The Courts and Public School Finance: Judge-Made Centralization and Economic Research

Abstract

This paper explores for economists how the school-finance litigation movement, which began with Serrano v. Priest in 1971, ought to be characterized in economic models. Its primary message is that this has become a national movement, not one confined to individual states. Economists should be wary of characterizing these cases as discrete events in which a state that loses to reform-minded plaintiffs is distinctly different from a state that succeeds in defending its system. I describe numerous instances in which states have attempted to head off defeat in the courts by conceding to reform-demands by the plaintiffs. School finance litigation does make a difference, however. Win or lose, states have been induced to reformulate their state-aid formulas. I show that the most common of these reforms, which focus on differences in tax-base per pupil, have altered the local tax-price for education. This alteration causes the property rich districts to pay more for education. However, the correlation between property rich and income rich is essentially zero, largely because low-income communities are more willing to tolerate the nonresidential uses that lower their tax price. The result is that school-finance reform in most states is likely to reduce the efficiency of local public education because of tax-price distortion but not improve the lot of low-income students and taxpayers in any systematic way.