- Surveys & Programs
- Data & Tools
- Fast Facts
- News & Events
- Publications & Products
- About Us
Martin E. Orland
Carol E. Cohen
The Finance Project
About the Authors
Dr. Martin E. Orland is currently on leave from the U.S. Department of Education to serve as a Senior Fellow with The Finance Project, an independent nonprofit initiative created to improve the financing of education and other public services for children and their families. He has recently served as lead investigator for a series of Finance Project studies analyzing how changes in state demographic and fiscal conditions, along with new federal aid policies, can be expected to affect future state financial investments in education and other children's services.
Before joining The Finance Project, Dr. Orland spent three years as a senior official with the National Education Goals Panel (twice he was named Acting Director), and six years prior to that position he was a senior analyst with the and the U.S. Department of Education's Office of Research. A Political Scientist by training, Dr. Orland received his doctorate from Syracuse University's Maxwell School in 1978. Over the course of his career, he has authored over 40 scholarly publications and government reports on public policy, finance, and governance issues.
Carol E. Cohen is a senior research associate with The Finance Project, where she has authored or managed studies on state investments in education and other children's services and the effect of federal tax reform proposals on families with children. She is currently managing the preparation of a guide to issues, options, and resources for financing education and other children's services. Ms. Cohen gained her experience in the fields of state and local finance and intergovernmental relations through positions at the Advisory Commission on Intergovernmental Relations, the General Accounting Office, the Congressional Budget Office, and the Center on Budget and Policy Priorities. She holds a master's degree in public policy from the University of California, Berkeley.
Meeting the Challenge of Devolution:
How Changing Demographic and
Fiscal Contexts Affect State
Investments in Education
Martin E. Orland
Carol E. Cohen
The Finance Project
Introduction
As the direction of public policy points unambiguously to a larger state and local leadership role in delivering and paying for public services, the near- and long-term fiscal outlook for states takes on added relevance to those interested in education finance. The impending devolution of program responsibility and authority from Washington, DC to states and localities means that these governments increasingly will be expected to design and fund strategies for meeting the needs of their citizens. What financing challenges is the education sector likely to face in light of this changed context? What policy implications are suggested by this financing outlook?
Unlike most other children's services, education revenue is derived almost exclusively from state and local sources. The overall proportion of federal financial support for elementary and secondary education is currently under 7 percent. So, at first glance, it might seem as though a smaller federal role would not have much impact on education service provision. However, upon closer inspection, it is clear that federal devolution can be expected to affect education financing in at least two ways. First, states and school districts will be increasingly called upon to provide financing to support the special categories of funding in which federal financing currently plays a major role. For instance, disadvantaged students, students with disabilities, and the limited English proficient (LEP) have for years been particularly dependent on targeted federal assistance programs. More recently, through programs such as Goals 2000 and the School-to-Work Opportunities Act, the federal government has begun to provide states and school districts with the marginal resources needed to stimulate broad system-wide education reforms grounded in the principle of all students achieving at dramatically higher levels.
Perhaps even more significantly, federal devolution will cause increased competition for the general state and local education dollar. As federal payments for programs like welfare and Medicaid are reduced, additional pressures will be placed on state and local budgets to accommodate the shortfalls. Because education comprises such a large share of state and local budgets (about 38 cents of every state and local tax dollar in 1992), it may become an especially inviting revenue target.
To what extent will the education sector in states and local communities be equipped to meet the financial challenges brought on by a declining federal role? Answering this question satisfactorily requires that we appreciate the factors most directly associated with patterns and trends in education spending. Even a cursory look at average per-pupil expenditure levels reveals how much spending variability exists both across the states and over time. In 1992, real per-pupil spending was over three times higher in New Jersey than in Utah. Even more dramatically, while average per-pupil education spending rose $110 per year between 1970 and 1989, it increased at a rate of only $15 per year between 1990 and 1994.
The purpose of this analysis is to better understand what drives spending
contrasts like these, and what this portends for future spending on education.
It is our hope that such an understanding will enable policymakers at all levels
to make more informed decisions on public educational investments.
Analytic Approach and Framework
This study analyzes the fiscal challenges ahead for states in financing education by examining patterns of state spending for these services and the major factors that influence them. In addition to examining recent cross-sectional state data on per-pupil education spending, we look at spending changes between 1970, 1980, and 1992. Our approach is based on the assumption that the factors and relationships that are significant in explaining current and recent state spending will continue to affect such spending in the future.
The hypothesis framing our analysis is that three broad factors can influence state spending for education:
- the service needs (or the demographic capacity) of states to provide education services;
- the ability to pay (or the fiscal capacity) of states to provide such services; and
- the willingness to pay (or the fiscal effort) of states and localities in support of these services.
The relevance of each of these factors to the level of per-pupil education spending in each state is highlighted below.
Service Needs (Demographic Capacity)
The magnitude of each state's overall need for educational services can have a major impact on the amount of resources that state invests in each pupil. In this study, we measure this factor, which we have labeled its demographic capacity, by determining a state's ratio of population to pupils. All else being equal, states that are able to spread their educational costs across a larger population base (i.e., those with higher population to pupil ratios), can more easily generate a given level of per-pupil spending than can states with greater numbers of students relative to their population.
Ability to Pay (Fiscal Capacity)
The ability to pay, or fiscal capacity, of a state can also have a major impact on per-pupil education spending. A state's fiscal capacity represents the potential of that state to generate resources for public purposes. Thus, the higher the level of a state's fiscal capacity, the greater its presumed ability to fund all public services, including education. Likewise, the stronger the growth of fiscal capacity, the greater a state's ability to increase spending for those services.
As with indicators of need, there are many possible choices for indicators of state fiscal capacity. Some, such as per capita income, are based on broad measures of economic activity within a state, while others, such as the Representative Tax System developed by the Advisory Commission on Intergovernmental Relations, focus more directly on the revenue-raising potential of state and local governments. In addition, some measures are better able to capture the potential of states to export taxes to, or raise revenues from, non-residents than are others. Nevertheless, the fiscal capacity indices for most states tend to differ little depending on what measure is used, except in those states with relatively large oil production or tourism industries, where the potential for tax exporting is the greatest.
In this study, we use per capita personal income as the indicator of a state's ability to pay for educational services. Per capita income is a major component of a state's capacity to raise revenues for public services, because most taxes are paid from the income of a state's residents. Per capita income is the most widely used indicator of fiscal capacity, and the most readily available for the years examined in this study.
Willingness to Pay (Fiscal Effort)
The third major factor that can affect state per-pupil education spending is a state's willingness to pay for education. Willingness to pay is captured by the fiscal effort a state makes. Fiscal effort relates a state's actual revenues or spending to its fiscal capacity. Because fiscal capacity varies across states, a state with lower fiscal capacity will have to use a greater share of its capacity to achieve the same service levels as a state with higher fiscal capacity (all else being equal) and vice versa. Fiscal effort thus provides a measure of the relative burden placed on a state's resources, or the effort made to achieve the service levels that are provided.4
Fiscal effort can be measured for the total of all revenues or spending (i.e., the overall fiscal effort of a state) or for selected categories. In this study, we use education spending per $100 of personal income as our measure of fiscal effort for education. Because we use personal income (on a per capita basis) as our indicator of fiscal capacity, we also use it in defining our measure of fiscal effort.
Relationship of Service Needs, Ability to Pay, and Willingness to Pay
We have noted above that service needs (or demographic capacity), ability to pay (or fiscal capacity), and willingness to pay (or fiscal effort) can each independently affect state per-pupil spending levels. Gold developed an approach describing how these factors interrelate in each state to affect spending using the following mathematical identity.
In this equation, we see that education service levels (school spending per-pupil) is a multiplicative function of fiscal effort (spending in relation to personal income); fiscal capacity (per capita income); and demographic capacity (the ratio of population to pupils). The mathematical identity, in effect, decomposes state per-pupil spending levels into demographic capacity, fiscal capacity, and fiscal effort components. As discussed later in this paper, by relating each component in a state to its corresponding value for the United States as a whole, its relative contribution in explaining that state's spending can be observed.
Features of Our Presentation and Data
Our analysis primarily examines national patterns and trends in the data and discusses what they are likely to mean for most states in the future. Because of the great variation among states, however, we also present state-by-state data and highlight significant variations among states or regions where they exist.5
Our work relies on data compiled by Steven D. Gold et al. and published in State Investments In Education and Other Children's Services: Fiscal Profiles of the 50 States, as well as an analysis prepared for The Finance Project by the same authors. That database contains state-by-state data and national data on state spending for education (as well as other children's services) and related economic and demographic factors. Some of the features of that database are described below.
Definition of State Education Spending
State education spending is defined as all current spending for public elementary and secondary education in a state. It excludes expenditures for capital improvement and focuses only on ongoing expenditures for K-12 education. Education spending includes spending from federal revenue sources. However, because the federal contribution to state elementary-secondary education spending is relatively small (in 1992, less than 7 percent6), this measure of education spending primarily reflects the commitment of states, including their local governments, to education spending from their own resources.
Time Periods
The database includes education data for 1992, the most recent year for which all the data were available, as well as historical data for 1970, 1980, and 1992.
Adjustments for Inflation and Differences in Price Levels
Inflation reduces the value of a dollar of spending over time. To adjust for this effect, all fiscal data are presented in 1992 constant dollars.7 Our comparisons of revenue, spending, and income data over time thus represent real changes in the levels of these variables, after accounting for the effects of inflation.
Likewise, differences in price levels among locations can bias interstate
comparisons because of their effect on the purchasing power of families and
governments. A family with a $40,000 annual income in Boston, for example, has
much less purchasing power than one with the same income living in Jackson,
Mississippi. However, because valid and reliable state-level price-adjusted data
are less readily available over time than non-adjusted data, most of the data in
this report are unadjusted. In those instances where we have used an existing
index to adjust for interstate price-level differences (see, for example, table
1), the results suggest that such adjustments narrow but do not eliminate the
wide variations among states.8
Key Findings: Patterns and Trends in Education Spending
Elementary and secondary education constitutes by far the largest single category of spending by state and local governments. In 1992, states devoted 34 percent of their tax revenues to finance K-12 education, compared to about 20 percent for health, 12 percent for higher education, and 8 percent for social welfare. Thirty-eight cents of every state and local tax dollar that year supported education.
The magnitude of state and local educational investments should not obscure the fact that states vary considerably in both their levels of education spending and rates of expenditure growth. As noted earlier, New Jersey spent over $9,000 per-pupil in 1992, a figure that is about three times greater than that for Utah. Even when spending is adjusted for differences in the cost of living, substantial differences remain (see table 1). And while the last two decades were periods of substantial real growth in educational expenditures overall (see table 2), spending disparities among the states have remained relatively constant (see table 3).
Table 1--Current Education Spending per Pupil, 1992
-------------------------------------------------------------------------------
Spending
Adjusted for
Unadjusted Index Cost Index
State Spending (U.S. = 100) Differences * (U.S. = 100)
-------------------------------------------------------------------------------
United States $5,421 100 $5,421 100
New Jersey 9,317 172 7,302 135
New York 8,527 157 7,251 134
Alaska 8,450 156 6,387 118
Connecticut 8,017 148 6,258 115
Vermont 6,944 128 6,855 126
Maryland 6,679 123 5,808 107
Pennsylvania 6,613 122 6,186 114
Rhode Island 6,546 121 6,017 111
Massachusetts 6,408 118 5,344 99
Michigan 6,268 116 6,725 124
Wisconsin 6,139 113 6,658 123
Delaware 6,093 112 5,544 102
Oregon 5,913 109 6,231 115
Wyoming 5,812 107 6,144 113
New Hampshire 5,790 107 5,341 99
Ohio 5,694 105 6,116 113
Illinois 5,670 105 5,870 108
Maine 5,652 104 5,618 104
Montana 5,423 100 5,901 109
Hawaii 5,420 100 4,091 75
Minnesota 5,409 100 5,760 106
Washington 5,271 97 5,368 99
Nebraska 5,263 97 5,835 108
Florida 5,243 97 5,687 105
Colorado 5,172 95 5,219 96
West Virginia 5,109 94 5,872 108
Iowa 5,096 94 5,669 105
Indiana 5,074 94 5,600 103
Kansas 5,007 92 5,594 103
Nevada 4,926 91 5,027 93
Virginia 4,880 90 5,304 98
Missouri 4,830 89 5,279 97
California 4,746 88 4,280 79
Kentucky 4,719 87 5,356 99
Texas 4,632 85 5,147 95
North Carolina 4,555 84 5,067 93
North Dakota 4,441 82 4,979 92
South Carolina 4,436 82 4,995 92
Arizona 4,381 81 4,554 84
Georgia 4,375 81 4,850 89
Louisiana 4,354 80 4,937 91
South Dakota 4,173 77 4,699 87
Oklahoma 4,078 75 4,618 85
Arkansas 4,031 74 4,602 85
New Mexico 3,765 69 4,088 75
Tennessee 3,692 68 4,148 77
Alabama 3,616 67 4,100 76
Idaho 3,556 66 3,891 72
Mississippi 3,245 60 3,738 69
Utah 3,040 56 3,304 61
-----------------------------------------------------------------------------
Ratio between Highest- and
Lowest-Spending States 3.1 to 1 2.2 to 1
50-State Average 5,330 5,384
Standard Deviation 1,323 889
Coefficient of Variation 0.25 0.17
*Spending adjusted by cost index prepared by F. Howard Nelson, American Federation of Teachers.
SOURCE: U.S. Department of Education, , Digest of Education Statistics, 1994, Table 166, p. 165 reported in Steven D. Gold et al., "How Funding of Programs for Children Varies Among the 50 States," prepared for The Finance Project, May 1995.
Table 2--Percentage Change in Real Current Per-Pupil Spending, by region: 1970-80, 1980-92, and 1970-92
-----------------------------------------------------------------------------
Region State 1970-80 1980-92 1970-92
-----------------------------------------------------------------------------
United States 26.6% 37.0% 73.4%
New England Connecticut 15.7% 90.2% 120.0%
Maine 19.9% 77.9% 113.2%
Massachusetts 49.2% 30.5% 94.7%
New Hampshire 20.5% 73.5% 109.0%
Rhode Island 32.7% 44.5% 91.8%
Vermont 12.5% 99.6% 124.6%
Mid-Atlantic Delaware 44.5% 22.2% 76.7%
Maryland 28.7% 47.6% 89.9%
New Jersey 42.8% 67.6% 139.3%
New York 18.6% 41.4% 67.7%
Pennsylvania 30.7% 49.7% 95.7%
Great Lakes Illinois 29.4% 25.8% 62.8%
Indiana 17.5% 54.8% 81.9%
Michigan 32.8% 36.3% 81.0%
Ohio 29.2% 57.5% 103.6%
Wisconsin 27.6% 42.3% 81.5%
Plains Iowa 25.3% 25.8% 57.6%
Kansas 28.2% 32.3% 69.5%
Minnesota 20.1% 30.1% 56.2%
Missouri 24.2% 43.2% 77.8%
Nebraska 32.8% 40.5% 86.6%
North Dakota 26.5% 32.8% 68.0%
South Dakota 25.7% 25.5% 57.8%
Southeast Alabama 34.7% 28.8% 73.5%
Arkansas 26.0% 47.0% 85.2%
Florida 17.3% 59.3% 86.9%
Georgia 25.7% 54.5% 94.2%
Kentucky 41.9% 59.2% 126.0%
Louisiana 25.7% 39.5% 75.4%
Mississippi 51.0% 11.9% 69.1%
North Carolina 30.3% 49.1% 94.3%
South Carolina 30.0% 45.3% 88.9%
Tennessee 31.3% 29.6% 70.2%
Virginia 26.5% 42.2% 79.9%
West Virginia 30.3% 52.7% 99.0%
Southwest Arizona 24.5% 27.6% 58.8%
New Mexico 30.8% 6.2% 39.0%
Oklahoma 45.0% 21.5% 76.2%
Texas 39.6% 38.8% 93.7%
Rocky Mountain Colorado 49.2% 22.6% 82.9%
Idaho 25.1% 23.0% 53.9%
Montana 44.0% 25.7% 81.0%
Utah 20.4% 5.3% 26.7%
Wyoming 34.2% 32.0% 77.2%
Far West Alaska 91.4% 2.6% 96.4%
California 18.9% 20.1% 42.9%
Hawaii 25.5% 34.0% 68.2%
Nevada 23.5% 35.4% 67.2%
Oregon 32.3% 26.1% 66.8%
Washington 27.6% 17.8% 50.4%
-----------------------------------------------------------------------------
NOTE: Number of pupils is average daily attendance.
SOURCE: U.S. Department of Education, , Digest of Education Statistics, 1994, Table 166, p. 165, reported in Steven D. Gold et al., "How Funding of Programs for Children Varies Among the 50 States," prepared for The Finance Project, May 1995.
Table 3--Real Current Education Spending per-Pupil, by region: 1970, 1980, and 1992 (in 1992 constant dollars)
-----------------------------------------------------------------------------
Region State 1970 1980 1992
-----------------------------------------------------------------------------
New England Connecticut $3,644 $4,216 $8,017
Maine 2,651 3,178 5,652
Massachusetts 3,291 4,911 6,408
New Hampshire 2,770 3,338 5,790
Rhode Island 3,414 4,531 6,546
Vermont 3,092 3,479 6,944
Mid-Atlantic Delaware 3,448 4,984 6,093
Maryland 3,517 4,526 6,679
New Jersey 3,893 5,559 9,317
New York 5,084 6,031 8,527
Pennsylvania 3,379 4,416 6,613
Great Lakes Illinois 3,483 4,507 5,670
Indiana 2,789 3,279 5,074
Michigan 3,464 4,599 6,268
Ohio 2,797 3,615 5,694
Wisconsin 3,383 4,315 6,139
Plains Iowa 3,234 4,052 5,096
Kansas 2,954 3,786 5,007
Minnesota 3,464 4,159 5,409
Missouri 2,716 3,373 4,830
Nebraska 2,820 3,746 5,263
North Dakota 2,644 3,345 4,441
South Dakota 2,644 3,324 4,173
Southeast Alabama 2,084 2,808 3,616
Arkansas 2,176 2,742 4,031
Florida 2,805 3,291 5,243
Georgia 2,253 2,831 4,375
Kentucky 2,088 2,963 4,719
Louisiana 2,483 3,122 4,354
Mississippi 1,920 2,899 3,245
North Carolina 2,345 3,056 4,555
South Carolina 2,349 3,052 4,436
Tennessee 2,169 2,848 3,692
Virginia 2,713 3,432 4,880
West Virginia 2,567 3,345 5,109
Southwest Arizona 2,759 3,434 4,381
New Mexico 2,709 3,544 3,765
Oklahoma 2,314 3,355 4,078
Texas 2,391 3,338 4,632
Rocky Mountain Colorado 2,828 4,218 5,172
Idaho 2,310 2,890 3,556
Montana 2,996 4,314 5,423
Utah 2,398 2,887 3,040
Wyoming 3,280 4,402 5,812
Far West Alaska 4,303 8,237 8,450
California 3,322 3,951 4,746
Hawaii 3,222 4,045 5,420
Nevada 2,946 3,638 4,926
Oregon 3,544 4,690 5,913
Washington 3,506 4,474 5,271
50-State Average 2,947 3,862 5,330
Range 3,165 5,495 6,277
Standard Deviation 605 971 1,323
Coefficient of Variation 0.21 0.25 0.25
-----------------------------------------------------------------------------
NOTE: Number of pupils is average daily attendance. Figures were adjusted by the State and Local Government Implicit Price Deflator from the Economic Report of the President (1992=100).
SOURCE: U.S. Department of Education, , Digest of Education Statistics, 1994, Table 166, p. 165, reported in Steven D. Gold et al., "How Funding of Programs for Children Varies Among the 50 States," prepared for The Finance Project, May 1995; and calculations by The Finance Project.
In this section, we attempt to document factors that influence education spending. Specifically, we address the question of how strongly indicators of demographic capacity (service needs), fiscal capacity (ability to pay), and fiscal effort (willingness to pay) can explain spending patterns and trends among the states. To the extent that any of these factors appear salient, we can use this knowledge to make more informed judgments regarding the prospects for education spending in the future.
We begin this discussion by examining data on demographic capacity, fiscal capacity, and fiscal effort between 1970 and 1992. We then relate these factors to changes nationally in per-pupil spending levels over this period, as well as to differences among the states in per-pupil spending. Finally, we discuss the implications of these findings for future education spending.
Education Spending and Demographic Capacity: The Importance of the Relative Size of the School Population
Our indicator of the need for educational services in a state (or its demographic capacity) is the size of the total population relative to the number of children enrolled in the public schools. As noted in the previous section, the higher a state's ratio of population to pupils, the higher its demographic capacity, and vice versa. By this measure, demographic capacity to support per-pupil education spending increased by 26 percent between 1970 and 1992. Growth occurred in every state and was especially pronounced during the 1970s. States with the highest demographic capacity tend to be overwhelmingly in the Northeast and Great Lakes regions, while those with the lowest demographic capacity are consistently found among the Southwest and Rocky Mountain states (see table 4).
Table 4 --Ratio of Population to Public School Enrollment, 1970, 1980, and 1992
---------------------------------------------------------------------------------------------------
Region State 1970 1980 1990 1992 Rank
---------------------------------------------------------------------------------------------------
United States 4.42 5.39 6.00
New England Connecticut 4.64 5.47 6.70 7
Maine 4.13 4.94 5.71 28
Massachusetts 4.92 5.55 7.08 1
New Hampshire 4.76 5.35 6.26 11
Rhode Island 5.15 6.19 7.06 2
Vermont 4.37 5.12 5.85 24
Mid-Atlantic Delaware 4.14 5.76 6.66 8
Maryland 4.34 5.43 6.61 9
New Jersey 4.88 5.73 7 4
New York 5.26 5.94 6.83 6
Pennsylvania 5.00 6.03 7.06 3
Great Lakes Illinois 4.75 5.59 6.24 12
Indiana 4.20 5.05 5.86 22
Michigan 4.11 4.97 5.88 21
Ohio 4.34 5.33 6.13 15
Wisconsin 4.47 5.44 6.07 18
Plains Iowa 4.25 5.32 5.68 32
Kansas 4.31 5.55 5.59 37
Minnesota 4.11 5.19 5.72 27
Missouri 4.31 5.6 6.12 16
Nebraska 4.45 5.44 5.69 30
North Dakota 4.20 5.54 5.35 40
South Dakota 4.01 5.15 5.34 42
Southeast Alabama 4.16 5.13 5.66 34
Arkansas 4.16 5.01 5.41 38
Florida 4.72 6.28 6.87 5
Georgia 4.09 5.00 5.63 35
Kentucky 4.54 5.38 5.75 26
Louisiana 4.33 5.17 5.34 41
Mississippi 3.86 5.20 5.14 44
North Carolinina 4.24 5.04 6.15 14
South Carolinina 3.96 4.94 5.68 33
Tennessee 4.37 5.23 5.94 20
Virginia 4.29 5.16 6.19 13
West Virginia 4.35 5.00 5.62 36
Southwest Arizona 4.15 5.18 5.70 29
New Mexico 3.66 4.65 5.01 45
Oklahoma 4.14 5.09 5.39 39
Texas 4.01 4.83 4.98 46
Rocky Mounta Colorado 4.02 5.18 5.68 31
Idaho 3.93 4.60 4.60 48
Montana 3.97 4.99 5.18 43
Utah 3.46 4.25 3.87 50
Wyoming 3.81 4.74 4.49 49
Far West Alaska 3.85 4.50 4.79 47
California 4.29 5.65 5.95 19
Hawaii 4.16 5.63 6.49 10
Nevada 3.88 5.18 6.10 17
Oregon 4.31 5.52 5.85 23
Washington 4.07 5.22 5.77 25
---------------------------------------------------------------------------------------------------
NOTE: The 1992 population-to-enrollment ratios in this table differ slightly from the population-to-pupil ratios in table 8. Because of data constraints. fall enrollment data were used to create the ratios in this table, while average daily attendance data were used to create the ratios in T.able 8
SOURCE: U.S. Department of Education, National Center for Statistics, Digest of Education Statistics, 1994 (NCES 94-115), reported in Steven D. Gold et al. "How Fundings= of Programs for Children Varies Among the 50 states," prepared for The Finance Project, May 1995, and calculations by The Finance Project.
As suggested earlier, higher demographic capacity should be good news for per-pupil education spending. This is because the financial burden of educating children who are in the public education system can be spread among more taxpayers. Conversely, having more pupils relative to the population at large would be expected to make it more difficult to generate high per-pupil spending levels. Simple correlations appear to support this hypothesis. In 1992, the correlation between our measure of education need and per-pupil education spending was -0.51, while the correlation between percentage enrollment growth and per-pupil spending growth (between 1970 and 1992) was -0.26. Education Spending and Fiscal Capacity: The Importance of the Size of the Revenue Pie
While education service needs declined during the past two decades, the capacity to finance these services grew at a healthy rate. As measured by changes in real per capita income, state fiscal capacity grew by 31 percent in the 1970s, and 17 percent between 1979 and 1991 (see table 5). State growth patterns were generally consistent with national trends during both decades, with the notable exception of most of the New England and Mid-Atlantic states, where gains were stronger between 1979 and 1991 than they were between 1969 and 1979. Most high-capacity states can be found in the New England and Mid-Atlantic regions, while low-capacity states tend to predominate in the Southeast, Southwest, and Rocky Mountain areas.9
Table 5.-Real per capita income, by region: 1969, 1979, and 1991
---------------------------------------------------------------------------------------
Per Capita Income (in 1991 dollars) Percentage Change
--------------------------------- -------------------------
Region State 1969 1979 1991 1969-79 1979-91 1969-91
---------------------------------------------------------------------------------------
United States $12,636 $16,485 $19,199 30.5 16.5 51.9
New England Connecticut 15,960 19,619 25,844 22.9 31.7 61.9
Maine 10,370 13,394 17,330 29.2 29.4 67.1
Massachusett 14,075 17,273 22,796 22.7 32.0 62.0
New Hampshir 12,398 15,880 20,961 28.1 32.0 69.1
Rhode Island 12,640 15,476 19,451 22.4 25.7 53.9
Vermont 11,178 14,133 17,811 26.4 26.0 59.3
Mid-Atlantic Delaware 14,648 16,809 20,317 14.8 20.9 38.7
Maryland 13,780 17,670 22,483 28.2 27.2 63.2
New Jersey 14,923 18,890 24,744 26.6 31.0 65.8
New York 15,225 17,820 22,925 17.0 28.6 50.6
Pennsylvania 12,570 16,498 19,638 31.2 19.0 56.2
Great Lakes Illinois 14,390 18,425 20,622 28.0 11.9 43.3
Indiana 12,189 15,776 17,275 29.4 9.5 41.7
Michigan 13,445 17,427 18,693 29.6 7.3 39.0
Ohio 12,872 16,343 18,001 27.0 10.1 39.8
Wisconsin 12,179 16,416 17,970 34.8 9.5 47.5
Plains Iowa 11,901 16,169 17,102 35.9 5.8 43.7
Kansas 11,636 16,571 18,259 42.4 10.2 56.9
Minnesota 12,365 16,683 19,289 34.9 15.6 56.0
Missouri 11,715 15,712 18,105 34.1 15.2 54.5
Nebraska 11,725 15,661 18,047 33.6 15.2 53.9
North Dakota 9,876 14,677 15,594 48.6 6.2 57.9
South Dakota 9,747 14,206 16,419 45.7 15.6 68.5
Southeast Alabama 9,024 12,814 15,601 42.0 21.7 72.9
Arkansas 8,617 12,637 14,458 46.7 14.4 67.8
Florida 12,007 15,857 19,203 32.1 21.1 59.9
Georgia 10,439 13,920 17,636 33.3 26.7 68.9
Kentucky 9,700 13,522 15,442 39.4 14.2 59.2
Louisiana 9,521 14,010 15,067 47.1 7.5 58.2
Mississippi 7,841 11,644 13,210 48.5 13.4 68.5
North Caroli 9,962 13,293 16,810 33.4 26.5 68.7
South Caroli 9,216 12,509 15,469 35.7 23.7 67.8
Tennessee 9,720 13,447 16,489 38.3 22.6 69.6
Virginia 11,669 15,959 20,074 36.8 25.8 72.0
West Virgini 9,167 13,299 14,665 45.1 10.3 60.0
Southwest Arizona 11,390 15,235 16,760 33.8 10.0 47.1
New Mexico 9,571 13,542 14,818 41.5 9.4 54.8
Oklahoma 10,482 15,083 15,656 43.9 3.8 49.4
Texas 11,129 16,118 17,440 44.8 8.2 56.7
Rocky Colorado 12,182 17,191 19,745 41.1 14.9 62.1
Mountain Idaho 10,578 14,014 15,854 32.5 13.1 49.9
Montana 10,631 14,558 15,793 36.9 8.5 48.5
Utah 10,022 13,452 14,737 34.2 9.5 47.1
Wyoming 11,682 18,612 18,295 59.3 -1.7 56.6
Far West Alaska 15,371 22,665 21,592 47.5 -4.7 40.5
California 14,887 19,241 20,880 29.2 8.5 40.3
Hawaii 14,698 17,486 21,621 19.0 23.7 47.1
Nevada 14,840 19,263 20,774 29.8 7.8 40.0
Oregon 12,100 16,723 17,789 38.2 6.4 47.0
Washington 13,475 17,890 20,163 32.8 12.7 49.6
--------------------------------------------------------------------------------------------
SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis, State Summary Tables (August 1994) (SA1-3, SA51-52), 1929-93, 1948-93 and calculations by the Finance Project.
Obviously, all things being equal, fiscally strong states can support generous per-pupil education spending levels more easily than can states with a poorer resource base. We would thus expect to see both higher levels of per-pupil spending in states with greater fiscal capacity, and also higher rates of per-pupil spending growth among states where fiscal capacity gains were greatest. Simple correlations reveal a strong relationship between per capita income and per-pupil spending for 1992 (0.80) and a weaker, but still substantial, relationship between 1970 to 1992 changes in per capita income and changes in per-pupil spending (0.52).
Education Spending and Fiscal Effort: The Importance of Educational Resource Commitments
As noted earlier, the degree to which a state taps its available resource capacity, or its fiscal effort, is a third factor explaining per-pupil education spending. A state that devotes a larger share of its available resources to education will spend more per-pupil than a comparable state (in terms of both demographic and fiscal capacity) that makes a more modest resource commitment.
Educational effort is really a function of two components. One is the size of the government sector in the state relative to overall available resources. A larger government revenue base means more resources potentially available to support educational expenditures.
The second critical component of educational effort is the share of government resources supporting education. Differences among states in the education share of the government pie, as well as changes in that share over time, can profoundly affect educational effort levels and, ultimately, per-pupil expenditures.
Nationally, educational effort remained relatively stable between 1970 and 1992. It declined a bit in the 1970s, before growing modestly from 1980 to 1992 (see table 6). Analyzing educational effort by its two core components reveals that the small overall decrease in education effort is entirely attributable to smaller education shares of state and local tax bases. General state and local government tax effort levels remained relatively unchanged between 1970 and 1992. However, the share of this resource base going to education declined from approximately 44 percent to 38 percent (see table 6). Most of this decline occurred in the 1970s and was a function of reduced local (rather than state) government education revenue shares.
Table 6.-Growth in Education Spending in Relation to Personal Income and Education's Share of Tax Revenue, 1970, 1980, and 1992
----------------------------------------------------------------------------
1970 1980 1992
----------------------------------------------------------------------------
Current Education Spending $4.46 $4.30 $4.36
per $100 of Personal Income
State-Local Education Revenue 43.5 39.0 38.2
as a Percentage of Total
State-Local Tax Revenue
----------------------------------------------------------------------------
SOURCE: Steven D. Gold et al., "How Funding of Programs for Children Varies Among the 50 States," prepared for The Finance Project, May 1995.
The overall stability in educational effort should not obscure significant changes in some states in recent years (see table 7). Massachusetts, for example, increased its effort by nearly 30 percent in the 1970s, only to decrease it by about 25 percent during the 1980s and early 1990s. Wyoming did the opposite, decreasing its effort significantly in the 1970s (18 percent) and increasing it by an even greater rate (33 percent) between 1980 and 1992. Over the entire 1970 to 1992 period, 14 states experienced double-digit decreases in educational effort, while 7 experienced double-digit gains. Significantly, educational effort is not strongly associated with region. States with high and low effort levels, and with small and large recent changes in their relative resource commitments to education, can be found in all parts of the country.
Table 7.-Current Education Spending per $100 of Personal Income, 1970, 1980, and 1992
---------------------------------------------------------------------------------------------------
Spending per $100 Income Percentage Change
Region State 1970 1980 1992 1970-80 1980-92 1970-92
---------------------------------------------------------------------------------------------------
United States $4.46 $4.30 $4.36 -3.6% 1.5% -2.2%
New England Connecticut 4.07 3.69 4.31 -9.4% 16.8% 5.8%
Maine 5.02 4.68 5.23 -6.9% 11.9% 4.2%
Massachusettes 3.78 4.86 3.68 28.5% -24.2% -2.6%
New Hampshire 3.74 3.73 4.00 -0.3% 7.1% 6.8%
Rhode Island 4.09 4.47 4.44 9.3% -0.8% 8.4%
Vermont 5.35 4.86 6.24 -9.3% 28.6% 16.6%
Mid-Atlantic Delaware 4.56 4.89 4.14 7.3% -15.4% -9.2%
Maryland 4.49 4.37 3.99 -2.7% -8.7% -11.1%
New Jerse 4.21 4.78 5.02 13.6% 5.2% 19.4%
New York 4.94 5.10 4.78 3.1% -6.2% -3.3%
Pennsylva 4.29 4.28 4.42 -0.4% 3.3% 2.9%
Great Lakes Illinois 3.96 3.98 3.89 0.6% -2.2% -1.7%
Indiana 4.28 3.92 4.69 -8.4% 19.8% 9.7%
Michigan 5.05 5.27 5.23 4.2% -0.8% 3.4%
Ohio 4.00 3.97 4.63 -0.6% 16.6% 15.9%
Wisconsin 4.83 4.56 5.17 -5.7% 13.5% 7.1%
Plains Iowa 5.23 4.60 4.94 -12.1% 7.3% -5.6%
Kansas 4.62 3.90 4.46 -15.5% 14.3% -3.4%
Minnesota 5.57 4.85 4.61 -13.0% -4.9% -17.2%
Missouri 3.91 3.58 3.87 -8.5% 8.0% -1.2%
Nebraska 4.44 4.34 4.81 -2.3% 10.9% 8.4%
North Dakota 5.29 4.36 4.97 -17.5% 14.0% -6.0%
South Dakota 5.57 4.45 4.50 -20.1% 1.0% -19.2%
Southeast Alabama 4.51 4.23 3.86 -6.3% -8.6% -14.4%
Arkansas 4.73 4.25 4.83 -10.0% 13.6% 2.2%
Florida 3.99 3.37 3.65 -15.7% 8.5% -8.5%
Georgia 4.18 3.92 4.11 -6.3% 5.0% -1.6%
Kentucky 3.77 3.91 4.72 3.7% 20.7% 25.2%
Louisiana 4.84 4.11 4.99 -15.1% 21.3% 3.0%
Mississipi 5.00 4.73 4.49 -5.4% -5.2% -10.3%
North Carolina 4.47 4.46 4.11 -0.3% -7.9% -8.1%
South Carolina 5.15 4.72 4.66 -8.2% -1.4% -9.5%
Tennessee 4.14 3.96 3.50 -4.4% -11.5% -15.4%
Virginia 4.34 4.05 3.96 -6.7% -2.2% -8.8%
West Virginia 5.16 4.81 5.74 -6.9% 19.2% 11.0%
Southwest Arizona 4.72 4.32 4.14 -8.5% -4.1% -12.3%
New Mexico 6.29 5.43 5.29 -13.6% -2.7% -16.0%
Oklahoma 4.23 4.31 4.58 1.9% 6.2% 8.2%
Texas 4.09 4.08 4.86 -0.3% 19.1% 18.7%
Rocky Colorado 4.64 4.64 4.14 0.1% -10.8% -10.7%
Mountain Idaho 4.57 4.39 4.62 -3.9% 5.3% 1.2%
Montana 5.71 5.70 6.01 -0.2% 5.5% 5.2%
Utah 5.68 4.97 4.98 -12.5% 0.1% -12.4%
Wyoming 6.00 4.91 6.52 -18.1% 32.6% 8.6%
Far West Alaska 5.93 7.64 7.59 28.9% -0.7% 28.0%
California 4.33 3.75 3.73 -13.4% -0.4% -13.8%
Hawaii 4.29 3.87 3.60 -9.7% -6.9% -16.0%
Nevada 4.06 3.50 3.60 -13.9% 2.9% -11.4%
Oregon 5.36 4.78 5.06 -10.9% 5.9% -5.7%
Washington 5.15 4.65 4.21 -9.7% -9.4% -18.2%
------------------------------------------------------------------------------------------------------
SOURCE: Education Expenditure Data--, Digest of Education Statistics, 1994; Personal Income Data-- U.S. Department of Commerce as of August 1994, reported in Steven D. Gold et al., "How Funding of Programs for Children Varies Among the 50 States, " prepared for The Finance Project, May 1995.
Examining Interstate Spending Differences
As just discussed, differences in levels of demographic capacity, fiscal capacity, and fiscal effort can each help to explain varied levels of per-pupil education spending among the states. But are there patterns in the relative influences of these factors that can be useful in projecting the challenges ahead in education spending? Using the identity developed by Gold (see Section 2: Approach to the Issues), we examine the relative contribution of each in determining per-pupil expenditure levels.
Table 8 arrays states by their 1992 per-pupil spending levels, alongside measures of demographic capacity (the ratio of population to number of pupils), fiscal capacity (per capita income), and education effort (education spending per $100 of personal income). The data are indexed to the national average to facilitate comparisons. A few things are noteworthy about these findings. First of all, as Gold points out, there are few common patterns among the highest-spending states; different factors are associated with high education expenditures in different places. In Connecticut, bountiful tax capacity is the primary story (35 percent above the national average). Educational effort levels here are only about average. Vermont's high spending is completely attributable to its unusually high educational effort rates (it devotes nearly half of its tax revenues to education spending, the fifth highest rate in the country). By contrast, high incomes and favorable population/pupil ratios allow neighboring Massachusetts to spend generously with educational effort levels that are only 85 percent of the national average.
Table 8.-Determinants of education spending per pupil relative to the U.S. average, by region: 1992
--------------------------------------------------------------------------------------------------------------
Education
Education Ratio of Per spending
spending Index pop. Index capita Index per $100 Index
Region State per pupil (U.S.=100) to pupils (U.S.=100) income (U.S.=100) pers. inc. (U.S.=100)
--------------------------------------------------------------------------------------------------------------
New England Connecticut $8,017 148 7.19 111 $25,844 135 $4.31 99
Maine 5,652 104 6.23 96 17,330 90 5.23 120
Massachusetts 6,408 118 7.63 118 22,796 119 3.68 85
New Hampshire 5,790 107 6.92 107 20,961 109 4.00 92
Rhode Island 6,546 121 7.59 117 19,451 101 4.44 102
Vermont 6,944 128 6.25 97 17,811 93 6.24 143
Mid-Atlantic Delaware 6,093 112 7.25 112 20,317 106 4.14 95
Maryland 6,679 123 7.44 115 22,483 117 3.99 92
New Jersey 9,317 172 7.5 116 24,744 129 5.02 115
New York 8,527 157 7.79 121 22,925 119 4.78 110
Pennsylvania 6,613 122 7.62 118 19,638 102 4.42 101
Great Lakes Illinois 5,670 105 7.07 109 20,622 107 3.89 89
Indiana 5,074 94 6.26 97 17,275 90 4.69 108
Michigan 6,268 116 6.42 99 18,693 97 5.23 120
Ohio 5,694 105 6.83 106 18,001 94 4.63 106
Wisconsin 6,139 113 6.61 102 17,970 94 5.17 119
Plains Iowa 5,096 94 6.04 93 17,102 89 4.94 113
Kansas 5,007 92 6.15 95 18,259 95 4.46 102
Minnesota 5,409 100 6.08 94 19,289 100 4.61 106
Missouri 4,830 89 6.89 107 18,105 94 3.87 89
Nebraska 5,263 97 6.06 94 18,047 94 4.81 110
North Dakota 4,441 82 5.72 89 15,594 81 4.97 114
South Dakota 4,173 77 5.65 87 16,419 86 4.50 103
Southeast Alabama 3,616 67 5.95 92 15,601 81 3.86 89
Arkansas 4,031 74 5.77 89 14,458 75 4.83 111
Florida 5,243 97 7.47 116 19,203 100 3.65 84
Georgia 4,375 81 6.03 93 17,636 92 4.11 94
Kentucky 4,719 87 6.47 100 15,442 80 4.72 108
Louisiana 4,354 80 5.79 90 15,067 78 4.99 114
Mississippi 3,245 60 5.48 85 13,210 69 4.49 103
North Carolina 4,555 84 6.60 102 16,810 88 4.11 94
South Carolina 4,436 82 6.16 95 15,469 81 4.66 107
Tennessee 3,692 68 6.39 99 16,489 86 3.50 80
Virginia 4,880 90 6.14 95 20,074 105 3.96 91
West Virginia 5,109 94 6.07 94 14,665 76 5.74 132
Southwest Arizona 4,381 81 6.31 98 16,760 87 4.14 95
New Mexico 3,765 69 4.80 74 14,818 77 5.29 121
Oklahoma 4,078 75 5.69 88 15,656 82 4.58 105
Texas 4,632 85 5.46 85 17,440 91 4.86 111
Rocky Colorado 5,172 95 6.33 98 19,745 103 4.14 95
Mountain Idaho 3,556 66 4.86 75 15,854 83 4.62 106
Montana 5,423 100 5.71 88 15,793 82 6.01 138
Utah 3,040 56 4.14 64 14,737 77 4.98 114
Wyoming 5,812 107 4.88 76 18,295 95 6.52 149
Far West Alaska 8,450 156 5.16 80 21,592 112 7.59 174
California 4,746 88 6.09 94 20,880 109 3.73 86
Hawaii 5,420 100 6.95 108 21,621 113 3.60 83
Nevada 4,926 91 6.59 102 20,774 108 3.60 83
Oregon 5,913 109 6.57 102 17,789 93 5.06 116
Washington 5,271 97 6.21 96 20,163 105 4.21 97
--------------------------------------------------------------------------------------------------------------
NOTE: The population-to-pupil ratios in this table differ slightly from the 1992 population-to-enrollment ratios in Table 4. Because of data constraints-primarily the need to use a consistent measure of pupils in the two variables of
SOURCE: Steven D. Gold et al., "How Funding of Programs for Children Varies Among the 50 States," prepared for The Finance Project, May, 1995.
The picture is much simpler in the lowest-spending states. As Gold also notes, virtually every one of the lowest-spending states has both low per capita income and a low demographic capacity. Significantly, most of the low-spending states (located primarily in the South) are making at least average levels of educational effort. However, the combination of a weak fiscal resource base and the need to support relatively large numbers of children results in low per-child service levels.
To summarize, high state per-pupil spending seems related to relatively unique combinations of demographic capacity, fiscal capacity, and fiscal effort. On the other hand, low spending is consistently explained in terms of low demographic and/or fiscal capacity.
Implications for the Future
The salience of income and demographic factors in explaining per-pupil spending patterns and trends has two significant implications for education spending over the next decade. First, it is clear that more modest income growth and sharply increasing enrollments in most states mean that they will not witness growth rates in per-pupil education spending that were commonplace during the 1970s and 1980s. As illustrated in Figure 1, school enrollment is projected to increase substantially through the year 2005, in sharp contrast to the declines that occurred in the 1970s and early 1980s. At the same time, growth in per capita income is projected through 2005 to be slower than the growth trends the nation has experienced in each half-decade since 1970, with the exception of the 1990-94 period. It appears that recent income and enrollment changes have already contributed to dramatic slowdowns in per-pupil spending growth during the early 1990s. The future outlook for these variables likely will further dampen per-pupil spending gains through the year 2005. Further, these projections do not take into account the looming cutbacks in federal aid outside the education arena. These are likely to exacerbate fiscal pressures on the education sector as competition for available state and local dollars becomes more intense. It may, in fact, be difficult for overall educational effort levels to remain stable in the coming decade in the face of such competition.
Figure 1.--Recent and projected trends in spending, enrollment, and income, 1970-2005
SOURCE: Real per-pupil spending and public school enrollment-U.S.Department of Education, , 1994, and Projections of Education Statistics to 2005; per capita income growth-U.S. Department of Commerce, Bureau of Economic Analysis; historical data and projections for 2000 and 2005 contained in Survey of Current Business, July 1995; and calculations by the Finance Project.
Second, it is extremely unlikely that disparities among states in their
spending levels will be greatly reduced in the years ahead. Projections for
income growth in the lowest-spending states are comparable, by and large, to
those of the highest-spending states. Although a few of the lowest-spending
states like Louisiana, Mississippi, and North and South Dakota are projected to
experience relatively small increases in enrollment growth, they are also among
the states that are most dependent on federal aid and thus most likely to be
affected by grant-in-aid cutbacks. Of the 10 highest-spending states, only 3
(Alaska, Maryland, and New Jersey) have higher-than-average projected enrollment
growth through the year 2005.
Summary and Conclusions
Our primary purpose in studying state spending patterns and trends in education is to permit us to make more informed judgments about future state financial investments in this area. We employed a three-factor model consisting of measures of service needs (demographic capacity), ability to pay (fiscal capacity), and willingness to pay (fiscal effort), in an attempt to associate each of these with state per-pupil spending levels for education.
Two of the three factors--service needs and ability to pay--demonstrated a consistently strong relationship to state education spending per-pupil. States with larger proportions of children who need services (the school-age population) consistently were less likely to spend as much on a per-child basis as states with lower levels of overall need. Similarly, high-income states spent considerably more per child on education than did poorer states. By contrast, the association between fiscal effort and state spending was relatively weak. Many low-spending states made large resource commitments to education relative to their income, while several high-spending states made a more modest education effort. It is the strong and consistent relationship between service needs, ability to pay, and state education spending which, when placed in the context of demographic and economic projections, leads to concerns about future state educational spending. Factors associated with substantially higher spending levels in most states--in particular, healthy per capita income growth and declining school enrollments--are not likely to be present over the coming decade. Public school enrollments are expected to rise at a rate of about 1 percent per year between now and 2005. If more modest per capita income growth projections prove accurate, most states will be extremely hard pressed to maintain their education spending patterns of recent years.10
The effects of cutbacks in federal aid to states and localities in order to achieve a balanced federal budget can be expected to further exacerbate the fiscal stresses on states stemming from less favorable demographic and economic conditions. Federal aid currently augments state and local tax revenues by about one-third. Thus, major reductions will undoubtedly put additional pressure on states to make up shortfalls in a variety of areas (e.g., transportation, higher education, community development) by raising their own spending levels. Because tax increases are unlikely and economic growth is expected to be modest, the revenue to fund any such increases may well come from reallocating existing resources. The education sector may become especially vulnerable, since it is the largest single functional component of state and local budgets, comprising 38 cents of every state and local tax dollar in 1992.
In conclusion, the salience of indicators of service needs and ability to pay in explaining state investment levels in education leads to the conclusion that most states will be greatly challenged in the years ahead in financing these programs. The extent of the financing challenge will vary considerably by state, but, in general, a combination of increased needs, slower growth in fiscal capacity, and reduced federal aid will make it extremely unlikely that the vast majority of states can sustain the per-pupil spending patterns of the previous two decades.
References
Gold, Steven D., et al. September 1995. State investments in education and other children's services: Fiscal profiles of the 50 states. Prepared for The Finance Project. Washington, DC.
Gold, Steven D., et al. January 1996. How funding of programs for children varies among the 50 states. Center for the Study of the States. Albany, NY.
Leonard, Herman. and Monica Fryar. 1994. By choice or by chance? Boston: Pioneer Institute.
Nelson, F. Howard. Spring 1991. "An interstate cost of living index." Educational Evaluation and Policy Analysis 13: 103-111.
U.S. Department of Commerce. July 1995. Bureau of Economic Analysis. Survey of Current Business. Table D.
U.S. Department of Education. 1995. National Center for Education Statistics. Projections of education statistics to 2005. NCES 95-169. Washington, DC: Government Printing Office. Table 46.
Wallace, Sally. December 1995. The effects of economic and demographic changes on state and local budgets. Prepared for The Finance Project. Washington, DC.
FOOTNOTES
- NOTE: This paper is adapted form Martin E. Orland and Carol E.Cohen, State Investments in Education and Other Children's Services: The Fiscal Challenges Ahead, prepared for The Finance Project, Washington, DC, September, 1995.
- This ratio is an admittedly incomplete proxy of state service need or demographic capacity, but one that appears well-suited to the aggregate state-level analysis appearing in this paper. More refined measures would be expected to include other student population characteristics, such as numbers from low-income families, numbers with limited English proficiency, numbers with disabilities, etc.
- This study focuses on states' spending for education from their own resources. The concept of fiscal capacity used in this study does not include federal aid. Although federal grants to states can be expected to affect their ability to finance educational services and major reductions in the size of these grants are likely, these impacts will be discussed separately from the influence of state fiscal capacity.
- Fiscal effort may be a flawed proxy for willingness to pay if there are external constraints on spending levels, such as federal mandates, court orders, or state constitutional requirements for allocating funding.
- Intrastate variations in spending and other variables can be as large or larger than interstate variations. Discussion of the extent and significance of intrastate variations is beyond the scope of this analysis.
- Although the federal contribution to education spending ranged as high as 17.7 percent in one state (Mississippi), in 40 of the 50 states, the federal contribution was less than 10 percent.
- Data on education spending were adjusted using the implicit price deflator for state and local government purchases. Per capita income date were adjusted using the fixed-weight personal consumption expenditure deflator.
- There have been at least two recent efforts to develop indices of state price-level differences. The index used in this report to illustrate the effect of adjusting state education spending for price level differences was developed by F. Howard Nelson of the American Federation of Teachers Research Department. Another index used in this report to adjust state fiscal capacity was developed by Herman Leonard and Monica Fryar.
- These regional patterns remain mostly intact after adjusting fiscal capacity for interstate differences in the cost of living. The effect of adjusting for cost-of-living differences is to reduce the variation in fiscal capacity among states. For example, after adjustment, the overall fiscal capacity index of the New England region falls from 117 to 107, while that of the Southeast region rises from 89 to 97.
- Some have pointed out that in addition to expected lower income growth rates, the increasing percentage of economic activity not subject to taxation will further handicap future state and local revenue-raising capacities.
[Public School Teacher Cost Differences the United States: Introduction to a Teacher Cost Index (TCI)]
[The Growth of Education Revenues Between 1982-83 to 1991-92: What Accounts for Differences Among States?]
