Impact of School Finance Reform on Resource Equalization and Academic Performance: Evidence from Michigan
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 â€“ 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.
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Raquel Fernandez & Richard Rogerson, 1999.
"Equity and Resources: An Analysis of Education Finance Systems,"
NBER Working Papers
7111, National Bureau of Economic Research, Inc.
- Raquel Fernandez & Richard Rogerson, 2003. "Equity and Resources: An Analysis of Education Finance Systems," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 858-897, August.
- Courant, Paul N & Gramlich, Edward M & Loeb, Susanna, 1995. "Michigan's Recent School Finance Reforms: A Preliminary Report," American Economic Review, American Economic Association, vol. 85(2), pages 372-77, May.
- Melissa Clark, 2003. "Education Reform Redistribution and Student Achievement Evidence from the Kentucky Education Reform Act," Mathematica Policy Research Reports 80c79eb4bd384723b5e7da0c9, Mathematica Policy Research.
- Downes, Thomas A., 1992. "Evaluating the Impact of School Finance Reform on the Provision of Public Education: The California Case," National Tax Journal, National Tax Association, vol. 45(4), pages 405-19, December.
- Caroline Minter Hoxby, 1996. "Are Efficiency and Equity in School Finance Substitutes or Complements?," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 51-72, Fall.
- Murray, Sheila E & Evans, William N & Schwab, Robert M, 1998. "Education-Finance Reform and the Distribution of Education Resources," American Economic Review, American Economic Association, vol. 88(4), pages 789-812, September.
- David N. Figlio & Lawrence S. Getzler, 2002. "Accountability , Ability and Disability: Gaming the System," NBER Working Papers 9307, National Bureau of Economic Research, Inc.
- Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 135-64, February.
- Brian A. Jacob & Steven D. Levitt, 2003.
"Rotten Apples: An Investigation Of The Prevalence And Predictors Of Teacher Cheating,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(3), pages 843-877, August.
- Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher Cheating," NBER Working Papers 9413, National Bureau of Economic Research, Inc.
- Jonathan Guryan, 2001. "Does Money Matter? Regression-Discontinuity Estimates from Education Finance Reform in Massachusetts," NBER Working Papers 8269, National Bureau of Economic Research, Inc.
- Thomas Downes, 2003. "School Finance Reform and School Quality: Lessons from Vermont," Discussion Papers Series, Department of Economics, Tufts University 0309, Department of Economics, Tufts University.
- Paul N. Courant & Susanna Loeb, 1997. "Centralization of school finance in Michigan," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 114-136.
- James M. Poterba, 1997.
"Demographic structure and the political economy of public education,"
Journal of Policy Analysis and Management,
John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
- James M. Poterba, 1996. "Demographic Structure and the Political Economy of Public Education," NBER Working Papers 5677, National Bureau of Economic Research, Inc.
- Caroline M. Hoxby, 2001.
"All School Finance Equalizations Are Not Created Equal,"
The Quarterly Journal of Economics,
MIT Press, vol. 116(4), pages 1189-1231, November.
- Caroline M. Hoxby, 1998. "All School Finance Equalizations Are Not Created Equal," NBER Working Papers 6792, National Bureau of Economic Research, Inc.
- Card, David & Payne, A. Abigail, 2002. "School finance reform, the distribution of school spending, and the distribution of student test scores," Journal of Public Economics, Elsevier, vol. 83(1), pages 49-82, January.
- Caroline M. Hoxby, 2002. "School Choice and School Productivity (or Could School Choice be a Tide that Lifts All Boats?)," NBER Working Papers 8873, National Bureau of Economic Research, Inc.
- Bettinger, Eric P., 2005. "The effect of charter schools on charter students and public schools," Economics of Education Review, Elsevier, vol. 24(2), pages 133-147, April.
- Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
- Alan B. Krueger, 1997.
"Experimental Estimates of Education Production Functions,"
NBER Working Papers
6051, National Bureau of Economic Research, Inc.
- Alan B. Krueger, 1999. "Experimental Estimates Of Education Production Functions," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 497-532, May.
- Alan Krueger, 1997. "Experimental Estimates of Education Production Functions," Working Papers 758, Princeton University, Department of Economics, Industrial Relations Section..
- Cecilia Elena Rouse, 1998. "Private School Vouchers And Student Achievement: An Evaluation Of The Milwaukee Parental Choice Program," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 553-602, May.
- Feldstein, Martin S, 1975. "Wealth Neutrality and Local Choice in Public Education," American Economic Review, American Economic Association, vol. 65(1), pages 75-89, March.
- Harris, Amy Rehder & Evans, William N. & Schwab, Robert M., 2001. "Education spending in an aging America," Journal of Public Economics, Elsevier, vol. 81(3), pages 449-472, September.
When requesting a correction, please mention this item's handle: RePEc:ecm:nasm04:425. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.