 While central cities in the largest metropolitan areas average $600 per capita in total local public expenditures for all services, outside central city areas in those metropolitan areas total expenditures average only $419 per person.

The financial disadvantage imposed on the cities by municipal overburden is illustrated by several specific examples. A study of Detroit and its 19 suburbs showed that when all calls on local property taxes are taken into consideration, Detroit has the highest local tax rate; Detroit's tax rate for schools alone, however, is at the bottom of the list. In Baltimore, one-third of the total local budget goes for schools, while Baltimore County can devote 56 percent of its local budget for schools. In Boston, schools get 23 percent of the total budget, while in the neighboring suburb of Lexington, the figure is 81 percent.”

4. Adjusting for the Needs of the Cities. The school finance decisions, however, do not require a system of school finance that will be disadvantageous to the cities. What is proscribed is the distribution of educational resources on the basis of district wealth. The States could employ wealth free formula that take account of the higher costs in the city, the need for greater funds to educate the disadvantaged, and the problem of municipal overburden. If the State formula distributed education funds on the basis of a set amount per pupil, it could weigh the calculation of the number of pupils to compensate for higher costs and greater needs in the cities. If it were determined, for instance, that cities must pay 25 percent more than the statewide average for educational goods and services, then each child in the city would count as 1.25 in the calculation of the total number of pupils. Educational need could be measured in a variety of ways including the number of children receiving AFDC, a program of aid for poor dependent children, or the number of children testing below a certain score on a statewide achievement test. Each pupil receiving AFDC or scoring below a certain score could be counted as 2 in determining the total number of pupils on which aid may be calculated.317

The cities would receive additional funds under either of the above measures of needs. A study of New York State shows that when AFDC is used to determine need, cities have more than three times the proportion of pupils needing more extensive services, and that when need is determined by test scores, the cities have more than twice as many disadvantaged children as noncity. districts.

Taking municipal overload into account would probably involve a more complex formula. One manner of compensating cities would be to make contiguous areas that use municipal services pay a share of their costs.319 If the State's new wealth free system involves a statewide property tax, municipal overburden could be

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313 See U.S. Commission on Civil Rights Racial Isolation in the Public Schools, 26–27 (1967): [C]ities spend a third more per capita for welfare and two times more per capita for public safety than suburbs, while suburbs spend more than half again as much per capita for education. Suburbs spend nearly twice the proportion of their total budget upon education as the cities. The greater competition for tax dollars in cities seriously weakens their capacity to support education. Even though school revenues are derived from property tax levies, which in theory are often independent of other principal taxes, city school authorities must take this greater competition into account in their proposals for revenue increases.

314 Berke and Callahan, op. cit. supra note at 54. 315 Id. at 53.

316 Myers, op. cit. supra note at 40. See Berke and Callahan op. cit. supra note at 54 for a Table comparing the 37 largest metropolitan areas with their central cities in regard to education expenditures as a percent of total expenditures for the years 1957 and 1970. The table shows that a consistently higher percentage of the central cities' budgets goes for noneducational expenditures. See also Dimond, “Serrano: A Victory of Sorts for Ethics, Not Necessarily f Education",

Rev Law ai Soc. Action 133, 135 (1971). 317 In Robinson v. Cahill, op. cit. supra note at 45 and 46, the court discussed a recently enacted New Jersey school finance law, the Bateman Act, which took account of educational needs by assigning AFDC children an additional .75 units in determining the number of children for the school district. Although the court approved of taking needs into account, it found the Bateman Act inadequate in other respects.

Berke and Callahan, op. cit. supra note at 59, In the study disadvantaged children included those scoring at least two grade levels behind the state norm.

319 In Bradley v. The School Board of the City of Richmond C.A. No. 3353 (E.D. Vir. 1972) the court ordered the consolidation of Richmond and its two contiguous counties and noted the manner in which communities bordering on cities benefit from their services. Id. at 260-61 (mimeographed opinion).

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recognized by imposing on the cities a lower than average tax rate for educational revenue.

Two prestigious commissions on school finance—the President's Commission on School Finance and the Fleischmann Commission in New York-recently issued reports recognizing the special financial problems of the cities and recommending that differences in costs and needs be included in any new distribution formulas. B. Impact on the Suburbs and Rural Areas

Wealthy suburban areas might suffer under a wealth free formula that provided equal expenditures for all students. Because of the high assessed property values in these areas, they raise substantial revenues at relatively low tax rates. Under a system where district wealth is not the determinant of educational expenditures, the suburban areas lose their former advantage. In this respect, a wealth free school finance formula would affect wealthy suburban areas in the same manner as cities with high assessed property values. As we have shown, such cities would receive less educational dollars despite a higher tax rate. Rural areas, on the other hand, have relatively low property values.82 Consequently, they undoubtedly will receive more educational funds under a wealth free system of school finance.

Reducing educational expenditures where they now are high presents obvious political problems. Districts currently spending substantial sums on education would oppose any formula that reduced their expenditures at the same time increasing their taxes. One way to avoid this problem is by substantially increasing overall State spending for education. This was the approach of the Fleischmann Commission in New York which recommended a substantial increase in overall educational expenditures and a five-year “phasing in” period in which the spending to the poorer districts is leveled upward to that of the wealthier districts. C. Impact on Minority Group Children and the Poor

The implication for minority group children of the strict application of a wealth free formula of distribution is problematic. Minority group children live primarily in majority group districts.323 The fate of either majority or minority group living within the same district is dependent upon the district's characteristics whether it is urban, rural or wealthy. Since, however, most minority group children reside in cities, implementation of a strict wealth free system will disadvantage them to the same extent as the cities where they live.235 For minority group children residing in rural areas, however, the results will be beneficial.

The implications of a wealth free system for the poor also are dependent upon the characteristics of their particular districts. The large concentrations of urban poor would receive lesser amounts for education. On the other hand, those living in the rural areas would gain.

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320 See Coons, Clune & Sugarman, Private Wealth and Public Education 232–242 (1970), for a more thorough discussion of how a distribution formula can take into account municipal overburden, particularly under the power equalizing model of distribution.

321 On March 6, 1972, the President's Commission on School Finance issued its Final Report, a product of two years work and thirty-two volumes of studies. The Report discussed the acute problems of school finance faced by the cities. In this regard the Commission made the following recommendations :

that State budgetary and allocation criteria include differentials based on educational need, such as the increased costs of educating the handicapped and disadvantaged, and on variations in educational costs within various parts of the State.” Final Report of the President's Commission on School Finance, “Schools, People, & Money" 36 (1972). “The Commission recommends the initiation by the Federal Government of an Urban Education Assistance Program designed to provide emergency financial aid on a matching basis over a period of at least 5 years, to help large central city public and nonpublic schools " Id. at 44.

On January 30, 1972, the New York State Commission on the Quality, Cost, and Financing of Elementary and Secondary Education (the Fleischmann Commission) released the first of three chapters of its Report. As a general principle of support distribution, the Commission set forth the following proposition : equal sums of money should be made available for each student, unless a valid educational reason is found for spending some different amount. The Commission, however, recommended that the distribution formula be weighted to provide additional funds for children having demonstrable learning problems. Press Summary, New York State Commission on the Quality, Cost, and Financing of Elementary and Secondary Education at 4 (June 30, 1972).

322 Berke and Callahan, op. cit. supra note at 61; Berke and Kelly, op. cit. supra note at 16.

323 See note supra. 324 See note supra.

325 See also Kirp and Yudof, “Serrano in the Political Arena”, 2 Yale Rev. of Law and Social Action 143, 145–46 (1971).

D. Alternative Systems of School Financing.

We have described the effects on various groups of children of the implementation of a wealth free system which allots equal expenditures for all children throughout the State. The school finance court decisions, however, do not mandate such a system. The proscribe the use of district wealth as a determinant of education expenditures. The particular choice of a wealth free system of school finance is left to the legislatures.

The range of possible wealth free systems is broad. We will describe five of the basic models. Modifications and various combinations of these models form numerous other models.

The first model is the abolition of local school districts and placement of all school administration and financing on a statewide basis. Another approach is for the State to raise all funds and distribute them to the local school districts for administration. A third alternative is for the State to reorganize existing districts to create new districts with equal tax bases.2:

Another approach, called percentage equalizing, compensates for difference in local revenue capacity by matching locally raised funds with State funds in a ratio inversely related to district wealth.228 This method is similar to the widely used foundation plans that attempt to reduce local financing discrepancies with equalizing State grants. It provides, however, local districts with financial incentive and full equalization at any level of spending.

Finally, there is the system proposed by Coons, Clune, and Sugarman, of district power equalizing--a system that allows differential expenditures among school districts, while removing the effect of differential tax bases on the expenditures.329

Under district power equalizing the State would determine how much each district will be permitted per pupil for each level of tax effort. Districts making the effort but not raising the amount would be supplemented by the State. Districts raising over the set amount would give their excess to the State. This method is illustrated in the following chart:

Permissible Local tax rate:

per pupil expenditure 10 million

$500 11 million.

550 12 million.

600 29 million.

1, 450 30 million.

1,500 The educational expenditures permitted a particular district is a function of the chosen local tax rate, not the district wealth. Consequently, if two districts, whatever their relative wealth established property taxes at the same rate, they would receive equal per-pupil revenues from the State.

The different alternatives have various attributes and deficiencies.

Abolition of local school districts and placement of all school administration and financing on a statewide basis runs counter to the American preference and tradition for local decision-making and administration in the area of education.331 The alternative of reorganizing existing districts to create new districts with relatively equal tax bases has the virtue of preserving the traditional method of school finance minus its source of financial inequalities.232 There are several difficult problems with this approach, however. For one thing it may require monstrous gerrymandering that would in many instances create geographic entities virtually impossible to administer. For another thing, changes in income distribution would almost certainly require periodic redistricting.*** Furthermore,

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333

326 See,

e.g., Berke and Kelly, op. cit. 81 pra note at 33; Comment, “The Evolution of Equal Protection : Education, Municipal Services, and Wealth”, op. cit. supra note at 193-194.

397 See, e.9., Final Report, The President's Commission on School Finance, Schools, People, and Money 31-32 (1972).

328 See e.9., Comment “The Evolution of Equal Protection : Education, Municipal Services, and Wealth”, op. cit. supra note at 187 ; See also Coons, Clune and Sugarman, op. cit. supra note at 316.

329 See Soons, Clune and Sugarman, Private Wealth and Public Education ch. 6 (1970). 330 See Coons, Clune and Sugarman, op. cit. supra note at 319–320. 331 Coons, Clune and Sugarnian, Private Wealth and Public Education 14-20 (1970). 332 See Schoettle, The Equal Protection Clause in Public Education”, 71 Col. L. Rev. 1355 at 1411 where the author suggests that in the area of school finance 'inequality, courts should limit their intrusion to requiring a rational distribution of tax base resources for districts. Such action would also have the effect of removing financial disparities between districts in providing other municipal services.

333 Final Report, President's Commission on School Finance, op. cit. supra note at 31, 32.

this model would permit wide variation in educational expenditures per child depending at the whim of the child's parents and district neighbors—the rate at which they choose to tax themselves.

A problem with the percentage equalizing model is that in practice the States that have employed it have imposed restraints that substantially reduce the theoretical equalizing effects,834 Furthermore, percentage equalizing, like district reorganization, would permit wide variations in educational expenditures for children depending on the tax rate chosen by the district.

"Power equalizing” theoretically has the virtue of allowing local districts to choose various levels of educational expenditures according to their relative interest in education. It would be very difficult, however, to devise a formula to measure true tax effort.335 Furthermore as with the previous two models, under "power equalizing” children could receive widely divergent educational resources.

The full state funding model would likely provide a more even distribution of educational expenditures, although the particular formula chosen could provide for nonwealth based differentials such as needs and costs (as could all the other models). Under this model funding would be on the state level ; educational policy making, however, could be left to the localities. The full State funding approach was recently recommended by the President's Commission on School Finance and the Fleischmann Commission in New York State 33

Whatever approaches the various states adopt in devising wealth free systems of school finance, we can be sure that legislatures throughout the Nation will be grappling with the issue for some time to come. The commentators and lawyers involved in the cases already have begun to prognosticate about the likely legislative responses. Sara Carey of the Lawyers' Committee for Civil Rights Under Law cautions “State legislatures don't move often. When they do, unless we are careful, we can be locked into a formula we don't like for over a decade.” 337 Joel Berke and John Callahan fear "that the direction that change may take in the post-Serrano period will be that of providing essentially equal expenditures for all children financed from a broad based statewide tax system of proportional rather than progressive rates." 338

Coons, Clune, and Sugarman, predict that most legislatures will cooperate with a judicial decree ordering a wealth free system of finance. “The blessings of Serrano are too obvious and the risks too remote." They also suggest the possibility of a favorable Supreme Court decision on school finance touching off "an explosion of creativity in the structure of education.” 340

Paul Dimond, an attorney at the Harvard Center for Law and Education, does not share this optimism. Rather than act as laboratories of democracy by experi

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334 Some of the equalizing restraints imposed are enumerated in Weiss, Existing Dis. parities in Public School Finance and Proposals for Reform (Fed. Reserve Bank of Boston, Research Rep. No. 46, 1970), cited at Comment “The Evolution of Equal Protection ; Education, Municipal Services, and Wealth" op. cit. supra note at 187, 188.

335 Sugarman stated, “I would be the first to agree that while it is quite easy to suggest that wealth should be eliminated as a basis for supporting schools, as a practical matter determining what equal effort really is is very complex indeed.” Quoted in Meyer, "Second Thoughts on Meaning of Serrano," op. cit. supra note at 41.

338 The President's Commission concluded: “The Commission recommends that the state governments assume responsibility for financing substantially all of the non-Federal outlays for public elementary and secondary education, with local supplements permitted up to a level not to exceed 10 percent of the state allocation.” Final Report op. cit. supra note at 36.

The local supplement feature recommended by the Commission would reserve to the localities some power to determine expenditures on the basis of wealth. This is the very characteristic of the present system of school finance that is proscribed by the Serrano line of decisions. Neil McElroy, Chairman of the Commission, said that this local payment might fail to meet court requirements. Washington Post, March 7, 1972. at 1, Col. 1. The only way that it could pass muster under Serrano would be on the basis that the 10 nercent option was so small that the system remains substantially wealth-free.

The New York State Commission on the Quality, Cost, and Financing of Elementary and Secondary Education (the Fleischmann Commission) called for full state financing of public elementary and secondary education in order to assure that each student is provided equal educational opportunity and that the quality of his education does not denen upon the property values in the area where he happens to live. The 18 member Commission said that its position on centralizing the funding of the schools “is not inconsistent with the Commission's desire to strengthen local control over many educatonal matters . . . (for) it is clearly possible to have centralized financing and decentralized poliermaking." Press Summary on. cit. supra note.

337 Quoted in Meyer, “Second Thoughts on the Meaning of Serrano" op. cit. supra note at 41

338 Rerke and Callahan, op. cit. supra note at 65–66. 339 Coons et al, “A First Appraisal of Serrano,” on. cit. supra at 118. 340 Coons et al, “Educational Opportunity : A Workable Constitutional Test For State Financial Structures." op. cit. supra note at 420.

menting with various creative models of school finance, Mr. Dimond says it is “more likely that the state's dirve for unifority will as usual triumph, and all the states with no good reason will jump for the same remedy." 341

VI. SOME POSSIBLE RAMIFICATIONS OF EDUCATIONAL FINANCE REFORM · A. On Land Use

Adoption of wealth free systems of school finance is sure to have extensive impact in the area of education. Though less obvious, impact would also be widespread in other areas of American life. Its adoption would remove an important economic obstacle to location of low-and-moderate income housing in the suburbs. Suburban residents would no longer be able to fight such housing on the grounds that it would bankrupt the municipality because the cost of educating the children who would live in such housing would far exceed the property tax income derived from that housing. Removal of the “respectable" economic justification hopefully would provide the impetus to open up the suburbs to all economic classes. 342

A related land use problem that would be affected by the adoption of a wealth free system of school finance is the wooing of commercial and industrial enterprise from the cities by suburban communities to gain taxable property. Such action currently has the effect of putting jobs out of reach of the urban residents who so desperately need them and dotting esthetically pleasing landscapes with offices and factory buildings.

Educational finance reform also could hare the effect of decreasing rural migration to the cities. Many people who prefer to live in the rural areas feel that inadequate and underfinanced schools in rural areas cheat their children of educational opportunities. B. On School District Organization

Community control proponents might find support in the adoption of a wealth free system because poor communities would no longer need to expand the level of educational expenditures by combining with richer areas into a single district. One commentator has said "[i]f fragmentation no longer means diminution of fiscal capacity, the community control movement has become economically credible. It is now difficult to justify the independence of a middle class suburb while rejecting community demands in the inner city.” 313

The extent to which the school finance cases will impede or stimulate the consolidation of school districts depends upon the financing scheme adopted. A financing scheme that provides aid independent of local tax effort or local tax base might stimulate rich districts that are inefficiently small from an administrative point of view to consolidate with other districts. By remaining small, these districts have managed to provide ample funds for education at a low tax rate. They have resisted any programs that would increase their educational costs—such as public housing projects or consolidation with areas with low tax bases. Once a district's tax base is removed as the determinant of its educational expenditure, rich districts might be less opposed to consolidating with other districts if this results in a more efficient educational system.

On the other hand, a wealth free system of school finance will remove the incentive for poor districts to consolidate with richer ones to obtain a large joint tax base. It has been noted that

[Serrano] closes out the long movement for district consolidation by subsuming its rationale. If tax bases in a decentralized system must be effectively equivalent through power equalizing, there is no point in amalgamating districts beyond the point of increasing educational efficiency. Currently district gigantism is receiving low grades in this respect. . . . If fragmentation no longer means diminution of fiscal capacity prima

facie [Serrano] will make metropolitan integration plans more difficult.34 But, as we have noted, not all the proposed methods of equalizing school finance operate within the present system of school districts; not all seek to equalize aid within the present framework. Some proposals call for reorganizing school districts so as to equalize their tax bases. This would provide school

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341 P. Dimond, "Serrano : A Victory of Sorts For Ethnics, Not Necessarily For Education," 2 Yale Rev. of Law and Social Action 133 at 137 (1971).

342 Introduction, "Who Pays for Tomorrow's Schools : The Emerging Issues of School Finance Equalization" 2 Yale Rev. of Law and Social Action 109 (1971).

343 Coons, Clune and Sugarman, “A First Appraisal of Serrano”, op. cit. fupra note at 12 n. 54.

344 Coons, Clune and Sugarman, “A First Appraisal of Serrano”, 2 Yale Rev. of Law and Soc. Action 111, 121 n. 54 (1971).

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