The analysis of changes in total expenditure and changes in State Aid in the previous section provides an important illustration of the strong relationship between State Aid and district spending. This section will more thoroughly address the question of district behavior by specifically examining changes in district local effort over time and how these changes are in turn associated with changes in State Aid to school districts.

Charts 10a and 10b display the overall changes in State Aid, local revenue, and federal revenue for the 661 school districts in the analysis from 1993-94 to 1998-99 in 1993-94 constant dollars. After adjusting for inflation, total revenue increased from $23.34 billion to $26 billion.

Another important change is the introduction of the STAR program, which began to be reflected in revenues in 1998-99. For this analysis, STAR was excluded from local and State revenue and included as a separate section with its own title. Revenue from STAR ($515 million) accounted for 1.98 percent of total revenue for education in 1998-99.

Federal revenue increased from $1.1 billion to $1.2 billion in the five-year time period. The share of total revenue that could be attributed to Federal sources remained virtually the same over the five-year period. The State share of total revenue increased from 38.76 percent in 1993-94 to 40.83 percent in 1998-99. During this time, revenue from State sources increased from $9.0 billion in 1993-94 to $10.6 billion in 1998-99. Additionally, the local share of total education revenues decreased from 56.61 percent in 1993-94 to 52.61 percent in 1998-99.

To effectively characterize changes in district local effort, a definition of increased or decreased local effort must first be identified. It is problematic to characterize local effort changes based solely on tax rates. Tax rates change for many reasons, some of which may have little or nothing to do with conscious decisions of districts to decrease effort. For example, full value changes will be reflected in changes in tax rates. Additionally, it could be argued that the most important measure of local effort is the per pupil amount raised through local levy. Therefore, for the purpose of this analysis, a district is considered to have increased local effort if the tax rate has increased, AND the district was levying more (in CPI-adjusted dollars) per pupil in 1998-99 than it was in 1993-94. Conversely, a district is considered to have decreased local effort if there was a decrease in the tax rate from 1993-94 to 1998-99 and the district was found to be levying less per pupil in 1998-99 than it was in 1993-94.

A framework was developed to examine both local effort changes and State Aid changes from 1993-94 to 1998-99. The framework for characterizing fiscal response districts is displayed in Figure 2 below. Districts can be classified in two ways regarding changes in State Aid. They either received increases or decreases in State Aid per pupil over the time period being examined (inflationary changes were eliminated).

You will note that districts were classified in one of three ways. If a district experienced a decrease in local tax rate and a decrease in cost-adjusted levy per pupil, the district would be considered to have decreased local effort. A district with an increase in local tax rate and an increase in local levy per pupil was considered to have increased local effort. In some districts the change in local effort was mixed. If a district had an increase in local tax rate accompanied by a decrease in local levy per pupil (or a decrease in tax rate accompanied by an increase in levy per pupil), the district was classified as mixed effort.

The framework described above allows us to identify negative fiscal response districts as those districts that experienced an increase in State Aid per pupil and a decrease in local effort from 1993-94 to 1998-99 (bottom right corner of figure 1 below). Additionally, positive fiscal response districts were identified as districts that experienced increases in State Aid and increases in local effort. Districts that received decreases in State Aid and increased local effort were labeled as positive compensating districts, in other words they raised local effort to account for decreases in State Aid (top left corner of Figure 2).

Additionally, districts that experienced decreases in State Aid and decreases in local effort were considered to be negative compensating districts (bottom left of Figure 2). Districts for which the direction of the local effort change was mixed were considered to be mixed response districts. Figure 2 also displays the number of districts identified in each category.

The four types of district response (excluding mixed response) will be highlighted below. A detailed table depicting selected characteristics of each type of fiscal response is shown in Tables 5a and 5b in Appendix B of this report.

Statewide, 276 school districts exhibited a positive fiscal response, meaning that they experienced increases in State Aid per pupil and also experienced increases in local effort over the five-year period examined. These districts represent 64 percent of all districts receiving State Aid per pupil increases. Chart 11 below highlights the changes in revenue by source for these 276 districts.

As shown in Chart 11, State revenue has increased from $2.37 billion to $2.62 billion (10.5 percent). Local revenue has also increased from $2.36 billion to $2.50 billion, representing an increase of 6.0 percent.

For these 276 districts, total revenue for education increased from $4.87 billion to $5.4 billion representing an increase of 10.8 percent. Additionally, the State share of education revenue has remained stable at 49 percent for these districts, while the local share has decreased by two percentage points. It is important to note the addition of revenue from STAR in 1998-99. STAR represents two percent of education revenue and could account for the small decrease in local share.

Additionally, rural high need districts were more likely to exhibit positive fiscal response than any other need category. Rural high need districts make up 24.28 percent of all districts in the study, but represent 36.6 percent of districts with positive fiscal response. Conversely, low need districts were found to be the least likely to be classified as positive fiscal response. While low need districts account for 18.97 percent of all districts in the study, they only represented 7.2 percent of the group of districts classified as positive fiscal response.

As shown in Table 5a (Appendix B), the 276 positive fiscal response districts experienced a median percent change in tax rate of 18.45 percent, which represents the largest median tax rate increase of all 430 districts that experienced CPI-adjusted increases in State Aid per pupil. Additionally, the median CPI-adjusted percent change in levy per pupil for these districts was 10.25 percent.

Negative fiscal response districts represent the group of districts that are of greatest policy concern. These districts have received State Aid increases above and beyond inflation but decreased their local effort over the same time period. Overall, 38 districts were classified in the negative fiscal response category. Of these districts, two are members of the Big Four (Syracuse and Yonkers), and seven are districts that have gone through consolidation. Ten of the 38 districts are in either Suffolk or Westchester county. Chart 12 highlights the fiscal changes for these 38 districts.

As demonstrated above, there has clearly been a reduction in the local share of education revenue in these 38 districts. In 1993-94, the local revenue share was $616 million, representing 55 percent of total revenue for education. In 1998-99, the local share of total revenue was $570 million, representing only 44 percent of total revenues. This $46 million decrease represents a 20 percent decrease in the local share of total revenue. At the same time, the State share of education revenue for these districts (excluding STAR) changed from 42 percent to 50 percent, an increase of $175 million. Revenues from STAR are displayed separately throughout this analysis and for these 38 districts revenue from STAR ($30 million) represents two percent of total revenue.

According to Tables 5a and 5b (in Appendix B), these negative fiscal response districts had a median decrease in tax rate of 6.14 percent and a decrease in levy per pupil of 9.65 percent. Fourteen of the 38 districts (or 36.8 percent) in this category are high need districts. The median CPI-adjusted percent change in State Aid per pupil for this group of districts was 11.85 percent. The median combined wealth ratio for these districts is 0.633 and the median need/fiscal capacity index is 1.21, indicating that these districts tend to be of below average wealth and above average need. Only 44.84 percent of the negative fiscal response districts were identified as having acceptable student performance.

Algebraically, it is a simple exercise to calculate the expected local revenue assuming that the local share were to remain at 55 percent of total revenue as was the case in 1993-94. If the local share were to be maintained, $898 million would be expected from local sources in 1998-99. Actual local revenue for education in 1998-99 for these 38 districts was $570 million. Therefore, we can estimate the loss of local revenue due to districts failure to maintain local share in the face of State Aid increases to be $328 million (1.3 percent of total revenue for all districts) or $2,587 per pupil for these 38 districts.

Just as districts could be classified according to their response to State Aid increases, districts were also classified according to their response to State Aid decreases. After adjusting for inflation, there were 227 districts that received State Aid per pupil decreases. Of these districts, 123 were classified as exhibiting a positive compensating response, meaning that in the face of decreasing State Aid per pupil, they increased their local tax rates and increased levy per pupil. As shown in Chart 13, these districts clearly increased local share in response to decreasing or stagnant State Aid changes.

As the dollar amount of State Aid has remained fairly constant, the share of State revenue has decreased by three percent. Additionally, local revenue has increased from $1.8 billion to $2.02 billion. Revenues from STAR accounted for $69 million or two percent of total education revenues.

Low need and average need districts make up 69 percent of all districts statewide, whereas 87 percent of the districts in the positive compensating response category are either average need or low need districts. No doubt the more advantageous fiscal capacity of these districts helps to account for their disproportionate tendency to compensate for State Aid decreases with offsetting local revenue increases.

The fourth category of fiscal response is the negative compensating response. This category includes districts in which decreases in State Aid per pupil correspond with decreases in local effort. There were 20 districts identified in this category. The fiscal changes for these 20 districts are displayed in Chart 14.

Because changes in State Aid were fairly consistent with changes in local effort (as was the case with positive fiscal response districts, the shares of revenue from State and local sources remained fairly constant. It also interesting to note, that in this category, the local share of education revenue is greater than in any other category, with 67 percent of total revenue being raised locally in 1998-99.

This initial exploratory analysis has thus far highlighted the four types of district fiscal response as presented in the framework in Figure 2. The Big Five City school districts, however, because of their fiscal dependence, represent special cases of fiscal response, and will therefore be highlighted here. Figure 3 summarizes the response of each of the Big Five districts using the fiscal response framework from Figure 2.

As shown in Figure 3 above, each of the Big Five received per pupil increases in State Aid. New York City and Rochester were categorized as mixed response. Despite increasing tax rates from 1993-94 to 1998-99, these two districts experienced decreases in CPI-adjusted levy per pupil. Buffalo fell into the positive fiscal response category. Increases in tax rate, levy per pupil and State Aid per pupil are clearly evident in the case of the Buffalo school district.

Syracuse and Yonkers were classified as negative fiscal response districts. These districts have experienced substantial decreases in tax rates and local levy per pupil, while at the same time, receiving increases in State Aid per pupil. The decrease in tax rates and levy per pupil for Syracuse are substantial. In 1993-94 the tax rate was $19.13 per $1,000 actual value, and in 1998-99, the tax rate was $12.14. This represents a decrease of 36.5 percent in tax effort. When tax effort is calculated on a per pupil basis -- to better reflect service demands confronted by districts -- this tax rate decrease corresponds to a 39 percent reduction in local levy per pupil over the same time period. Additionally, Syracuse experienced a $387 decrease in expenditure per pupil from 1993-94 to 1998-99.

As described above, the two types of fiscal response that were highlighted for districts experiencing State Aid per pupil increases are positive fiscal response and negative fiscal response. As shown in Chart 15, across all need/fiscal capacity deciles, there is a greater district tendency to respond to increases in State Aid with increases in local effort than with diminished effort. More importantly, as district need/fiscal capacity status worsens, the tendency towards positive fiscal response increases. In high need deciles, districts are much more likely to experience increases in local effort rather than decreases in local effort in response to State Aid increases. However, there are important differences between districts that increase effort and those that decrease effort, and these differences become more clear when viewing districts by need/fiscal capacity status.

Chart 16 displays the 1993-94 mean tax rates for districts with positive fiscal response, and those with negative fiscal response by need/fiscal capacity decile. In each need/fiscal capacity decile (with the exception of Decile 5), the tax rate is higher at the commencement of this reporting period in districts that decreased their effort over the five-year period being studied. This finding suggests that districts that were already in a high tax situation were more likely to reduce effort, than those that were not already high taxing (a finding consistent with the mutlivariate results from Part 1).

Chart 17 shows the 1998-99 unweighted average tax rate for districts with positive fiscal response and negative fiscal response by need/fiscal capacity. As shown in the chart, those districts in the lowest four deciles that decreased effort continued to have average tax rates higher than those districts in the same decile that increased their tax effort. In the rest of the higher need deciles, with the exception of decile nine, the districts that reduced effort were experiencing average tax rates that were lower than the comparison rates in districts in the same decile but who had increased their effort.

Chart 18 displays the average CPI-adjusted dollar change in State Aid per pupil for districts with increased effort and for districts with decreased effort. In seven out of the ten deciles, the increase in State Aid per pupil was greater in districts with decreased effort when compared to those districts that increased effort. In five of the deciles, this difference was substantial. This finding suggests that districts with substantial increases in State Aid per pupil, and particularly districts that are already in a high taxing situation, will be more likely to experience a decrease in effort, while receiving State Aid per pupil increases.

• There were 276 districts identified as positive fiscal response, meaning that they experienced CPI-adjusted increases in State Aid per pupil and also increased their local effort. For these districts, the local share of total education revenue was 48 percent in 1993-94 and decreased to 46 percent in 1998-99. Revenue from STAR was kept separate and accounted for two percent of total district revenue.

• The median percent change in tax rate for districts with a positive fiscal response was 18.45 percent and the median percent change in CPI-adjusted levy per pupil was 10.25 percent.

• There were 38 districts identified as negative fiscal response districts. State Aid per pupil increases in these districts were accompanied by decreases in local effort. In these 38 districts, the local share of education revenue in 1993-94 was 55 percent and in 1998-99 the local share has decreased to 44 percent of total educational revenue.

• The estimated "lost revenue" associated with the failure of districts to maintain local share in the face of State Aid per pupil increases was $328 million in 1993-94 constant dollars.

• There were 123 districts who exhibited a positive compensating response. Stated differently, these districts increased local effort in the face of constant dollar decreases in State Aid per pupil. Eighty-seven percent of these districts were either average or low need districts.

• Twenty districts were classified as negative compensating response. These districts exhibited decreased effort after receiving constant dollar decreases in State Aid per pupil. The local share of education revenue for these 20 districts was greater than any other category, with 67 percent of total revenue being raised locally.

• Whether districts received State Aid decreases or State Aid increases, districts were much more likely to be classified as increased effort as opposed to decreased effort. Only 58 districts statewide (8.8 percent), including both negative fiscal response and negative compensating response, were identified as having decreased their local effort.

• High need districts that received State Aid per pupil increases were found to be much more likely to have increased local effort, rather than to have decreased their local effort, an important policy finding. Not surprisingly, districts that had decreased local effort were found to have substantially higher 1993-94 tax rates than districts in the same need/fiscal capacity decile who increased their local effort.

• High need districts that decreased their local effort were found to receive larger State Aid per pupil increases than districts in the same decile who increased their local effort. However, it is important to note that, overall, the number of negative fiscal response districts was much smaller (n=38) than the actual number of districts that exhibited positive fiscal response (n=276).

Districts with Fewer Than 225 Pupils in Any Year 1993-94 to 1998-99:

1. Fishers Island
2. Fire Island
3. Newcomb
4. Putnam
5. Quogue
6. Long Lake
7. Amagansett
8. Kiryas Joel
9. Bridgehampton
10. Minerva
11. Keene
12. Lake Pleasant
13. Oyster Ponds
14. Andes
15. Maplewood-Colonie
16. Edinburg
17. Indian Lake
18. Wells

Additional Districts Removed:

1. Eastport-South Manor
2. Eastport
3. South Manor
4. Pocantico Hills

Adams, E.K. (1980). Fiscal response and school finance simulations: A policy perspective. Denver: Education Finance Center, Education Commission of the States.

Goertz, M.E., & Natriello, G. (1999). Court-mandated school reform: What do the new dollars buy? In Ladd, H.F., Chalk, R, & Hansen, J.S. (Eds.), Equity and adequacy in education finance: Issues and perspectives. (pp.99-135). Washington, DC: National Academy Press.

Goertz, M.E.(1979). Money and education: How far have we come? Financing New Jersey education in 1979. Princeton: Educational Testing Service.

Tsang, M.C., & Levin, H.R. (1983). The impacts of intergovernmental grants on education spending. Review of Educational Research, 53 (3), 329-367.

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