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Looking at it across the Nation, I just haven't seen this. We were instructed in the legislation to consult extensively with local and State officials and this we have done.

I would say, Mr. Meeds, that doesn't justify us in any way ignoring or not giving full consideration to the legislative intent.

The point of view almost unanimous with those we conferred with is that we ought not to include capital expenditures and debt service in this consideration.

Mr. MEEDS. Mr. Commissioner, let me interrupt.

I don't doubt that that is the point of view of all the State officials to whom you have referred.

But are you also telling me that that is the point of view of the majority of the local school districts with which you have conferred?

Mr. BELL. Knowing the number of districts that there are, we haven't had as good a sampling there as we have had with the States. Historically, we work more closely with the States. So I don't think I can say that, Mr. Meeds.

Mr. MEEDS. Have you had any local school district which was in favor of not including as a total effort capital expenditures?

Mr. BELL. Would you respond to that, Mr. Stormer?

Mr. STORMER. I don't think you could find a local district that said that. You are talking about the proportionality. Local school districts would be in favor of incorporating debt service and capital

Mr. MEEDS. And all States would oppose it.

Mr. STORMER. I think you would find that.

Mr. MEEDS. Al, in response to your question or statement, I see no problem at all in mixing debt service, if you want to call it that, and current expenditures for the purpose of determining the local effort to provide funding for their own schools.

If they decide that they want to spend more money on capital expenditure proportionately than they do on current expenditures I think you would agree that that is a local decision and I understood you to pretty much support

Mr. QUIE. Would you yield, Lloyd?

Mr. MEEDS. Certainly.

Mr. QUIE. In the law it speaks of a State that has in effect a program for free public education. This is designed to equalize expenditures for free public education among the local education agencies in the State. Then it goes on to speak about that.

I assume that we are not speaking of debt reduction for capital expenditures because States aren't involved in equalizing capital expenditures. They are trying to equalize current expenditures. We would have written this differently if we had meant it then only to apply to States who included both because I don't know of any States that do.

Mr. MEEDS. That equalize capital expenditures? The State of Washington makes an attempt at it.

Mr. FORD. So does Michigan.

Mr. QUIE. A few States assist local school districts. But to equalize, I don't believe they do.

Mr. BELL. Where they do they do it separately.

I guess the only State with full equalization would be Maryland.

Mr. FORD. Mr. Commissioner, what the court said in Serrano v. Priest and what others have said is that equalization was the total dollars spent in the education of a child.

The tradition in developing full equalization formulas for school distribution at the legislative level has been to try to equalize that district that had a low tax base and a relatively high tax rate against the one with a good tax base and a relatively low tax rate.

So they were distributing money, using the State's money to offset that disparity. The idea of trying to equalize is not something that was discovered in California in Serrano v. Priest.

But the traditional way in which that is done and there are only three States, as we have heard here, that are doing a Serrano v. Priest test, the bulk of the States are still using equalization.

The same section of the law that Mr. Quie was reading from, paragraph B, we understand the terms "State aid and equalized expenditures as used in this subsection shall be defined by the Commissioner by regulation, after consultation with State and local educational agencies affected by this subsection."

It was our clear intent that any local school district that was in any State that even looked by your figures like it was going to come close to qualifying ought to be put on notice as given an opportunity to comment. So you shouldn't do this on the basis of three or four Serrano compliance States that you would not qualify. But you should be doing it on the basis of a much broader representation. You are charged by statute to consult with local people for that very reason that we get to this kind of disagreement.

Mr. BELL. We have also consulted with local districts. Proportionately, since there are 16,000 of them, we don't have the kind of proportion sampling that we have with the States.

But I would point out that we have more opportunity for that after our proposed rulemaking. There will be additional opportunity for the local districts to express themselves.

Mr. FORD. When would you think these proposed rules would go. into the Federal Register?

Mr. BELL. I would say that they would be in sometime in April, hopefully before the 15th.

Mr. FORD. That means that if you had any substantial discussion, any exchange at all, we couldn't expect you to finalize this before June, could we?

Mr. BELL. That is essentially correct.

Mr. FORD. So in all probability we are going to finish up this fiscal year at this trigger point for all these changes before you are able to finalize the rules for the change.

Mr. BELL. That is right, Mr. Ford.

Mr. FORD. Which will leave us in a position of wondering whether, if we finalize it, we are going to agree with the consequences of our act and it is too late for us to do anything about it.

Mr. BELL. The difficulty that the Commissioner faces is the numerous points of view on this. I think it is highlighted by the exchange between Mr. Quie and Mr. Meeds.

As we pursue this elusive thing called legislative intent specifically on this matter we find it extremely difficult over on the Senate side to talk to them.

I would just say to you, sir, that you have given the Commissioner a tough one and regardless of how I come down on this there are going to be some unhappy states. There will be some unhappy school districts. And there are going to be some Members of Congress who are going to disagree with me and I think strongly so because there is no way to put this one together, without I guess at some point after I have gotten all the advice I can-the way the law is written I have got to make a decision that the law charges me to make. Ultimately it will be the Congressmen overturning that, which I recognize.

Mr. MEEDS. If I may, Mr. Chairman, Mr. Commissioner, the reason I worked with people to work out this formula for allowing the impact aid funds to be counted in equalization formulas as a local resource was that I felt the law prior to that time, prior to this, was an impediment to States adopting equalization formulas.

I did not want to be a part of an impediment to that since I firmly believe that States should equalize, really equalize. It shouldn't be a charade, as so many of them are.

But if you interpret it the way you indicated earlier, your current thinking, excluding debt service as a local resource, then it will have exactly the opposite effect. It would be working as an impediment to equalizing in other areas, in, for instance, the area of capital construction. Perhaps we ought to be trying to induce them to do this. I think that is a good idea.

So you are turning my rationale right against me, if you interpret it that way.

I want the record to clearly show that I am dismayed by it.

I won't spend any more time on that.

Mr. QUIE. Would you yield, Lloyd?

Mr. MEEDS. Yes.

Mr. QUIE. At that one point when you asked me a question whether the local schools agreed, you said local school agencies wouldn't agree to anything that would make 5 (d) (3) go into effect and if you have to include capital expenditures it would then prevent 5 (d) (3) from going into effect and therefore they could continue to get that additional amount of money.

Mr. MEEDS. I think it is safe to say the States and local school districts will be on exactly opposite ends of this.

Mr. QUIE. The Commissioner has to realize that we passed this for a purpose. He has got to talk with them. But he doesn't take one side or the other. He finds out from them all the information possible and then cranks that into his determination.

Mr. MEEDS. As the Commissioner pointed out, he has got a tough decision to make. And exactly all the local districts are on one side and all the States are on the other. He is caught in between. I don't envy his position.

But I thought he ought to know what this one Member's thinking was who was very much involved in writing this.

Mr. BELL. I would like to say in response to that that I know we are on the spot on this.

I would also like to say that I am willing to take the heat and I am not about to get out of the kitchen with respect to it.

I know that all of us are inclined to have a point of view influenced by where we sit. In that regard the locals are going to have an entirely different point of view from the States.

I am certainly getting a lot of advice on this. We will continue to do so, I am sure.

Mr. FORD. Mr. Commissioner, it is absolutely true. It depends on where you sit. But where we sit there are 7,000 school districts out there and only 50 States.

Mr. MEEDS. Mr. Commissioner, I would like to pursue the guidelines that you are working on now with regard to whether a State, in fact, qualifies with its equalization formula.

My understanding is that initially your people did talk to us about this. Initially you were thinking about not allowing a State to qualify when there was more than a 20-percent difference between their highest and lowest districts and that you are now considering eliminating the top 5 percent and the bottom 5 percent and then working the 20 percent.

I certainly understand the rationale for eliminating the top 5 percent. Could you tell me the rationale for elimination of the bottom 5 percent?

Mr. BELL. Yes. We think that there will be unrepresentative lowcost districts on the bottom 5 percent just as there will be on the top 5 percent.

This tends to distort the data. You have to look at the data to realize the necessity for these two 5 percents. We've a number of nonoperating districts, school districts that exist in fact but they don't operate and their children go to other districts. That in and of itself is a considerable distortion in connection to these expenditures. So because of this we feel that the very low districts and the extremely high districts will distort the data in a way that some of them that pay tuition and do other things will cause quite far-ranging variety in the data and will keep us from getting at what are truly representative expenditures on both extremes.

If we include that far-ranging bottom 5 percent for example we will be getting that which is not going to be helpful in arriving at what is going to be fair and equitable.

Indeed we think it will considerably distort. I think this is a hard concept to convey. I think we need a chance to confer with some of your staff on this to do a better job of defending than this.

I would emphasize again, in concluding this response, that we are willing of course to consider this further. But at this point we think that this is going to be quite an important feature in the determination. that we make.

Mr. MEEDS. I am very much in favor of what you have done here. I think it is very realistic and certainly comports with my intent, again, that States really be serious about equalizing if they are going to get these funds. I think this really separates the men from the boys right away. I think we ought to do this.

I was concerned about the lower 5 percent. I can see now when you say there are school districts not operating, this certainly would distort the statistics, and the information vou ultimately came up with. So I think I am inclined to agree with that now.

By this type of initial or opening formula, how many States in your present belief will qualify as really having realistic

Mr. BELL. At the present time with the data we are using it would appear that maybe three States would qualify.

Mr. MEEDS. Which States are those?

Mr. BELL. That would be Florida, New Mexico, and Hawaii.

Mr. MEEDS. How close does Kansas come?

Mr. BELL. Do you know, Mr. Stormer?

Mr. STORMER. At the present time it doesn't appear very close. I can't give you a specific figure. It does not appear that Kansas would qualify. I don't have that figure.

Mr. BELL. Again, Mr. Meeds, I think we would have to bring more of this data the next time we speak with your staff so you could see how we are planning this at this time.

Mr. QUIE. Would you yield on that point?

Mr. MEEDS. I yield.

Mr. QUIE. Are these States who asked and would qualify? Or are these States who would qualify if they asked?

Mr. BELL. These are the States that would qualify if they asked. They may not ask.

Mr. QUIE. My God, you can't be serious.

Mr. BELL. I hasten to say that New Mexico has asked.

Mr. QUIE. So it is Florida, New Mexico, and Hawaii.

Mr. BELL. And Hawaii, yes.

Mr. QUIE. And Kansas? Utah?

Mr. BELL. My home state of Utah, it doesn't make it. Mr. Quie. Mr. QUIE. I don't understand why Minnesota wouldn't make it. Mr. BELL. I don't either. But they don't at the present time with the data.

Mr. QUIE. Then you have got some screwy things in that data. Mr. ALFORD. Mr. Quie, we should emphasize that all of this is on preliminary data. Not all of the States have been examined. So it may be that others would qualify when we get through with the full

examination.

Mr. QUIE. But the ones you mentioned have been examined and qualify?

Mr. BELL. Yes, sir. If we apply these data it will be quite an exclusive club.

Mr. COOKE. Mr. Quie. I think there are only eight States that we really have data on so far. So we are very preliminary on how many States qualify and don't qualify. But we have no definitive answer on that now.

Mr. FORD. If you stay here another hour and a half I bet it will pick up.

Mr. BELL. We thought those eight States would be close to the ballpark. I would be surprised if any outside of that groun make it.

Mr. MEEDS. One final question, Mr. Commissioner. There are those and even my colleagues sometimes have been a critic of the present impact aid formula. I am not a critic at all of the concept. The concept of impact aid, indeed. I am very much in favor of it.

But I have been a critic of the distribution of funds under impact aid in the past and I have not been convinced otherwise as yet.

But I must say that I don't agree with the reasons, the rationale, that you give, most of those you give, for decreasing funding under impact aid.

Nowhere do I notice in all of your objections the fact that impact aid funds in the form of B payments are going to districts which

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