Michigan and Ohio K–12 Educational Financing Systems: Equality and Efficiency

Abstract

We consider issues of equality and efficiency in two different school funding systems -a state-level system in Michigan and a foundation system in Ohio. Unlike Ohio, the Michigan system restricts districts from generating property or income tax revenue to fund operating expenditures. In both states, districts fund capital expenditures with local tax revenue. Our results indicate that although average revenue and expenditures per pupil in Michigan and Ohio are almost identical, the distributions of the various revenue sources are quite different. Ohio's funding system has greater equality in terms of total revenue, largely due to Ohio redistributing state funds to the least wealthy districts while Michigan does not. We find that relatively wealthy Michigan districts spend more on capital expenditures while relatively wealthy Ohio districts spend more on labor and materials. This suggests that constraints on raising local revenue to fund operating expenditures in Michigan could create efficiency issues.3

Local Policy Choice: Theory and Empirics

“…While equalization schemes typically restrict the ability of districts to use local taxes to increase school funding, the focus of these schemes is on operating costs, consisting mainly of teacher salaries, rather than capital expenditures, for which other forms of state aid are available. This leads to distortions in capital-labor ratios, as illustrated by Conlin and Thompson (2014) in their comparison of the Michigan and Ohio systems, where Michigan essentially prohibits the use of local taxes to fund school operating costs. Note too that parents can respond to restrictions on local funding by turning to private schools.…”

Strength in diversity? Fiscal federalism among the fifty US states

“…9 Hawaii is an outlier state in many respects, not the least of which is the fact that it has only one school district. 10 Our description of the systems in Michigan and Ohio relies on Conlin and Thompson (2014). access to local property taxes for supplementing the operational spending level funded by the state grant.…”

“…Michigan school districts are constrained in terms of raising revenues for operating expenditures, however, residents can vote to raise local property taxes for capital expenditures(Conlin and Thompson, 2014).…”

Local Responses to School Finance Equalization: Wealth Or Place?

“…Recent studies at the state level have begun to try to provide insights into why particular patterns of effects may be observed in the national studies (Conlin and Thompson, 2014;Hyman, 2016). Hyman, for example, finds evi-8.…”