Legislative Action

A lawsuit claiming that Illinois' public school system allows unconstitutionally wide variations in per pupil spending has gotten lawmakers' attention. The Task Force on School Finance, comprised of 23 lawmakers and 13 representatives of the education and business communities, has been wrestling with the issue for almost two years. Task force chairs Sen. Arthur L. Berman (D-2, Chicago) and Eugene Hoffman hope to finalize recommendations for public hearings this month in Chicago, Springfield and Mount Vernon.

Attention is one thing; change is another. Solutions being considered by the task force carry heavy monetary or political price tags. Berman maintains that changes can be made politically acceptable, but he does not promise or predict action this spring.

Researchers at the Illinois State University Center for the Study of Educational Finance, have tracked equity among Illinois school districts for two decades. The researchers found school funding becoming more equitable from about 1973 until 1977 and becoming less equitable since. A 1991 paper by G. Alan Hickrod and others at the center concluded, "For well over 10 years, the Illinois General Assembly avoided coming to grips with the problem of growing inequalities in educational opportunity. Now the piper must be paid."

Absolute numbers show the inequity. In the 1989-1990 school year operating expenses per pupil ran from $2,253 in Dalzell School District (an elementary district) in Bureau County to $14,316 in Seneca Township High School in LaSalle County. The statewide average was $4,808.

More revealing is the variation among districts in resources as measured by per pupil unrestricted revenues — the money from general state aid, local property taxes and the corporate personal property replacement tax that districts can use for any purpose. Nearly 82 percent of students attend schools that have less than $4,000 available per pupil. More than 18 percent attend schools with more than $4,000 available per pupil. (See table.)

The disparity results from Illinois' reliance on the property tax to fund schools, and as the property tax has been carrying more of the load, state aid has been carrying less. The state share of education funding has declined for 15 years. The total state share includes general aid distributed by formula plus categorical grants and other special funding. In the 1975-1976 school year, the state share was 48.4 percent of school funding and the local share was 45.2 percent; in the 1990-1991 school year state funding provided 37.7 percent and local funding 54.5 percent.

When only general state aid is considered, the imbalance is greater. General state aid today provides about one dollar to public schools for every two dollars provided by local property taxes.

The foundation level in the general state aid formula (the minimum resources that any district should have per pupil) was $1,260 in 1972-1973. To have kept up with inflation, the level should have been $3,083 in 1991-1992; the actual foundation level was $2,529. To make up the difference would require more than $935 million in new state money.

The heavy reliance on the property tax means that districts with a lot of industrial and commercial property to tax — stores, factories or, ideally, a power plant — spend more for children's education; those that must rely on residential property taxes spend less. Downstate districts, which have seen their tax bases erode as farmland values tumble, have fallen farthest behind.

An analysis done for the task force noted that districts with higher revenues per pupil have both larger property tax bases and higher property tax rates. That means the availability of funding for public schools is dependent both on the property tax base and property tax rates.

The heavy local reliance on property taxes and the differences in local wealth put wealthy and poor schools in conflict over school finance policy. Poor districts push for more state money. Wealthy districts wind up with little state aid and have little interest in state funding. However, the newly imposed suburban county property tax caps may change that situation. The effect of the caps on schools in DuPage, Kane, Lake, McHenry and Will counties will be to limit local resources for schools. Extension of those caps to suburban Cook County and to downstate would affect even more schools.

The issues of school finance include:

Finding money to equalize. The problem is where to get the money to equalize among high-spending and low-spending districts. Adding state dollars carries a big price tag; taking away local dollars costs the

Unrestricted revenue per pupil by school district, 1991-1992 school year
Unrestricted revenue per pupil	Number of districts	Number of Percent	students	Percent
more than $10,000	2	.21%	503	.03%
$9,000 to 9,999	4	.42	3,905	.20
8,000 to 8,999	4	.42	11,621	.59
7,000 to 7,999	11	1.16	21,007	1.08
6,000 to 6,999	26	2.74	54,817	2.81
5,000 to 5,999	36	3.80	98,210	5.03
4,000 to 4,999	68	7.17	166,090	8.50
3,000 to 3,999	252	26.58	908,445	46.50
2,529 to 2,999	507	53.48	654,069	33.48
2,000 to 2,528	38	4.01	34,967	1.79
Totals	948		1,953,636
Source: Task Force on School Finance working paper.

April 1992/Illinois Issues/25

Legislative Action

state nothing but creates political problems when districts lose money.

The simplest solution would be to increase state spending, but new state money is a commodity in short supply. To match general state aid with property taxes would cost $2.1 billion. To raise that much money the state would have to boost income tax rates by 35 percent or more.

Other solutions have floated around. One would levy property taxes countywide, then distribute revenues on a per capita basis within the county. Wealthier districts would give up resources to poorer districts in a county. The state would equalize resources among counties.

Another solution would require local school districts to give up their "excess" taxing capacity. Under such a scenario, the district would tax the first portion of its tax base to reach a maximum level. The tax on the rest of the property would produce state revenues to be redistributed to low-wealth districts.

Still another solution would make industrial and commercial property part of a statewide property tax base. The assessed value of property in Illinois is roughly half residential and half business. One proposal would have school districts tax residential and agricultural property as they currently do; the state would tax commercial, industrial, mineral and railroad property, distributing the revenue to school districts through the school aid formula. The proposal would switch $1.8 billion from local property tax revenues into state revenue for schools. Such a split in the property tax base would hurt districts with strong bases of industrial and commercial property. The change would cause tax increases for businesses in districts where tax rates are low but could save businesses money in school districts with high rates.

Differences in local effort. Much of the disparity in local revenues is the result of citizens in different school districts taxing themselves at different rates. Where voters have approved higher taxes for schools, more is spent on education; where voters have rejected increases, less is spent. Setting minimum tax rates that must be imposed locally before the state will provide general state aid would increase the amount of money spent on some children's educations. For property owners in such districts, higher minimum tax rates mean tax increases.

Unequal permissive tax structure. School districts could be allowed to impose higher property tax rates. One proposal before the school finance task force would give elementary districts (kindergarten through grade 8) and unit districts (kindergarten through grade 12) the same higher taxing authority granted to high school districts (grades 9 through 12). The increases allowed without voter approval would be $.78 per $100 of assessed value for elementary districts and $.975 per $ 100 for unit districts. All districts would be able to levy a new additional tax for capital projects: $.05 for elementary and high school districts and $.10 for unit districts.

Corporate personal property replacement tax distribution. The corporate personal property replacement tax is a corporate income tax surcharge that replaced the abolished tax on corporate personal property in 1979. The personal property tax was levied against equipment, motor vehicles and machinery owned by business. The revenues from the 2.5 percent income tax surcharge continue to be distributed to school districts and other local governments based on the replacement formula in place since 1979; the formula does not reflect the move of business out of cities to the suburbs. School districts' share of the replacement tax is $322 million; if distribution were through the school aid formula, older city school districts would get less.

Existence of flat grant and alternative grants. State funds currently go to relatively high-wealth school districts that would not qualify under the basic general school aid formula. In the 1990-1991 school year there were 204 districts that received state aid under one of two alternative formulas that guarantees at least $175 in general state aid per pupil. The minimum has been a way to assure that everybody gets something from the state. Elimination of the special formulas would free up more than $50 million in state aid for distribution to less wealthy districts.

Poverty weighting. One of the toughest school spending issues is how to account for the extra cost of educating children from poverty backgrounds. Economic status predicts how well a student will perform in school better than per pupil spending. One proposal before the task force would provide increases in state aid: from a 10 percent increase for districts that have 10 percent to 20 percent of their students from poverty homes up to a 55 percent increase for districts with 60 percent or more of students from poverty backgrounds.

Unequalized categorical funding. Currently, state funding for school transportation and for special education and other programs is done outside of the school aid formula and is not related to property tax wealth. The money flows equally to wealthy and to poor districts. State spending on the "categorical" programs has increased more rapidly than that for general state aid. Moving that money through the school aid formula would shift dollars from high-wealth districts to low-wealth districts. The Illinois State Board of Education is readying plans to change transportation funding.

Regional cost differences. The current school aid formula does not recognize cost-of-living differences between various parts of Illinois. Walter W. McMahon, University of Illinois economics professor, has constructed an index that measures cost-of-living differences by county. Under a 1991 revision, costs range from 114 percent of the state average in Lake County to 70 percent of the state average in Johnson County. Application of some form of weighting for cost-of-living would shift money from rural districts to urban or suburban school districts.

Application of an adequacy formula. The Illinois State Board of Education has constructed a measure of the amount of money needed to provide an "adequate" education for students. By looking at a cross section of schools where students receive adequate education, using average teacher and administrative salaries and average support costs, the state board came up with $3,898 as adequate for students in kindergarten through grade 6 in the 1990-1991 school year. Costs for students in grades 7 and 8 and in high school would be higher.

If the foundation level were set at $4,000, up from the current $2,500, cost to the state would rise by more than $2 billion. A shift of emphasis from equity to adequacy eliminates the problem of having to take money from wealthy districts. As long as all districts have money to provide a basic education, the fact that other districts spend more is less of a crisis.

Sen. Berman acknowledges that any solution will cost money and says the task force recommendation could be dramatic. G. Alan Hickrod and ISU researchers are more direct: "The educational inequality problem cannot be solved in Illinois without an increase in state taxes." A proposal to raise taxes, even for schools, will get the attention of more than lawmakers.

26/April 1992/Illinois Issues