The Effect of School Finance Reforms on the Level and Growth of Per-Pupil Expenditures

Abstract

In response to court rulings, states such as California and Washington have sought to promote greater equality in per pupil spending by shifting from local financing of public education to state financing. In this article, we investigate how constraints on local discretion resulting from this shift to state financing influence the level and growth of education spending. The analysis uses an expenditure function framework and a 21-year panel for the 50 states. To understand the extent to which expenditures are influenced by constraints on local discretion, we distinguish between court-ordered and other reforms of school finance systems. We show that the stringency of constraints on local discretion determines the effects of reforms on the level and growth of spending. In addition, we find that, for any type of reform, the characteristics of a state's population and of that state's schools determine the direction and magnitude of the postreform changes in spending.