The Courts and Public School Finance: Judge-Made Centralization and Economic Research

This paper explores for economists how the school-finance litigation movement, which began with Serrano v. Priest in 1971, ought to be characterized in economic models. Its primary message is that this has become a national movement, not one confined to individual states. Economists should be wary of characterizing these cases as discrete events in which a state that loses to reform-minded plaintiffs is distinctly different from a state that succeeds in defending its system. I describe numerous instances in which states have attempted to head off defeat in the courts by conceding to reform-demands by the plaintiffs. School finance litigation does make a difference, however. Win or lose, states have been induced to reformulate their state-aid formulas. I show that the most common of these reforms, which focus on differences in tax-base per pupil, have altered the local tax price for education. This alteration causes the "property rich" districts to pay more for education. However, the correlation between "property rich" and "income rich" is essentially zero, largely because low-income communities are more willing to tolerate the nonresidential uses that lower their tax price. The result is that school-finance reform in most states is likely to reduce the efficiency of local public education because of tax-price distortion but not improve the lot of low-income students and taxpayers in any systematic way.