A Computer Simulation for Teaching School Finance

Abstract

An important public policy issue is the allocation and distribution of revenues among different levels of government. The branch of economics that studies intergovernmental fiscal relations provides an excellent description of the anticipated impact that can be expected when there are changes in the level of intergovernmental fiscal aid from one level of government to another [see, for example, Musgrave and Musgrave, 1989]. Despite this theoretical understanding, it is often difficult for policymakers and students of public policy to fully understand the policy and revenue implications of changes in the distribution of funds from one level of government to another. Equally important, the redistribution of resources often creates difficult political issues in the Congress or state legislatures. This article describes a computer simulation that was developed to help students of educational finance develop a better understanding of the revenue and policy effects of changes in school finance distribution formulas. Through this understanding, policymakers and students of school finance will also gain more knowledge about the potential political implications of changes to the way funds are allocated to school districts. It is indicative of the kinds of simulations that can be developed in other policy settings to understand what happens when the fiscal relationship between one level of government and another is changed. The field of school finance studies the allocation and distribution of public funds to school districts within a state. State school finance formulas are designed to equalize differences in local school district ability to raise funds from their own property tax collections. The typical state distribution formula provides fiscal aid to districts in inverse relationship to its own fiscal capacity, usually measured in terms of assessed property value per pupil. Some states include a measure of personal income in the determination of a district's fiscal capacity. The goal of a school funding formula is to reduce revenue disparities among school districts that result from differences in fiscal capacity, and to move the state toward fiscal neutrality. If a state were to create a totally fiscally neutral system, each school district's revenue per pupil would be determined entirely on the level of property tax effort it expended, regardless of its assessed valuation per pupil. Because of the large amount of money spent on our nation's public schools, most graduate programs in educational leadership offer courses designed to teach students the basics of school finance. Although each of the 50 states uses a different funding allocation formula, there are a relatively small number of basic principles and formulas that govern the distribution of state funds to