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 relatively wealthy Michigan districts spend more on capital expenditures, whereas 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.

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