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tier 2 with the hold-harmless clauses with their own figures. Even at that level some districts lose 10 or 20 percent of funding for the current year, depending upon which hold-harmless provision would be provided.

I think we can safely say that the appropriation level that is needed here_is_fast_approaching the $900-million figure. That is staggering. It is staggering to us in education.

We would hope that USOE could shortly provide us with the figures we are seeking or perhaps if there is a necessity for some changes.

I am informed that under the administration's new proposal for doing away with certain parts of the impact aid program they propose a new formula which reflects more accurately the Federal responsibility for impact aid.

As I recall, funding priorities in the existing law in terms of A and B children would remain essentially the same. But the scheme goes on to require a reduction from the entitlement of these districts of 5 percent of their expenditures. This would eliminate the greatest number of impact aid districts around the country from the program.

If it was really the administration's intent to "more accurately reflect the Federal responsibility" there would be no 2-year-old local contribution rate. There would be a budget proposal that would include full funding for all sections of impact aid.

Should the administration's proposal for fiscal year 1976 become operable I would fear for the ability of many of our school districts to remain operable or to be able to offer a program of any substance at all.

I have a small example on page 7, a little school district in Michigan. Its tax rate a year ago was 10 mils. Due to activities in its own State its tax rate is now 19 mills, just about double.

Should the administration's proposal on the 5 percent absorbtion go into effect they would have to raise that tax rate to 31 mils.

Should funding under 93-380 not be adequate enough to get through tier 2 and stop only at tier 1, the little school district is faced with a tax rate of 63 mils.

I would not want, for one, to try to stand up before the public and explain that.

Gentlemen, I trust that I have shown some need for adequate funding levels or perhaps shortly, sometime in the future, amendments to the present law.

There is a very small indiscretion here on the part of page 7 in an appeal to Mr. Perkins. Using his own State. pointing out how hard-hit some of his own school districts would be, with losses well up in the 30 to 40 percent range, should the hold-harmless clauses not be funded. Even at that level losses will be 10 or 20 percent.

I have kept my testimony brief in the hope of responding to questions from the committee.

Thank you for the courtesies in accepting me this morning. Now, if we may, Dr. Fish will fit right in here with the concepts of equalization.

Dr. FISH. Mr. Chairman, the equalization comments that we have relate to the concept paper originally prepared by——

Mr. FORD. Excuse me, Dr. Fish. Without objection your statement will be inserted into the record at this point.

Dr. FISH. Thank you, Mr. Chairman.

[Prepared statement of H. David Fish follows:]

PREPARED STATEMENT OF DR. H. DAVID FISH, SAN DIEGO UNIFIED SCHOOL DISTRICT Public Law 93-380 has modified the Impact Aid Program by adding a new section 5(d) (3) to the basic law. This section provides an exception to the previous section 5(d) (2) of Public Law 874 prohibiting state governments from taking into consideration Impact Aid funds in determining the amount of state funding a school district may receive. A simple statement of the exception is that a state could make application to be allowed to consider impact aid as part of equalization payments to school districts. Congress, in maintaining a prohibition and then adding an exception, obviously intended that the prohibition was still in effect except in certain limited cases. Testimony had been presented that in a very few states new equalization programs had been enacted which provide complete equality in accordance with the Serrano and similar cases. The national direction toward equalization that truly makes the quality of a student's education independent of the property wealth of the school district is a relatively recent phenomenon. Not only is the change recent, but it is very limited in implementation. Very few states have enacted financial programs that provide equality of educational resources either voluntarily or in response to a court decision.

The recentness and the extent of the potential changes in educational finance led Congress to include provisions in the law requiring careful processing of any exception to the former absolute prohibition. The complexity of the subject prevented Congress from even writing a general rule that established definitions. The law and the conference report have a combined meaning that exceptions from the general prohibition are to be determined on a "case by case" basis and the right to due process is specifically stated. Additional limiting wording established the condition “. . . . if the state has in effect a program of state aid for free public education for any fiscal year, which is designed to equalize expenditures for free public education among the local educational agencies. . . .” as the basic condition. The "program of state aid" phrase indicates that the state has accepted the responsibility to provide the additional funding necessary rather than providing for shifting among local property taxes with a financial loss to affected districts.

The affected local school districts as well as the states are offered the opportunity for a hearing prior to the implementation of any decision to allow a state to divert impact aid funds, and thereby reduce the school district's financial support. Congress clearly did not intend the application of the exception to be general in nature or to reduce the funding available to schools.

Most important and vital to today's testimony was the requirement that the Commissioner of Education define by regulation the terms "state aid" and “equalize expenditures” after consulting state and local agencies affected. The definition of “equalize expenditures" and the method of evaluating its application through regulation is the test of compliance with Congressional intent.

On February 10th and 11th the initial consultation was held at the Office of Education with both representatives of some states and a very few of the many school districts concerned with this law. A concept paper had been developed and circulated on the 31st of December and formed the basis of discussion. The impact aid school districts are seriously concerned with the direction of the concept paper. The broad interpertation possible under the concept paper and the methods of the application of the guideline are not consistent with Congressional intent. The concept paper makes a basically simple process complicated and potentially dangerous to the financial stability of the local school districts. As presented on the 10th of February, the concept paper takes the approach of describing three alternative methods of examining state school finance programs utilizing arbitrarily determined indicators or acceptable ranges or benchmarks for school district expenditures per students. Not only does this method become complex but it is also possible to show that in certain states already adjudged to have unequalized educational finance programs one of the alterna

tives could apply. It is possible to demonstrate serious deficiencies in each alternative; or, much worse, to figure out some method to qualify an unequalized program through minor adjustments in wording. The total approach is inadequate to the challenge, not necessary, and almost impossible to apply universally to the fifty states. States have a wide variety of historical backgrounds in reaching their current educational funding programs. It is not the role of the Office of Education to attempt to justify or approve the pattern that has been developed but rather to certify that equalization has resulted.

The concept paper did not include some very basic preliminary conditions that must be considered in reviewing the admissibility of an application and amount of funds affected. We submit these as basic positions.

(1) The state must be in full and complete compliance with any court mandate to equalize educational opportunities. The state must have satisfied the various restraining orders, court mandates or any other judicial provisions that require equalization within the state. The equalization program must be in full opera tion so that the removal of impact aid funds as a direct district revenue will not lead to a reduction of funds available to the local education agency. To allow a state to take impact aid funds under consideration in an equalization program that has been judged to be inadequate or not truly equalized by a court would be directly contrary to Congressional intent.

(2) Any educational finance plan operating in a state that provides for an unequalized limit on local educational agencies through an unequalized revenue limit or other device intended to prevent or limit the expansion of educational opportunities by local educational agencies is also contrary to Congressional intent.

(3) Any funding from impact aid that has a categorical limitation cannot be considered under any state equalization plan. Equalization refers to general aid funds only and to consider funds derived from public housing students which must be spent in a categorical manner or handicapped students who must be in specified programs is not general aid.

The attention of the Commission should be focused on the effect of equalization plan and the problems of the concept paper could be avoided. As a counter proposal, we would suggest a simple process that is consistent with the original Congressional intent. First, a definition of equalization that is consistent with recent court decisions can be developed. These decisions indicate that the quality of a child's education should not be a direct result of the real property wealth of his school district. Another way of stating the basic thought is that the education of each child in the state should have equal access to the available resources. The process for the state then would be to establish that the amount available for the regular student in the regular program was basically the same across the state and that each school district in varying from this amount could do so by imposing an equal additional burden on the local property taxpayers for an equal amount of support per student. Other variations from the actual dollar amount per student would have to be as a result of true categories of educational need as in the case of those students requiring additional or different services as discussed in subsection 5(d) (3) (B) (handicapped, economically disadvantaged, and others). A state's application would consist of documentation that variation for the particular school district from the regular dollar amount per student have a rational basis founded on the need of the student not on the comparative property tax wealth of a school district or the discriminatory practices of a partial or inadequate state equalization program.

Several states are currently under order by the courts to develop equalization programs. Obviously, these states, after an extensive judicial process with the lengthy presentation of all relevant data, testimony of expert witnesses and all of the safeguards of the American legal system, cannot be considered to have an equalized program for school finance, and therefore should not be able to apply to the federal government to subvent P.L. 874 funds until they are in full and complete compliance with new court direction. To support the equalization mandated, we consider that a narrow interpretation of the law was what Congress intended. The examples that were provided in testimony of inequality under the present Impact Aid program were few and restricted to those states which have achieved a high degree of equalization. If the guidelines that implement the 5(d) (3) exception allow states which have not equalized to divert impact aid funds, then the guidelines will be a source for injustice. Congress' intent to facili

tate equalization will have been subverted into a reward for maintaining systems of inequality.

Dr. FISH. The statements have been modified somewhat by testimony we have heard today in asides produced from staff members of the Office of Education.

In the interest of time I will concentrate on relatively few statements from their concept paper and also some specific responses to the discussion today which laid out the major issues.

First of all, with regard to the exception of 5(d) (2) we do accept and wholeheartedly endorse the idea of an extremely limited exception. Already we have had an opportunity to check four school districts. in Florida. We find that even there we have some challenge to the conclusion that Florida would qualify.

We would request of the chairman that we have an opportunity to deliver a statement from Brevard County which shows that the current Florida program does not truly equalize. It does not provide an equal dollar amount per student.

Mr. FORD. Without objection your statement will be inserted. [Brevard County, Fla., statement follows:]


When considering impact aid as required local effort in state equalization formulas, it may not be considered independently of local leeway. That is, impact aid' is to compensate school districts for the added burden of school children brought to a school district by a federal government owned installation. This same installation takes property off of the taxroll and therefore decreases the potential revenue which may be realized through local leeway, or that amount of millage which may be taxed for educational purposes and which is not equalized in the state formula. Therefore, before impact aid is considered as required local effort, a state average should be computed of revenue per pupil realized through local leeway. Impact aid districts should be guaranteed at least this average by use of impact aid funds.

To illustrate the concept, Florida's total assessed valuation in October 1974 was $81.713,308,799. There were 1,563.697.88 full time equivalent students. School districts could tax 8 mills, but 6.3373 mills were treated as required local effort, or substracted from the state computation of the Florida Educational Finance program as an equalization measure. This left 1.6627 mills as local leeway, or that amount which could be taxed to support an education program above the minimum program provided by the state. Ninety-five percent (allowable for taxation) of $81.713.308.799 times the potential local leeway of 1.6627 mills divided by 1.563.697.88 full time equivalent students yields $82.54 as the average revenue per FTE that 1.6627 mills local leeway will provide. This is the average amount. Actually the districts range in potential from $194.23 in Collier County to $18.58 in Holmes County. Collier County's potential from 1.6627 mills is 1045% of that of Holmes County. Ironically. Holmes County is an impact aid county. Impact aid adds another $5.71 per FTE for a total of $24.29. This is far below the state average of $82.54 and only 12.5% of Collier County's $194.23. Would it be fair to permit Collier County to maintain their $194.23 per FTE in local leeway and count Holmes County's $5.71 per FTE impact money as required local effort?

To relate Florida's six school districts, which receive in excess of $1.000.000 in impact aid. to their local leeway situation, I have prepared the attached table. Column 1 is the impact aid reported on the district's FY74 Annual Financial Report. Fiscal 75 figures were unavailable for the study. These impact aid figures are high as they include FY73 impact funds impounded by the President, but released in FY74. As an example, Brevard County received $759.000 in impounded funds. However, for the purpose of this study, the figures are usable to demonstrate the desired relationship between impact aid and local leeway.

Column 2 is the amount of the impact aid per student when divided by the number of full time equivalent students in the district during the October 1974 survey. To obtain the number of full time equivalent students in the district, the October unweighted FTE was doubled.

Column 3 is the amount per FTE that the local district may raise by taxing the 1.6627 mills of local leeway. Column 4 is the amount of FTE that Column 3 exceeds or is below the state average of $82.54 per FTE. Of the six largest impact aid districts in Florida, only one district, Dade County, exceeds the state average. This demonstrates the effect of federally owned property tax exemptions.

Column 5 is the potential amount per FTE available to the district when impact aid and local leeway are combined (Column 2 plus Column 4). Column 6 is the amount per FTE that this exceeds or is below the state average of $82.54. Brevard County and Okaloosa County now join Dade County in exceeding the state average. However, the largest, Okaloosa County, is still $55.38 per FTE, or 28.5% below the Collier County amount of $194.23. A good argument could be made for permitting all impact aid counties to retain their impact aid as local leeway as long as the state permits Collier County and all other counties exceeding the state average to maintain their favorable local leeway through ad valorem taxes. Column 7 demonstrates the amount of impact aid which would be counted as required local effort. This is computed by multiplying Column 6 by the number of FTE in the district when their yield exceeded the state average. Column 8 is the amount the districts would retain to maintain the state average.

If this system of equalization was put into effect, districts would be encouraged to tax the legal millage limit. This is the only way an impact aid district could maintain the state average when their assessed valuation per public was less than the state average. This may not be a favorable goal when pressure to reduce local ad valorem taxes has been mounting. As an example, the table demonstrates that without counting $1.867,727 of Brevard County's impact aid as required local effort, the amount per FTE available to Brevard County exceeds the state average. In reality the $52.53 available FTE to the County through local leeway, or the taxing of 1.6627 mills, was not realized. Brevard County passed most of the excess above the state average on to the tax paper by only taxing 0.9127 mills as local leeway. This reduced the amount available to only $28.83 through ad valorem taxes and $91.12 total when taking into consideration impact aid. If the goal is to facilitate a reduction in local ad valorem taxes, it may be well to leave the impact aid situation as it now exists. That is, permit all impact aid to be local leeway.

In comparing per pupil revenue available, a strong argument exists for using weighted FTE. The weighting of FTE tends to factor out the influence of program variation. One school district may have a greater need for exceptional child and vocational programming than another district due to the uniqueness of their population. The programming is reflected by weighted pupils. Table 2 illustrates the same data using revenue per weighted FTE to judge the influence of impact aid on local leeway. The results are similar. Three of the six counties are still below the state average per W/FTE local leeway when they retain their impact aid. One county, as before, has a greater than average yield from ad valorem tax and could relinquish their impact aid. Two other districts are below state average yield from ad valorem tax, but exceed state average when impact aid is considered. They would retain the amount of impact aid necessary to bring them to the state average.

In summary, the large majority of impact aid districts receive less than the state average per pupil revenue from their ad valorem tax local leeway. This is due to the amount of tax exempt property owned by the Federal Government within the district. Impact aid compensates somewhat for this inequality. Districts should not be required to contribute their impact aid until there is no local leeway and all non-state revenue is considered required local effort. At this time, all districts would be equalized. A compromise position, though unfair to impact aid districts, would be to allow them to keep that amount of their impact aid which will bring them to the state average per pupil revenue through local leeway realized from ad valorem taxation. However, this will encourage impact aid districts to tax the legal limit as this will be the only way they may realize the state average in per pupil revenue. This would be in opposition to current thought of making schools less dependent on ad valorem tax, giving relief to the property tax payer.

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