FINANCE: AN OPERATIONAL CONUNDRUM
The main purpose of this paper is to present a framework against
which the concepts of equity and efficiency can be discussed. These
terms appear to be topical "buzzwords" (usually under the cloak of equality
and accountability) among educators who manage school systems on the one
hand, and officials in central government bureaucracies on the other, whose
ubiquitous task it is to rationalize the expenditures of public funds.
It is not apparent, however, that the same meanings are given to the terms
whenever they are used or that members of an audience have the same understanding
of them or can even distinguish between them. This paper attempts
to clarify the definitional problem by discussing the terms in relation
to education generally and in the context of educational finance specifically.
The discussion concludes with an integration of the concepts centered on
the question of whether they are mutually exclusive notions or whether
a degree of operational compatibility exists between them. Several
implications for teachers and educational administrators are highlighted.
Equity and efficiency are terms that contain both a philosophical
and an operational component. In the broader social context, equity
refers to equality of opportunity, fairness, and social justice.
In the context of educational finance, equity is a dual funding principle
which acts as a means of ensuring that as much equality as possible is
built into in the provision of educational services and as much fairness
as is administratively feasible is applied to sharing the taxation burden
for education among the general citizenry. Efficiency is often integrated
into the more popular term of accountability which measures outputs.
There, efficiency is related to cost-benefits, cost-effectiveness, and
cost-utility in terms of both inputs and outputs.
Equity is a social term rather than an economic one and is defined in relation to inequities or inequalities in the distribution of wealth or resources, and the adjustments which are required to allow for more equitable redistribution. Brown (1981) succinctly explained the issue. In areas where low levels of income exist, citizens have to be taxed more heavily in order to provide a standard of public services similar to that available in wealthier communities where the tax burden is lighter. Such an imbalance is considered unfair in terms of the current climate of social justice, necessitating a redistribution of tax revenues (p. 16). Redistribution permits equal treatment of equals in terms of access to the benefits of public spending which Brown referred to as one of the most universally accepted rules in public finance (p. 41). The rule is contrary to the benefit principle of public taxation which extends from the commercial principle that people should pay for goods and services according to the amount they use.
In public education, inequalities in the distribution of wealth exist within school districts and between districts, resulting in an imbalance in access to benefits. In this context, the benefits refer to educational opportunity. To apply the benefits received principle described above to the financing of public education would not be regarded as equitable in modern society because too much of a tax burden would be placed on people with low ability to pay, e.g., large families and low income families (Brown, 1982, p. 43). To adjust for these imbalances in fiscal capacity and taxation burdens, and in order to facilitate equalized educational opportunity, the concept of financial equalization in educational finance is observed.
Financial equalization underlies the concept of equity in education. Strayer and Haig (1 923), two pioneers of educational finance in the United States, whose dichotomous definition of equalization is still utilized, articulated it as equalization of educational opportunity and equalization of school support. In the extreme, this is interpreted to mean that every child within a state's borders should have equal access to educational facilities, programs and services but that the tax burden to provide them should be evenly distributed among all the state's taxpayers (cited in Johns and Morphet, 1975, p. 210). These two dimensions, according to Johns and Morphet, are the embodiment of most educational finance plans. The allocation dimension relates to the formula used by the central government to allocate funds to school districts, and the revenue dimension refers to the sources of school revenue and the types of taxes imposed by central governments and local governments (p. 215). Garms, Guthrie, and Pierce (1978) regarded equity in education in the context of equality of educational opportunity. Equality could only be assured when enough money was provided or available to the school district to provide comparable programs to students when the different needs of the students and the differences in the cost of providing the programs were taken into account (p. 187).
In the Canadian context, Brown (1989) defined educational equity in terms of 'fairness to children and to taxpayers" (p. 65). This way, individuals were to be given an equal chance to develop their potential through education regardless of any condition which caused variation in their individual needs, and the financial burden was to be apportioned according to ability to pay (p. 65). Geographical boundaries in both cases were not to be restraining factors.
Finally, Michaud (1989) encapsulated the commonly accepted ideas of educational equity in his three separate classifications of the concept:
1. The conservative view which relates to the provision of universal access to education. The concern for equity ends when the educational services are made available (p. 128).
2. The liberal view which holds that education should not only be made available universally, but its quality should be the same in each community (p. 129).
3. The social view which promotes the differences between pupils. Pupils have different needs and should be treated differently and financed independently according to those needs (p. 130).
The differing versions of the definition of equity vary only in
degrees. Two basic themes are commonly acknowledged; namely, equality
of access to educational resources and opportunity, and equal sharing of
the tax burden to pay the costs of equalized access.
At the core of this concept is value for the education dollar. Garms et al. (1978) referred to it as ensuring that the education dollar is well-spent (p. 211). Brown (1 989) gave the term two meanings: achieving educational goals in a cost-effective manner and measuring educational outputs by comparing graduation rates with enrolments (p. 65). Johns and Morphet (1975) described how the concept was treated historically in educational finance plans. They referred to Updegraff (1922) who promoted the idea that the extent of the state's contribution to education be dependent on the level of local contribution through local taxation (p. 209). They also referred to Morrison (1933) who advocated abolishing all school districts in favour of state run schools. His model proposed that the state would become the unit for taxation and administration of public schools. School financing would be primarily through the income tax because it was the most equitable form of tax the state could use (p. 215).
In more recent educational literature, the term efficiency has been enveloped by the more composite concept of accountability. There, the term tends to get lost in the terminology maze of goals and objectives, educational outputs, program evaluation, and resource rationalization, among others. Conceptually, efficiency refers to outputs in relation to inputs. In an operational sense it means the elimination of systemic factors that cause waste in the use of resources or delay in the provision of services. Some examples of systemic waste as offered by the federal government's current constitutional proposals include bureaucratic overlap, excessive regulations, convoluted decision-making, counterproductive intervention in provincial mandates by the federal government, and ineffective and secretive budgetary processes (pp. 2-11).
In Canadian education, Brown (1981) perceived efficiency strategies to be evident in attempts by central governments and school districts to reduce the per pupil costs of education, to centralize decision-making, and to incorporate economies of scale (cost reductions through optimal organizational size) in the production and provision of educational services. He indicated that "the disappearance of small rural schools and the consolidation of school boards in all Canadian provinces provides dramatic evidence that there have been perceived economies of scale in the delivery of educational services" (p. 11). The object is to produce greater technical efficiency. As he notes, "the technically efficient school board would be one just large enough to achieve given educational objectives at the lowest attainable cost per pupil' (p. 21).
The concept of efficiency has two primary dimensions. One
entails an a priori systematic attempt to provide for effective planning,
allocation, and management of resources to education. The other is
an a posteriori strategy. It involves the measurement of benefits
derived from provision of the resources. In educational finance plans,
the former strategy may be more systemically integrated than is evaluation
after the fact.
Equity vs Efficiency
Is the concept of equity compatible with the concept of efficiency or are the terms mutually exclusive and incompatible? Brown (1981) included the notion of local freedom of choice along with equity and efficiency and said that all three goals may be compatible to some extent. But, "they tend to become incompatible if any one of them is pursued without adequate recognition of the need to achieve the other two objectives in reasonable and politically acceptable degrees" (p. 109). He believed that if achieving technical efficiency were of utmost concern - that is, rationalizing the structure of education through closing small schools, consolidating school districts and attempting to achieve economies of scale in the production of educational services - the goal of equity would be ignored (p. 22). On the other hand, "equity carried to the point of total equality in all aspects of life will impair freedom of choice and utility, and total freedom tends to destroy equity and impair efficiency" (Brown, 1989, p. 64). To be compatible, a balance would need to be struck between maximizing technical efficiency with maximizing the individual and social benefits of education as well as maximizing the distribution of resources and public services.
Equity in all respects may be impossible. As early as 1905 when finance plans for public education were still in a conceptual stage of development, Cubberley acknowledged that while "theoretically, all the children of the state are equally important and are entitled to have the same advantages, practically this can never be quite true' (p. 17). The objective was to equalize the advantages to all as nearly as could be done with available resources.
The various equity finance plans that have been developed in public education are deficient in one respect or other. Brown (1 981, and 1989) has already been cited in relation to the difficulty of striking a balance between supply and demand of educational services and the exigencies of achieving technical efficiency. Garms et al. (1978) outlined the following reasons why wealth equalization plans for educational finance are never implemented in their ideal form:
1. A politically acceptable way has not been found to accomplish recapture, i.e., excess funds raised in school districts through supplementary assessment being returned to the state for redistribution. In practice, wealthy districts are guaranteed a minimum amount of state funds through political expediency (p. 208).
2. Weighting programs suffer because of the difficulty in assessing program costs. The weighting concept permits extra funding to school districts for special needs students. It relates to the ratio of the cost of providing a basic special educational program to that of providing a basic normal program. A normal student could have a weight of 1.0 for funding purposes, and a special needs student a weight of 1.5. Funding is given based on the count of weighted students instead of actual students (pp. 200-201).
3. Cost equalization is difficult to sort out from demands for higher quality programs, especially the demand for more highly qualified teachers (p. 209).
4. The property tax, on which wealth equalization is based, is considered a regressive tax. Assessments are improperly set, administration of the tax is inadequate, and the fiscal burden for many people is beyond their ability to pay (p. 211).
The general principle of equity may also be declining as a goal of public policy. Brown (1989) indicated the evidence in this direction was compelling. Equity, including educational equity, is either being downgraded or "put on hold" at both the national and provincial levels because of competition from other sources (p. 64). In most provinces, health and social services have surpassed education in terms of budgeted dollars, and at the federal level, postsecondary funding has been curtailed to an unprecedented degree in the last two years because of general fiscal restraints. According to Brown (1989), the national average of total spending for elementary and secondary education as a percentage of total provincial and local government spending in all provinces declined steadily from 22.12% in 1970 to 14.75% in 1986 (p. 72). This decline was considered to be much greater than could be accounted for by the 17% decline in student enrolments over the same period. Contributing factors were more rapid growth in spending for competing services (health care and social services) and "perhaps some decline in the policy importance of education associated with reduced emphasis on the goal of equality in society" (p. 72).
In the United States, Johns and Morphet (1975) indicted that historically,
equity in educational financing has not been achieved. They indicated
that both Cubberley (1905) and Mort (1931) had found in the respective
periods that most states had not provided adequate finance plans for equalizing
educational opportunity. Nor had the situation changed overall by
1968-69 when the National Education Finance Project arrived at the same
conclusion (p. 225).
Conclusion and Implications
The literature does not provide a definitive answer to the question of whether equity and efficiency in educational finance are exclusive or compatible. It infers more than it informs. The concepts are treated as dichotomous variables rather than as a composite and different inferences can be drawn regarding the question. For example, it would appear clear from public finance in Canada at both the federal and provincial levels that education overall is declining in the percentage of public funds allocated to it. General fiscal restraints, caused in part by the size of the public debt, and reduced revenues as a result of the current economic recession are likely to continue in the foreseeable future. Additionally, expenditure demands for health and social services will likely remain unabated considering the aging population and the recessionary fallout. Plus, increasing demands for new spending on municipal infrastructure and the environment are likely to figure more prominently in future political priorities. Thus, equity in educational opportunity may be more elusive than ever as government's ability to pay and shifting public emphases cast wider shadows on the fiscal horizon. On the other hand, the principles of equality, justice and fairness continue to form the underpinning of educational philosophy in the country as evidenced by the wording of the respective provincial aims of education. And programs in special education, early childhood education and distance education are increasingly popular areas of educational funding. The implication of the current pressures in public finance for educators is that as public funds are reduced, the demands for better use and accounting of public spending are likely to increase. Education will be subject to the same fiscal rationalizing as other public sector institutions and will likely see more rigid and defensible mechanisms introduced to control discretionary use of funds. The rationalizing process has already begun with recent school board consolidations in Newfoundland and will be speeded up in the next 3-5 years as the recommendations of the Williams Royal Commission are implemented. The method of funding substitute teachers in the province has also undergone a major shift in the last 2years with discretionary decision-making having been relegated to school districts.
In such a fiscally constrained environment, educational administrators may have to question a number of previously held assumptions and practices. The ideology of equality of educational opportunity may be an anachronism of the social liberalism of the 1960s which is no longer financially sustainable in the 1990s. Fiscal equity and social equity in education mean two different things. The latter suggests that the education system should provide each student with quality programs and services irrespective of his/her socioeconomic status or geographical location. It will doubtlessly continue to be a desirable and noble human pursuit and will likely always be reflected in the aims of public education, but, as Brown (1989) has alluded, its emphasis will be reduced if equality in society becomes less of a goal of public policy than formerly. Fiscal equity in education on the other hand refers to fairness in sharing the burden of taxation for financing education generally and may only be achievable in the nether world of economic modelling where human factors such as freedom of choice and student differences are absent from the equation. To achieve greater fairness in their allocation of public dollars, school districts might have to resort to the courts for resolution of differences in equity funding, as is currently happening in Alberta. With the abolition of school taxes in Newfoundland in 1992, the province now has a system of complete provincial funding of education, a unique status it now shares with Prince Edward Island in Canadian school finance. This presents a dilemma for school districts in that their standing as quasi public bodies may preclude their right to litigate for redress of perceived fiscal inequities against the government on whom they depend. Unlike other provinces where school boards obtain only a portion of their financing for education from the provincial government (with the remainder coming from locally imposed property taxes but with state or provincially imposed assessments) thereby having some legal standing to sue the central government, Newfoundland school districts have no such basis on which to claim a right to sue. The legal implications are interesting and may yet be undetectable.
Efficiency in education has come under considerable scrutiny from the public media and from the private sector in the past several years. Where educators have tended to view educational performance in terms of inputs to the system, namely the amount of government funding that is provided compared to other provinces, others view performance in terms of outputs. We are at a time in education where efficiency may only be defensible in terms of measurable outcomes such as high student retention rates, graduation rates, and more vocational utility to educational programming. The implication for educators may be a sharp reduction in their academic freedom to design instruction according to the individual differences of students in their classrooms. Efficiency has also been defined in terms of cost reductions and effective resource utilization at the school and the district levels. Principals and district administrators may have to contend with less local autonomy in fiscal management and may be subject to centralized administration from provincial departments of education.
As a most likely scenario, educators and administrators will require a greater understanding of equity and efficiency issues in the future than they had a need to in the past. This means linking the concepts to the dailiness of normal classroom activities and system governance in order to make an accommodation with current funding realities. At best they will need to enlarge their zones of acceptance for the problems associated with equitable financing of education while at the same time not losing sight of the need to ensure equity to the extent possible in their own areas of operation. They will also need to spend wisely the money they do have. Otherwise, terms like equity and efficiency will remain abstract concepts reserved only for academic discourse in educational journals and conference proceedings.
Brown, W.J. (1981). Education Finance in Canada. Ottawa: Canadian Teachers' Federation.
Brown, W.J. (1989). Education finance and the interplay of competing goals. In Scrimping or Squandering: Financing Canadian Schools. Eds. S.B. Lawton and R. Wignall. Toronto: The Ontario Institute for Studies in Education.
Cubberley, E.P. (1905). School Funds and Their Apportionment. New York: Teachers College, Columbia University.
Garms, W.I., Guthrie, J.W., & Pierce, L.C. (1978). School Finance: The Economics and Politics of Public Education. Engle-wood Cliffs, NJ: Prentice-Hall.
Government of Canada (1991). Shaping Canada's Future Together: Highlights. Ottawa: Minister of Supply and Services. Catalogue number CP22-25.
Johns, R.L., & Morphet, E.L. (1975). The Economics and Financing of Education (3rd. ed.). Englewood Cliffs, NJ: Prentice Hall.
Michaud, P. (1989). Equity of educational finance in eastern Ontario. In Scrimping or Squandering: Financing Canadian Schools. Eds. S.B. Lawton and R. Wignall. Toronto: The Ontario Institute for Studies in Education.