Local Responses to School Finance Equalization: Wealth Or Place?

Abstract

Over the past 50 years, a combination of court cases and legislative actions has greatly reduced the variance in revenues across school districts within states by removing local property tax as the major revenue source for schools. This paper examines a single state, Kentucky, over a long period of time to examine the extent to which localities can offset state efforts to remove property wealth as the basis of revenue disparities. the empirical results suggest that even in a state with a strong state education reform and constraints on revenues, the property wealth of localities continues to enter as a significant determinant of local contributions to education that exceeds to some degree the state efforts to offset inequality among districts. Indeed, wealth exhibits a stronger effect on revenues now than when the reform was introduced. Moreover, in Kentucky, the districts located in the Appalachian region of the state continue to contribute less own-source revenues not because of the property wealth differences but because of other “place-based” factors that cannot be captured in the data.