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Local Responses to School Finance Equalization: Wealth or Place?

Author: ALEX COMBS, JOHN FOSTER & EUGENIA F. TOMA
Published in PFM, Vol. 18 No. 3

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 re-moving local property tax as the major revenue source for schools. This paper exam-ines 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 rev-enue 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 con-tinues 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 intro-duced. 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 cap-tured in the data.

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