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Impact of School Finance Reform on Resource Equalization and Academic Performance: Evidence from Michigan

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  • Joydeep Roy

Abstract

The state of Michigan radically altered its school finance system in 1994. This was a legislature-led reform that took place somewhat unexpectedly and without the intervention of any courts. The new plan, called Proposal A, significantly increased the state share of K-12 spending and entailed large sums of money to the lowest spending districts. These districts were also allowed to increase their future spending at a much faster rate than others. Concurrently, Proposal A ended local discretion over school spending. Using panel data on K-12 districts from 1990 to 2001 I investigate the impact of Proposal A on distribution of resources and educational outcomes in Michigan. In the process this paper offers a first detailed look at the effectiveness of a legislature-led school finance reform, something which has been debated recently in the literature. I first look at the effect on equalization of school spending. The program was quite successful on this count - by the end of the decade the lowest spending districts had witnessed large increases in spending. The gap between the highest and lowest spending districts had considerably narrowed down. The magnitudes look particularly impressive when compared to the corresponding estimates from court-mandated reforms, even large comprehensive ones like Kentucky (1989). The results are similar for other important indicators – e.g. while at the time of the program there was a large positive relationship between median income in a school district and its K-12 expenditures, this has been significantly weakened post-reform. Next I look at the trends in academic performance. I employ various strategies, including using the changes in state aid formula as instruments for actual spending, to estimate whether the lowest spending districts, the chief beneficiaries, witnessed any additional improvements. The results based on tests administered by the state show significant test score gains by these districts. These gains are robust to alternative control groups, and hold good when I look at the experience of two neighboring states, Indiana and Ohio. However, there is not much evidence of any improved performance by these lowest spending districts in college preparation test (ACT). There is also not much relative improvement, particularly at the lower half of the distribution, in nationally-conducted NAEP (National Assessment of Educational Progress) tests. These findings have significant policy implications. First, these show that state legislatures can initiate and implement a comprehensive school finance reform, even one which is largely redistributive in nature. Second, it is interesting to note the significant academic progress registered by the lowest spending districts in the post-reform period. While not ruling out substantial inefficiencies in the utilization of additional funds, it seems that a lack of resources was partially responsible in holding down achievement in some districts. However, and third, the gains in student achievement look relatively modest, particularly when compared to the large increases in spending. It seems that even complete equalization of school resources across districts will not be enough to ensure complete equality in school outcome measures. One may have to look beyond school financing to issues of school effort and favorable peer group quality.

Suggested Citation

  • Joydeep Roy, 2004. "Impact of School Finance Reform on Resource Equalization and Academic Performance: Evidence from Michigan," Econometric Society 2004 North American Summer Meetings 425, Econometric Society.
  • Handle: RePEc:ecm:nasm04:425
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    Cited by:

    1. Hægeland, Torbjørn & Raaum, Oddbjørn & Salvanes, Kjell G., 2012. "Pennies from heaven? Using exogenous tax variation to identify effects of school resources on pupil achievement," Economics of Education Review, Elsevier, vol. 31(5), pages 601-614.
    2. Holmlund, Helena & McNally, Sandra & Viarengo, Martina, 2010. "Does money matter for schools?," Economics of Education Review, Elsevier, vol. 29(6), pages 1154-1164, December.
    3. Chakrabarti, Rajashri & Roy, Joydeep, 2016. "Do charter schools crowd out private school enrollment? Evidence from Michigan," Journal of Urban Economics, Elsevier, vol. 91(C), pages 88-103.
    4. Matthew Springer & Keke Liu & James Guthrie, 2009. "The impact of school finance litigation on resource distribution: a comparison of court-mandated equity and adequacy reforms," Education Economics, Taylor & Francis Journals, vol. 17(4), pages 421-444.
    5. Chakrabarti, Rajashri & Roy, Joydeep, 2015. "Housing markets and residential segregation: Impacts of the Michigan school finance reform on inter- and intra-district sorting," Journal of Public Economics, Elsevier, vol. 122(C), pages 110-132.
    6. Maria Marta Ferreyra, 2009. "An Empirical Framework for Large-Scale Policy Analysis, with an Application to School Finance Reform in Michigan," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 147-180, February.
    7. Michael Conlin & Paul N. Thompson, 2014. "Michigan and Ohio K–12 Educational Financing Systems: Equality and Efficiency," Education Finance and Policy, MIT Press, vol. 9(4), pages 417-445, October.
    8. Joydeep Roy, 2004. "Effect of a School Finance Reform on Housing Stock and Residential Segregation: Evidence from Proposal A in Michigan," Public Economics 0412004, University Library of Munich, Germany.
    9. C. Kirabo Jackson & Rucker C. Johnson & Claudia Persico, 2016. "The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms," The Quarterly Journal of Economics, Oxford University Press, vol. 131(1), pages 157-218.
    10. repec:aea:aejpol:v:9:y:2017:i:4:p:256-80 is not listed on IDEAS
    11. Sungoh Kwon, 2017. "Does Public School Spending Raise Intergenerational Mobility?: Evidence from U.S. School Finance Reforms," Working papers 2017-06, University of Connecticut, Department of Economics.
    12. Maria Marta Ferreyra, 2008. "An Empirical Framework for Large-Scale Policy Analysis, with an Application to School Finance Reform in Michigan," 2008 Meeting Papers 609, Society for Economic Dynamics.
    13. Eric J. Brunner & Joshua Hyman & Andrew Ju, 2018. "School Finance Reforms, Teachers’ Unions, and the Allocation of School Resources," Working papers 2018-11, University of Connecticut, Department of Economics.

    More about this item

    Keywords

    K-12 Education; School Finance; Inequality and Redistribution; Academic Performance;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • I2 - Health, Education, and Welfare - - Education

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