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of 1974). The Office of Education has, through its interpretation of Section 5(d)(2), tried to compel equalization without regard to major financial issues. The latter course is ineffective because relatively few districts in any given state receive impact aid and secondly, the high costs of undertaking major school aid reform are not commensurate with the "reward" of being able to count impact aid. Now, let me state explicitly what can be done to eliminate the confusion and uncertainty which continues to mark this issue. In the 1974 amendment of Section 5 (d) (2) language was included which was proposed by Congressman Meeds which established a very clear and equitable federal standard. The so-called "Meeds" amendment provided "that a State may consider as local resources funds received under this title only in proportion to the share that local revenues covered under a state equalization program are of local

This language was designed to permit LEA's to tax themselves more heavily than mandated by state law and have some reward therefore reflected in its impact aid receipts. This language, applied on a statewide rather than district by district basis, should be the sole test for determining the maximum amount of impact aid which can be recognized as local resources. This approach would establish a sliding scale reflecting the varying degree of equalization among the states. We submit that use of this as the sole test is completely equitable to impacted districts and taxpayers in other districts as well and should be so recognized by the Office of Education in its regulations. This would provide a clear standard for state legislators to use in fashioning school aid programs and would be adequate to deal with the windfall problem to which the 1974 amendments were addressed.


We do not believe it is necessary to change the statute to achieve this result if the Committee will provide some clear guidance to the Office of Education in report language or by other means. ever, if legislation is deemed necessary, the simplest way of dealing with the problem would be to amend subsection 5 (d) (2) (B) to delete the authority for the Commissioner of Education to define "equalized expenditures" and let the statute stand on its own.

Mr. Chairman, as I indicated, this issue currently affects only four states though we understand that Florida and Utah may shortly be considering changes in their basic finance program to allow for the deduction of impact aid as a local resource. Other states which have districts receiving significant impact aid funds have not chosen to address it. If, however, the trend toward more equalized aid systems continues and it should it will come up in other states. We

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need a clear Congressionally-established policy to guide them,

I hope this testimony is helpful. We will greatly appreciate the Committee's attention to this matter. I would also like to submit for the record a copy of a communication on the pending rulemaking which was submitted on behalf of the Education Commission of the States, the National Governors' Conference, and the National Conference of State Legislatures and the Council of Chief State School Officers, as well as the recent study the National Conference of State Legislatures which details how selected states would fare under the final and proposed impact aid equalization recommendations.

Thank you.

Respectfully submitted,

Exhibits attached to record copy only.


Harry Wugalter

Secretary for Educational Finance and Cultural Affairs for the State of New Mexico

priple C. Hidr

Joseph C. Harder

Chairman, Kansas Senate

Education Committee and Member, National Conference of State Legislatures

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The following comments on the captioned rulemaking are submitted on behalf of the Education Commission of the States, National Conference of State Legislatures, the National Governors' Conference, and the Council of Chief State School Officers.

These organizations have previously commented on regulations proposed under the authority of Section 5(d) (2) of Public Law 81-874. As a preface to comments on the immediate proposal relative to a "wealth neutrality" test it is appropriate to reiterate our concerns on the general question of the treatment of impact aid in equalized state school finance systems. We believe the fundamental congressional objective in the amendment of Section 5(d) by P.L. 93-380 was to eliminate "windfalls" to local educational agencies receiving federal impact aid payments and also receiving state aid allotted inversely to a LEA's fiscal capacity.

This point is clearly manifested in both Committee Reports on P.L.
Note the following language on Page 42 of the House Committee Report:

"The Committee has adopted this amendment because it believes
that federal education laws should not serve as an impediment

to state actions designed to fulfill the judicial mandates and
legislative actions removing the often close relationship
between values of property and quality of education in a school

Also, in the Senate Committee Report (page 55), the problem is stated as follows:

"Inability to consider impact aid payments for the purposes
of establishing an equalized level of expenditure seriously
interfered with state plans for school finance reform."

And on page 56, the effect of the Committee Amendments is described as follows:

"In other words, in state equalization situations, states may
treat impact aid in the same manner as state and local funds
in making their determination of financial resources and
financial needs of local educational agencies."

There was recognition that without some rodification the prohibition in Section 5(d) (2) would result in inequities and overly beneficial treatment for impacted districts. Senator Pell used the term "windfalls" in describing the effect under certain state aid plans (see page S-8502 in the Congressional Record of May 20, 1974).

This objective was further reflected in the language adopted by the Conference Request on P.L. 93-380. The so-called 'Meeds amendment" established a sliding scale requirement which would eliminate potential windfalls creating any inequitable treatment for impact districts.

In the development of regulations to implement this statute the Office of Education has, we believe, lost sight of this objective and rather has adopted a quite different one. The structure of the regulations including the disparity test and the proposed "wealth neutrality" (Section 115.64) and "exceptional circumstances" (Section 115.65) tests establishes inordinately restructive standards for state programs to qualify as equalizing. These tests are not designed to measure the treatment of impacted districts (the windfall problem) but rather appear designed to reward states which meet the Office of Education standards by allowing them to consider impact aid as local resources. Apparently, this is regarded as an incentive for states to enact school finance reforms geared to the equalizing standards promulgated in these regulations. This assumption ignores the fact that relatively few districts in any given state receive impact aid payments and that the cost of major school finance reforms greatly exceed the amounts received by impacted districts in any given state. Accordingly, the regulations will not in fact act as an incentive for states to equalize. To the extent that they prohibit states from considering impact aid, they protect "windfalls."

Further it should be noted that the penalities in the statute run not to states (which are not recipients of impact aid payments) but rather to recipient school districts. If a state program is determined to be in violation of the referenced regulation the penalty is to withdraw impact aid funds from districts within that state. This is roughly the equivalent of doing away with the potential for bank robbery by eliminating banks.

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