13.

age-old difficulty of overcoming or reconciling those who benefit from current school finance systems. To do that states need help, help in the way of additional resources to level up and to ease the burden of transition years, help in the way of reasonable federal requirements to provide a lever to stimulate change in existing state policy.

In proportion to total educational spending, the costs would not be high. In most states the bill for thoroughgoing equalization with substantial levelling up would probably not exceed 20% of current expenditures, and the federal share would need to bear only a proportion of that. The history of federal educational finance in the last decade and a half provide ample precedent for a commitment of that magnitude. From 1958 to 1964 federal expenditures doubled; in 1966 they more than doubled again in a single year. Periodic quantum jumps, then, have characterized the recent fiscal history of the federal role.

It is our recommendation today, based substantially upon the views we have developed in the course of our research on school finance and federal educational policy, that this committee adopt a program to help states to reform their systems of school finance. The goal of the legislation would be to assure that the quality of education a child receives does not vary simply because of the arbitrary distribution of the local capacity to support education within each state. We believe that a policy of that kind would be a worthy, appropriate, and widely appreciated component of the federal role in American school finance.

Senator PELL. Our next witness is Will Myers, senior analyst and education finance specialist, Advisory Commission on Intergovernmental Relations.

You have a relatively long statement, which perhaps you would care to digest, and we would insert the full statement in the record at the conclusion of your testimony.

STATEMENT OF WILL S. MYERS, SENIOR ANALYST, ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS

Mr. MYERS. That would be fine, Mr. Chairman. I would be glad to do that.

My name is Will Myers. I am the senior analyst on the staff of the Advisory Commission on Intergovernmental Relations.

I want to thank you on behalf of the Commission for the opportunity to acquaint your committee with the Commission's views on the intrastate school finance equalization question.

I think it would be helpful to have in the record at this point what the ACIR is. The Advisory Commission on Intergovernmental Relations was established by Congess in 1959 to pay continuing attention to the tensions in our federal system and to make policy recommendations to alleviate them. It consists mainly of policymakers of Federal, State, and local level, 26 members in all, representing both political parties. Commission members include members of the Senate and House, the Cabinet, Governors, State legislators, mayors, elected county officials and three private citizens. The Chairman of our Commission is Mr. Robert E. Merriam of Chicago.

The Advisory Commission over the years has had a continuing interest in school finance mainly because school financing has a major impact on our intergovernmental fiscal system.

In a report entitled "State Aid to Local Governments," the Commission adopted as its first policy recommendation in that report recommendations dealing with financing of public schools.

The Commission's recommendation is as follows:

In order to create a financial environment more conducive to attainment of equality of educational opportunity and to remove the massive and growing pressures of the school tax on owners of local property, the Commission recommends that each state adopt as a basic objective of its long-range statelocal fiscal policy the assumption by the state of substantially all fiscal responsibility for financing local schools with opportunity for financial enrichment at the local level and assurance of retention of appropriate local policymaking authority.

The Commission thus defined the role of the States in the intrastate school finance issue. In response to President Nixon's request, the Commission examined the Federal role, if any, in helping the States discharge their school finance responsibilities.

The complete Commission study has recently been published under the title, "Financing Schools and Property Tax Relief-A State Responsibility." The study resulted in four major findings related to school finance.

NO FISCAL EXHAUSTION

A major Federal educational aid program to help States finance the costs of equalizing per-pupil spending within each State cannot be justified on the grounds that States confront insurmountable fiscal

burdens. Our analysis reveals that only a few States would experience fiscal difficulty in bringing per-pupil expenditures to the relatively high levels needed to comply with the "no wealth" principle enuncíated first in the Serrano case.

The great majority of States have the necessary untapped relative tax potential. New York, Vermont and Wisconsin, however, stand out as the States that would experience greatest fiscal difficulty because of their current heavy use of all State and local taxes.

Prospects for easing pressures for additional school spending have now appeared. School workload will tend to ease in the future as the rapid reduction in the birthrate is reflected in lower school enrollment. The continued expansion of Federal financial assistance, including revenue sharing, to States and localities portends a further easing fiscal pressures on States.

Thus, while there may be other reasons for Federal aid to help States in reducing school spending disparities, such support is difficult to justify on the grounds that the monetary costs imposed by the court decisions or by the conscious public policy constitute an insurmountable fiscal burden for more than a few States.

WIDE STATE POLICY DISCRETION

State legislatures retain wide discretion to devise a school funding system that will both serve the Stae's purposes and pass the test of constitutionality. The court decisions outlawing persistent school finance disparities have not declared the property tax unconstitutional nor even indicated it is an unsuitable tax. Neither have court decisions required equal dollar expenditure per pupil. The courts have recognized that State legislatures have been unwilling to offset fully the variations in local fiscal capacity with equalizing State aid dollars. Per-pupil spending is still at least twice as great at the 90th pupil percentile level as at the lowest level in half of the States.

As part of the reform of its existing school finance system, a State may confront a major new fiscal demand: That of eliminating wealth as a determinant of local per-pupil spending. Three of the four broad approaches to school finance reform-"beefed-up" foundation program, power equalizing, and the full State funding approach-are likely to entail additional funding to assure that no existing program is cut back.

The fourth-school district reorganization-would entail a constant adjustment of boundaries to preserve equal per pupil valuation but no State financial outlay.

The cost to the States of overcoming a great portion of the impact of local fiscal disparities does not seem large when the full revenue potential of the States is considered. Raising the minimum per pupil expenditure to the 90th percentile level would cost about $6.9 billion and draw down 27.4 percent of the estimated untapped State-local tax capacity-less in some States and more in others, of course.

The actual cost in each State might entail somewhat less money because a State has several options, including school district reorganization, designed expressly to put districts on a more equal local fiscal footing and thereby ease the fiscal pressure on the State.

All but three States-New York, Vermont, and Wisconsin-could raise per pupil spending to the 90th percentile level by using sub

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stantially less than their entire untapped relative tax capacity. The same three States would have to use all of their apparent fiscal elbowroom-and more to level up to the 90th percentile even with the addition of general revenue sharing.

One specific source of State fiscal pain to which the Federal Government can minister with good effects for the States is the welfare area. For example, New York lays out 2.34 percent of its personal income to meet State-local public assistance and medicaid costs. If the National Government assumed all public assistance and medicaid costs, as ACIR has recommended in its report on "State Aid to Local Government," State and local governments in New York would get over $2 billion of fiscal relief.

Pressure on State political leadership to raise more revenue in response to expenditure demands has the positive virtue of forcing States to keep their own fiscal house in order-in the case of education, to reform property tax assessment administration and to make appropriate changes in local government structure to eliminate debilitating fragmentation.

Fiscal pressure probably explains much of the move to improve property tax administration and also the reduction in the number of local school districts from about 109,000 in the 1941-42 school year to about 16,000 in the 1971-72 school year.

If schools get no more than their present share of the budget in most States over the next decade, they can do much to make their existing equalization efforts more effective. Lower rates of growth in school enrollment will free-up school funds for redistribution in an equalizing fashion.

PROBLEM THAT WILL ABATE

The issue of intrastate disparities in school finance stands out as one problem of federalism that will tend to abate rather than worsen as time goes by. Thus the question confronting political leaders at all levels of government is just how long should the reform process take. Two forces are at work tending to delay State initiative on the school finance disparities issue.

Mindful of the fiscal consequences of most proposed solutions to the disparities issue the public response to a proposed State initiative on school finance is more likely to meet with overt resistance than passive acceptance. The defeat of Governor Cahill's income tax proposal in New Jersey stands out as a case of overt resistance to a proposal calling for a major departure from the status quo. The shift from local school property taxes to a statewide levy for this purpose also carries another set of controversial tax implications.

The most important of these would be the demand that the States. equalize property tax assessments both within and among local assessment districts with a consequent shift in burdens among property

owners.

A shift toward centralized financing of schools is viewed in many quarters as a threat to local control-control of funds having traditionally served as the instrument for making educational policy. While most proposals for school finance reform have sought to accommodate the concept of local control by permitting local supplementation within limits, New York's Fleischmann Commission recommended

against authority for local supplementation on the ground that it would lead ultimately to the re-creation of the school disparities State financing was designed to correct. Others, including ACIR, have contended that a more centralized school financing system should not preclude local control over major aspects of education. The controversy over local control gives the upper hand to the status quo position on school finance because of the lack of evidence to support any other position.

Several forces at work on State governments portend a gradual lessening of interdistrict school finance disparities.

By their past action, States have set a strong precedent for continuously improving the operation of their school finance systems. The improvements have resulted in part from school district consolidation and from States assuming a larger share of State-local costs. States are not likely to stop or reverse this trend.

The education commission of the States keeps a scorecard on the major school finance changes. According to their records, 10 States launched significant new equalization programs in 1973 to reduce the disparities in financial support behind pupils in various parts of a State.

Without any direct Federal intervention, States have made progress in reducing disparities in school spending. The trend to improved State-local finance programs is firmly established, and there is no reason to believe it will be turned around.

The reduction in the number of local school systems accounts for much of the State progress in reducing disparities in local school spending. Both the opportunity to improve educational programs by school consolidation and the urge to get the most out of the educational dollar have led States to exert control over school district boundaries. State action on boundaries promotes efficiency yet permits flexibility to reflect vital local interests in school district organization.

Taxpayer pressure to slow the rise in aggregate property tax levies and, in some instances, to obtain outright property tax relief has had and will continue to have an equalizing impact on the school finance system.

To the extent that the taxpayer pressure is successful, a larger proportion of State-local school costs will be supported by State nonproperty taxes thereby reducing the significance of interdistrict school finance disparities.

Federal aid to States and localities has been trending upward, revenue sharing being the most recent manifestation. State governments alone reported they plan to put $623 million of their general revenue-sharing payments into the field of education; the money commitment represents more than half of the State's third period entitlement. In addition, one-third of the States anticipated that their use of general revenue-sharing funds would stem the trend toward ever-higher State local taxes.

Recent amendments to the Social Security Act shifted more of the responsibility for welfare financing from the States to the Federal Government. Federal funds free-up State funds for use on other State functions.

Part of the money probably will be channeled into school support to relieve pressure on the local school property tax. At a minimum,