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Economics of Education Review 19 (2000) 305–318

www.elsevier.com/locate/econedurev

Educational finance to support high learning standards: a

synthesis

q

James H. Wyckoff

*

_{, Michelle Naples}

Rockefeller College of Public Affairs and Policy, University at Albany, State University of New York, Albany, NY 12222, USA

Received 15 December 1997; accepted 14 November 1999

Abstract

By 1997, the New York State Board of Regents had required that all students would be subject to the rigorous requirements of the Regents exams in order to graduate from public high schools. These high learning standards were to be fully implemented by 2005. Realizing that these standards would require substantial increases in the performance of students in virtually all school districts, and that such an effort could likely mean changes in aspects of the educational finance system, the Regents commissioned independent research on this issue. This paper provides background and context to the research symposium, Educational Finance to Support High Learning Standards. It also briefly summarizes the papers in this volume that were part of this symposium.2000 Elsevier Science Ltd. All rights reserved.

JEL classification: I21; I22

Keywords: Educational; Finance; Productivity

1. Introduction

The New York State Board of Regents 1997–98 Edu-cational Finance Symposium addressed the topic of school finance for high learning standards. How should New York’s educational finance system be restructured to achieve uniform high learning standards for all stu-dents, especially in schools where student achievement historically has been low?1 _{To explore this topic in}

detail, a panel of experts in educational policy and school finance were assembled.

New York State has a long history of reaching out to

q _{The research that is reported in this paper is solely}

attribu-table to the individual authors. The data presented, statements made and views expressed do not necessarily represent the New York State Board of Regents.

* Corresponding author. Tel.: +1-518-442-5244; fax: + 1-518-442-5298.

E-mail address: [email protected] (J.H. Wyckoff).

1 _{The Commissioner’s charge to the panel is contained in}

Appendix A.

the academic research community to help inform the pol-icy process. This is the fourth education finance sym-posium. Each has provided insights that have been important to the development of educational policy in New York.

The New York State Board of Regents, as the policy setting body for education in the State, has required that all of the State’s students receive a challenging academic curriculum and be able to attain high learning standards. This agreement has taken the form of detailed curriculum changes and high stakes learning standards for all stu-dents. The centerpiece is a requirement that all students must pass five Regents examinations to graduate from high school. Historically, Regents exams have been a set of rigorous curriculum-based external exit exams that have largely differentiated college-bound high school students from their peers. The new Regents standards for all students are acknowledged to be of comparable qual-ity. They will be phased in beginning with the graduating class of 2000, and fully implemented for the class of 2005.

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306 J.H. Wyckoff, M. Naples / Economics of Education Review 19 (2000) 305–318 The new learning standards represent an enormous

change for many students, teachers, administrators, and support staff in New York. Meeting these standards will require that every aspect of the educational system be aligned with the standards. Aligning the finance system is of special importance. More broadly, many states are developing high learning standards of one form or another. Although some states have begun to think about how their school finance systems could support the work of their standards, most have not. Thus, the work of the panel should have applicability beyond New York.

The panel met twice. At the initial panel meeting April 11–12, 1997, panel members were presented with the Commissioner of Education’s charge. The panel also received background briefings from State Education Department staff and heard comments and questions from New York State legislative and agency staffs, and representatives of various educational constituency groups. The authors of the policy briefs reconvened October 28, 1997 for presentation of their work to rep-resentatives of New York’s educational policy com-munity. The panel received feedback from expert respon-dents and from the audience in general discussion. Based on that feedback the following policy briefs were pre-pared. The table below (Table 1) provides a list of the panel members and their policy brief titles included in this volume. This paper provides background for the pol-icy briefs and synthesizes their findings. The remaining sections include a general discussion of methods to align the goals of the system’s stakeholders with the standards, a discussion of how other states are adjusting their fin-ance systems to align them with recently adopted stan-dards-based reform, and a synthesis of some of the major results of the policy briefs.

2. Aligning the educational environment with standards

By creating high learning standards for all students, the Regents have established a very ambitious policy

Table 1

Policy briefs and authors

Authors Policy brief title

David Monk and Samid Hussain Resource allocation implications of increased high school graduation expectations John Bishop, Joan Moriarty, and Ferran Mane Diplomas for learning, not seat time: The implications of New York State

Regents examinations

Nicola Alexander The impact of curriculum standards on student achievement

William Duncombe and John Yinger Financing higher student performance standards: The case of New York State Robert Strauss Who should teach in New York’s public schools?

Thomas Downes Does fiscal dependency matter?: Aid elasticities for dependent and independent school districts

Thomas Parrish Restructuring special education funding in New York to promote the objective of high learning standards for all students

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those of the new standards. Finally, the goals of other stakeholders in the educational system must be aligned with the goals of attaining the standards. Education is a complex system. The student, her teachers, adminis-trators, staff, peers, and family all play an important role in the learning process. Successful realization of the standard will be much easier if the goals of the agents who actually implement the policy are aligned with those of the Regents. These challenges overlap, and greater success on one will enable progress on the others. For example, if the goals of all the stakeholders are aligned, then reaching any goal will require substantially fewer resources. Thus strategies to realize the higher learning standards should integrate each aspect.

Each of these challenges is made all the more difficult as accountability for realizing them does not rest with any particular decision-maker. Primary and secondary public education is truly intergovernmental. The Regents, the State Education Department, the Legis-lature, and the Governor, all share financial and govern-ance responsibility with 714 school boards, and superin-tendents. Although the Regents have established the higher learning standards, they have only indirect con-trol, at best, over these other stakeholders. Because accountability for outcomes is diffuse in education, alignment of incentives becomes very important.

The literature on the economics of organizations ident-ifies four general methods that align the incentives of agents with those of policy makers: contracting, monitor-ing, reputation, and organizational change. Policy mak-ers can establish a formal or informal contract with the agents to reach the desired goals. Effective contracts have clearly defined and measurable goals and contain incentives that are efficient in reaching these goals. Monitoring is used to provide the policy maker with information regarding the performance of the agent. This information can take a variety of forms such as perform-ance evaluations or financial audits and can be used to assess attainment of the policy maker’s goals. In some circumstances, policy makers can rely on the agent’s reputation as a means of promoting goal attainment. When an agent’s reputation is important to her/his future employment, the agent has a strong interest to satisfy the policy maker and will be more likely to work toward the policy maker’s goals. Finally, a policy maker may want to change the structure of an organization to increase accountability for attaining the goals. For example, con-solidating discretion and authority with those who have responsibility for producing outcomes will make accountability more proximate and reduce the potential for misaligned goals.

These principles have direct application to the goal of increasing student performance. High learning standards for students represent an informal contract between the policy maker and students, local administrators and tea-chers. To increase the likelihood of attaining the

stan-dards, policy makers can hold each of these groups accountable with financial or non-financial incentives. For example, defining clear, measurable outcomes for students and withholding high school graduation unless the outcomes are achieved can be a strong incentive for many students (Bishop 1996, 1997). Students and their parents will have powerful incentives to insure that schools are providing opportunities to successfully meet the standards. Less powerful, but still useful in aligning incentives are medium and low stakes standards for stu-dents. Likewise teachers (singly or in groups) could be rewarded or punished if students did not meet perform-ance goals. Whole schools could be reconstituted if stud-ent performance did not meet certain norms over extended periods. Policy makers can employ report cards and performance audits as monitoring mechanisms. This information is useful in aligning incentives, especially if students have choice about which schools to attend.

State aid is an important tool for the achievement of the standards. State aid can generally be employed to insure districts have the resources to potentially meet the standards, and also to provide incentives toward the stan-dard. Equity demands that districts be provided with suf-ficient resources such that if the resources are effectively employed, students could be educated to meet the learn-ing standard. This requires an ability to deploy resources to best enhance student learning and an ability to differ-entiate among the circumstances of districts (needs and ability to pay) in the distribution of aid. State aid can also be used to reward success and/or punish failure in meeting the goals. Care needs to be taken when financi-ally punishing districts for weak performance. Unless the aid environment is sufficiently generous, reducing aid to poor performing districts may preclude them from being able to meet the standard. So little is known at this time about what resources are necessary to reach learning standards that financially punishing districts for weak performance may not be very effective. However, these incentives may play an important symbolic role. At mini-mum, efficiency demands that failing districts not be rewarded for their failure. That is, more money should not be provided to districts simply because its students fail to meet the standard. Ultimately this requires the good judgment of managers who are able to differentiate between legitimate needs and poor performance.

3. Standards and finance in other states

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308 J.H. Wyckoff, M. Naples / Economics of Education Review 19 (2000) 305–318 The emerging norm for standards based reform is for

the standard to represent high levels of achievement, have high stakes, and be aligned with assessments. Many states have long required that students achieve a level of minimum competency on basic skills exams, but pro-motion and exit exams linked to higher learning dards demand that students demonstrate mastery of stan-dards. Educators in states with high-stakes tests believe that such tests signal to students that simply meeting the lower boundary of basic skills is not enough.

We examined standards based reform efforts in 30 states. In this effort, we made use of information avail-able in state budgets, on state education department web pages, and by phone conversations with experts in most states.

3.1. Standards and stakes

Our determination of the level of states’ stakes for stu-dents of standards assessments is included in Table 2. Exit exams especially are gaining favor among states.

Eighteen of the 30 states we studied currently have or plan to implement high-stakes tests for students.2_At

present, many states are in the process of designing or revising such tests to be aligned with standards. It is likely that in the future even more states will choose to administer rigorous high-stakes tests, as educational instruction becomes more firmly rooted in standards.

A student consequence of standards that we consider being moderate-stakes is the awarding of differentiated diplomas. New York has long differentiated between Regents diplomas and local diplomas as a way of cre-ating incentives for students to opt into the more chal-lenging Regents curriculum. Oregon recently chose to offer differentiated diplomas instead of requiring exit exams. Students who pass 10th grade standard-based assessments in the four core subjects will receive a

Cer-tificate of Initial Mastery (CIM). Oregon will begin to

offer a Certificate of Advanced Mastery (CAM) in 2004– 05 to students who pass 12th grade standards-based assessments and focus on a career area. Other states, like Indiana, also offer differentiated diplomas, but Indiana’s Academic Honors diploma is curriculum-driven, not assessment-driven.

Teachers, schools, and districts in some states also are held accountable for student achievement of standards (as measured by assessment scores) through financial or

2 _{According to a 1997 American Federation of Teachers}

(AFT) report, Making Standards Matter, 13 states have or plan to have exit exams based on 10th grade standards or higher, seven states have or plan to have exit exams based on 7th, 8th, or 9th grade standards, and three states have exit exams not based on standards. For our purposes, all states with exit exams based on standards were considered to be high-stakes.

non-financial stakes. Most [21] of the 30 states we stud-ied have non-financial stakes for schools.3_{These stakes}

include both rewards and sanctions for schools. Non-financial rewards include such possibilities as freedom from regulation or statewide recognition as a high-per-forming school. Sanctions include state intervention, loss of accreditation, or state takeover of schools or districts. Most states have sanctions for low-performing schools written into regulation or statute,4 _{but states may be}

reluctant to follow through with sanctions.

3.2. Financial support of standards

Financial stakes based on student achievement of stan-dards can be considered a component of a performance-based accountability system for schools.5

Performance-based incentive programs are administered within an existing framework of school administration and resources and alone do not represent systemic reform. Reward recipients (school personnel, schools, or districts) are encouraged to outperform expectations to receive rewards. Increasingly, states designate rewards for individual schools or districts, instead of for teachers6

and school administrators7_{in the form of merit pay or}

bonuses. There is acknowledgment that gains in student achievement reflect the total delivery of education in schools and not simply the efforts of individual teachers. Thus, exam based merit pay for individual teachers may be very difficult to properly implement.

Our research revealed that financial stakes of stan-dards assessments in fiscal year 1998 were funded in eleven states, and proposed for subsequent years in four others, indicating growing support for such incentive programs. Statutes in these states describe these rewards employing similar vocabulary: incentives/awards/ rewards/grants are offered for achievement/improvement of student/school performance. Some statutes specify purposes for which grants may or may not be spent. In many states, schools/districts are free to determine for which school-related purposes the rewards are to be spent.

As seen in Table 3, appropriations for performance-based rewards do not amount to a large portion of total state expenditures on K-12 education as approved by

3 _{This information was largely obtained from Education}

Week (1997).

4 _{See Judie Mathers (1997).}

5 _{Mathers (1997) describes a complete performance-based}

educational accountability system with four components: stan-dards and assessments, multiple indicators, rewards and sanc-tions.

6 _{Tennessee suspended funding for teacher incentives in}

fis-cal year 1998.

7 _{Although Texas has a Principal Performance Incentive}

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Table 2

Standards across the statesa,b,c,d

State AFT approval of Mandatory assessments Public reporting Stakes for students of Non-financial standards in core aligned with core of assessment stakes for schools

standards

Alaska 1 Phase in (2 subjects) Yes Phase in high (2 subjects No

by 2002)

Arizona 4 Phase in by 2000 (2 Yes Phase in high (2000) No

subjects)

California 4 Phase in by 1998 Yes Phase in low Yes

Colorado 4 Phase in by 2001 (3 Yes Low Yes

subjects)

Connecticut 3 Yes (3 subjects) Yes Low Yes

Delaware 4 Phase in by 1998–99 Yes Low No

Florida 4 Phase in by 1998 (2 Yes Currently high, phase in Yes

subjects) higher (2 subjects)

Georgia 4 Phase in by 1999 Yes High Yes

Illinois 4 Phase in 1998–99 Yes Current low, phase in Yes

moderate (2000)

Indiana 3 Yes (2 subjects) Yes Current low, phase in Yes (top 25%

moderate-high recognized)

Kansas 0 Yes (revised by 2000) Yes Low No

Kentucky 3 Yes Yes Low Yes

Louisiana 2 Phase in by 2000–01 Yes Low Yes

Maryland 1 Yes Yes Phase in high Yes

Massachusetts 4 Phase in by 1998 Yes Phase in high (2000–01) Yes

Minnesota 0 Phase in by 1998 No? Phase in high (2 subjects No

by 2001)

Mississippi 3 Yes Yes High (2 subjects) Yes (0.1 for

low-performing)

Missouri 3 Phase in by 2000 No Low Yes

Nevada 3 Phase in Yes High No

New Jersey 1 Phase in by 2001–02 Yes Phase in high (2006) Yes

New Mexico 2 Phase in by 1998 Yes Phase in high (2000) Yes

North Carolina 4 Yes Yes High-exit exams by 2000 Yes

Ohio 2 Yes Yes Current low, phase in Recommendation

high (2004) by 1998

Oklahoma 2 Yes Yes Low Yes

Oregon 3 Phase in by 1998–99 Yes Phase in moderate (2001– No

02)

Pennsylvania 3 Phase in (2 subjects) Yes Low No

South Carolina 3 Phase in by 1999 Yes Phase in high (2003) Yes

Tennessee 1 Yes Yes Phase in high Yes

Texas 4 Yes (will revise when Yes High Yes

TEKS completed)

Washington 3 Phase in by 2000–01 Yes Phase in high (2006) No

a _{The number of core subject areas (English, Math, Social Studies and Science) that have received American Federation of Teachers}

approval in 1997 report, Making Standards Matter.

b _{Many states are in the process of phasing in aligned assessments in two or more subjects.}

c _{Public reporting includes such possibilities as school/district report cards, published assessment scores in newspapers, and on}

the internet.

d _{High stakes indicate that students will be barred from gradation unless they satisfy statewide assessment standards, moderate}

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Table 3

Financial support to meet standards in FY98a,b,c,d,e,f

State Financial stakes of standards assessments in FY98 Financial support to meet standards in FY98 FY98 ($millions) Recipient of award FY98 % of state Miscellaneous (milions) FY98 % of state Assessment—FY98 % of state Goals 2000

($millions) K-12 ($millions) K-12 ($millions) K-12 ($millions)

budget budget budget

Alaska na $20.5 for quality schools initiative $20.5 2.9% $2.2 $697

Arizona na $44.0 for career ladder $44.0 2.0% $3.1 (up from $0.4) 0.1% $9.6 $2192

California na $700.0 for class-size reduction for K-3 (for $806.0 3.7% $35.0 for new 0.2% $69.3 $21,900 operations and classroom construction); $56.0 to assessments (not

train teachers in reading skills; $50 for staff English-only as

development Governor wanted)

Colorado na $1.80 0.1% $7.0 $1818

Connecticut Local and regional board of $0.5 0.0% $6.5 for improving teaching $6.5 0.4% $5.20 0.3% $6.1 $1563 education (Student

Achievement Grant)

Delaware na $7.7 for at risk (big increase); $5.3 for $13.0 2.1% $.8 for standards and 0.5% $2.2 $607 professional accountability and instruction assessments; $2.2 for

advancement State Testing Program

Florida School personnel awards were $58.0 increase for standards-supportive $332.0 4.7% $27.8 $7063 proposed for next year ($20 for instructional materials, and possibility of $274.0

Florida School Recognition from categorical grants for the purpose of Program) achievement of statewide standards

Georgia Public school and local school $3.3 0.1% $1.5 for performance-based certification; $33.4 $34.9 0.8% No line item $16.0 $4650 system for professional development

Illinois Schools (not funded this year) $9.0 for learning improvement; $56.5 for ed. $112.9 2.5% $7.6 (incl. standards) 0.2% $26.1 $4508 improvement block grant (this includes school

safety); $47.4 for reading improvement

Indiana Schools $3.2 0.1% $21.5 for Summer School; $0.5 for professional $30.9 1.0% $26.8+secondary funds 0.8% $10.8 $3097 development; $8 for early intervention; $0.975

for performance-based accreditation

Kansas na $3.0 for inservice ed.; $1.6 for innovative $4.6 0.2% $0.9 for one-year 0.0% $5.2 $1898

programs contract

Kentucky Schools (based on FTE teacher) $27.0 1.1% $173.3 for KERA STRANDS (up less than $3 $165.2 6.6% $8.1 (incl. in KERA) 0.3% $9.3 $2509 from FY97)

Louisiana na $2.2 for standards and accountability; $30.0 for $32.2 1.5% $8.4 (includes ECS 0.4% $12.8 $2098 reading improvement and math instruction dues and 3.5% salary

increase)

Maryland Schools $2.8 0.1% $30 for Baltimore public schools; $3.2 for $35.0 1.3% $2605 Computers for 21st Century; $1.8 for staff

development

Massachusetts na Governor recommended $89.6 $89.6 3.3% $10.7 (up from $6.35) 0.4% $11.9 $2706 Minnesota na $13.0 for education excellence (ed. performance $13.0 0.4% $2.50 0.1% $9.0 $3332

grants, teacher ed. improvement, graduation rule)

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Table 3 (continued)

Mississippi na $130.0 phase-in over 5 years ($2664 per $12.0 0.5% $8.2 $1162

student), $12.0 for FY98

Missouri na $26 for professional development; $6.0 for $66.6 2.7% $7.30 0.3% $11.1 $2682 Incentives for School Excellence;$34.6 for

CAREER LADDER

Nevada na $3.0 for education reform package for standards $3.0 0.1% $2.5 $620

and accountability

New Jersey Districts $10.0 0.2% Funding formula based on per student allotment $3577.0 67.3% $14.7 $5315 to achieve ‘thorough’ education based on Core

Curriculum Content Standards ($2.62 billion); $248 Supplemental Core Curriculum, $288 for early childhood; $175 for Demonstrably Effective Program Aid, $246

New Mexico Districts/schools $0.5 0.0% $22.6 for Instructional Material Fund; $3.0 for $26.0 1.9% $4.7 $1358 Educational Technology Fund; $0.38 for

Accountability Data System

North Carolina School personnel $72.4 1.5% $213.6 for teacher, principal, staff compensation $225.0 4.8% $0.85 for grading essay 0.0% $13.2 $4724 increase; $6.8 for staff development; $.8 for tests

extra pay for teacher development, $3.2 in reduced middle school class size; $.57 for NBPTS

Ohio Recommendation by 1998 $14.4 for professional development, $17.5 for $35.5 0.6% $10.60 0.2% $24.5 $5538 pre-school, $1 for reading performance, $0.5 for

summer proficiency academies; $12.1 for EMIS

Oklahoma na $5.0 for professional development $5.0 0.3% $2.50 0.2% $7.3 $1626

Oregon Schools—proposed $1000 per $2.0 over 2 years $1.0 0.0% $6.2 $2071

FTE teacher by 1999–2001

Pennsylvania Schools $10.4 0.2% According to DOE, professional development is $6.00 0.1% $25.9 $5748 part of most projects which are focusing on

proposed academic standards

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Table 3 (continued)

South Carolina Schools and school districts $5.0 0.3% $26.5 for local school innovations, continuous $130.3 9.0% $7.7 $1442 improvement and competitive teacher grants;

$103.8 for academic assistance

Tennessee Teacher incentives suspended $10.8 $2323

FY98

Texas Commissioner of Education $2.5 0.0% $2 for biennium for advanced placement; $48.4 $9826 must develop study on Commissioner took $1 from professional staff

establishing an incentive development for pre-AP programs; $50 for program for all educators Gifted and Talented program

before next legislative session

Washington Recommendation to be $25.0 (based on per student allotment) $25.0 0.6% $29 per student 0.1% $10.5 $4351 presented to Legislature in

1998 and funded by 1999 for school staff

a _{Many states have incentives/rewards for improved school performance, one measure of which is student scores on standards assessments. These rewards may be distributed to teachers in the form of bonuses,}

or to schools/districts to be spent on school-related purposes. FY98 appropriations are included in both dollar amount and percent of total state budget for K-12 education.

b _{Non-financial stakes include both sanctions (e.g. state intervention/takeovers) and rewards (e.g. recognition, or freedom from regulation).}

c _{Miscellaneous includes FY98 state-funded areas which are considered to be for the purpose of student achievement of higher learning standards. Such areas as staff development, curriculum development,}

reading improvement, innovative programs are included here.

d _{FY98 appropriations for assessment development, administration and scoring.} e _{States’ appropriations for Goals 2000 as included in the President’s 1998 budget.}

f _{FY98 appropriations for K-12 education as passed by the legislature and signed by the governor. These numbers were collected by Jeff Schieder and Michelle Naples of the Center for the Study of the States}

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state legislatures in fiscal year 1998. We estimate that the range is from less than 0.1% in Connecticut, New Mexico and Texas, to 1.5% in North Carolina.8 _While

these rewards are relatively insignificant in magnitude, they represent a symbolic commitment to performance-based outcomes in these states. Although some states’ reward programs pre-date standards, it is imagined that the criteria for school performance improvement will evolve to include such measures as student scores on aligned assessments.

Our goal in this effort was to specify which areas of states’ budgets reflect a financial commitment to stan-dards. Those categories are included in our ‘Miscel-laneous’ column, which reveals similarities among states. Individual items included in this column can be debated, but it was our sense from looking at fiscal year 1998 budgets and speaking with state officials and other interested parties, that these items are related to stan-dards. The following appear to be commonly funded areas related to standards:

O technology (MD, NM, NC, NY)

O instructional materials (FL, NM, NY)

O staff development (most states)

O early reading (CA, IL, IN, LA, OH)

O class size reduction (CA, NC, NY)

O performance pay or salary increase for teachers (AZ, GA, MO)

Developing and grading new assessments aligned with states’ standards is a costly endeavor as the exams increasingly include more complex questions that are intended to measure both content and performance stan-dards. Some states, such as Florida and Kentucky, also have or are developing writing tests that necessarily involve increased grading effort. Many states are choos-ing to contract with private companies to develop and grade assessments. State funds for assessments generally comprise a small share of the total state budget for K-12 education, but many states also use federal Goals 2000 funds for test development purposes.

States vary in their focus on teachers in the standards effort. We found that states approach financing student achievement of standards through teacher involvement in the four ways: attracting and retaining quality teachers, training teachers through staff development, encouraging national certification of teachers, and rewarding teachers who perform at high levels.

North Carolina has funded all four approaches in a major effort this fiscal year. In an effort to provide more

8 _{Reward amounts are calculated in various ways; for}

example, in Kentucky, rewards are based on number of FTE teachers, and in South Carolina, rewards are based on per pupil basis.

competitive teacher salaries, the legislature approved an $170.7 million teacher compensation increase to recruit quality teachers. North Carolina also approved: $6.8 million for staff development in reading and math edu-cation, $800,000 in extra pay for new teacher develop-ment, and $3,500,000 in additional pay for mentor teach-ers; $567,330 to support teachers in receiving certification by the National Board for Professional Teaching Standards; and, $72.4 million in incentive funds for performance-based pay for teachers. These teacher-targeted funds represent 3.5% of total spending on K-12 education.

Another approach to attract and retain qualified teach-ers is to offer merit pay programs for teachteach-ers. Arizona and Missouri both have such programs, funded at $44 million and $34.6 million, respectively in FY98. The pri-mary goal of Career Ladder in Arizona is to improve the academic achievement of students by attracting and retaining talented teachers. Teachers are paid according to their level of skill attainment and level of their stu-dents’ learning, one measure of which is their growth in higher-order thinking standards. In Arizona, one third of all teachers work in Career Ladder districts.

Notable efforts with regard to financing of standards in FY98 occurred in Florida and Washington. Florida enacted a bill in FY98 that stipulates that funds from four categorical grants may be used for the purpose of making sure that students attain statewide standards. These grants include $100 million for Class Size reduction, $11 million for Full Service Schools, $83 million for K-8 Summer School, and $80 million (up from $67 million) for Public School Technology. This bill also states that each student who does not meet specified levels of performance on statewide assessments must be provided with additional diagnostic assessments to determine the nature of the student’s academic need. The school, in consultation with the parent, must implement an academic improvement plan that includes remedial instruction.

New this fiscal year in Washington is a formula based on a per student allocation for the purpose of preparing schools to impart standards. These funds, expected to total $25 million this year, are to be awarded to school buildings for the purpose of aligning curriculum with state standards. The money should be spent on planning and training of school administrators and teachers to teach Essential Learning. Schools are also encouraged to develop aligned end-of-course exams.

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314 J.H. Wyckoff, M. Naples / Economics of Education Review 19 (2000) 305–318 part of that effort. The remainder of this paper

summar-izes some of the findings of these efforts.

4. The policy briefs

The policy briefs identify four elements of educational finance that policy makers should take into account as they consider how to assist New York’s schools and stu-dents in meeting the high learning standards.

O If schools are to meet the new learning standards, they will need additional capacity.

O The needs vary dramatically across districts, and the current operating aid formula must be dramatically altered to meet these needs.

O In addition, reallocating existing resources within many districts can make progress.

O Wherever possible, responsibility for results should be aligned with discretion over finance and govern-ance.

In addition, three of the policy briefs explored what might be learned about the possible effects of the new Regents learning standards based on existing data. Before turning to the implications for finance we exam-ine these findings.

4.1. Effect of the regents standards on outcomes

There are two primary issues in question. Do high-stakes learning standards increase performance on tests and other outcome measures? Is the learning of some students reduced as a result of such a system, because, for example, they become frustrated and drop out of school? The policy brief by David Monk and Samid Hus-sain, that by Professor John Bishop, Joan Moriarty, and Ferran Mane and the brief by Nicola Alexander all find some support for the first proposition but little for the second. In each of these analyses, the authors are attempting to learn something about the effects of the new required Regents standards based on the voluntary experience of students and districts. One can think of several reasons for caution in this type of exercise. None-theless, the authors make creative use of the only data available to provide some insights.

Bishop, Moriarty, and Mane examine performance on a variety of tests and outcome measures across states to argue that New York’s system of Regents exams may be responsible for the state’s relatively strong performance. Once the attributes of students and schools are controlled for New York State students perform significantly better on the SAT exams and the NAEP tests than students from other states. This leads the authors to argue there is something about education in New York that

distingu-ishes its students from those of other states. One of the most important differences between New York and other states is the long history of a statewide, voluntary cur-riculum based external exit exam. They believe these exams are an important explanation for the strong per-formance of New York students. At the same time they find no evidence that New York is any different from other states with respect to student dropouts. They also examine the effects of minimum competency exams on the post high school experiences of students. Using data from several different national surveys over a number of different years, they find some support that minimum competency exams increase labor market earnings. They argue that these effects are likely to be much larger for mastery exams like the Regents.

Monk and Hussain employ data for New York State districts in 1992 and 1996 to examine the effects of greater participation in Regents exams. They find that districts that increased their Regents participation most (percent of students who take the exam) had the smallest gains in the percent of test takers who pass the exam. In some cases the effects were negative, but the authors conclude that “…districts have been enjoying some suc-cess overall at meeting the needs of students coming into the Regents curriculum”. When examining the effect of increased Regents exam participation on dropout behavior, they found no evidence that increasing the rigor of the curriculum led to increased dropouts.

Alexander also examines school districts in New York, identifying those districts with subject variances to allow movement to an all Regents curriculum. She employs data from 1990 through 1995 and finds the por-tion of all students who pass subject specific Regents exams increased in three of five subjects as a result of movement to the all Regents curriculum. Similar to Bishop, Moriarty and Mane and Monk and Hussain, she found no evidence that movement to the all Regents cur-riculum had any effect on dropouts. Taken together the findings reported by these three policy briefs support cautious optimism regarding the potential of the Regents high learning standards to increase student performance. By necessity, the research in these three policy briefs makes use of historical data on the effect of Regents exams participation on various outcomes. Clearly, volun-tary participation in the all-Regents variances is very dif-ferent from universal application of high learning stan-dards to all districts. Application of these findings must be made cautiously.

4.2. Additional capacity

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capacity in order to meet these standards. Without sub-stantially more capacity the promise of increased equity in outcomes may be empty. This capacity includes both additional financial resources for most districts, as well as, substantial technical support for curriculum develop-ment and teacher training.

Bill Duncombe and John Yinger examine just what would be required to move towards output equity. They argue forcefully that the current level of expenditures in most districts is inadequate to achieve high learning stan-dards. They develop specific estimates that show reach-ing the high standards set by the Regents is virtually impossible with the resources currently allocated to pub-lic education in New York. In fact, they estimate that it would cost the State an additional $25 billion just to bring current performance levels in all districts up to the performance of the median district.

4.3. Differing needs

Several authors make the point that districts differ gre-atly in their ability to meet high learning standards. This occurs because both the costs of increasing performance and the capacity to bear these costs differ widely from one district to another.

Duncombe and Yinger develop in detail the costs that districts must incur to meet high learning standards. They argue that the costs of hiring teachers and other inputs necessary to increase performance vary widely across the state. For example, some districts are in locations where all labor (not just teachers) are paid more; to hire teach-ers of a given quality, those school districts must pay more than districts where labor costs are lower. This argument is most applicable to teachers, but applies to all resources used in education, and is often referred to as input costs. More importantly, but often less appreci-ated, are the costs of students who require more resources to reach a given performance standard, often called environmental costs. Some districts are heavily populated with students who come to school prepared to learn, receiving strong support and motivation from their families and peers. It is less costly to educate these stu-dents to a given performance standard than it is to edu-cate students for whom their personal circumstances, or home environments, make education more difficult. To meet the same high learning standards, schools with high environmental costs must employ more resources than schools where these costs are lower. Both input and environmental costs need to be taken into account if we are serious about reaching high learning standards for all students. Otherwise, through no fault of their own, stu-dents in high cost districts will be unlikely to reach the standards.

Duncombe and Yinger estimate a cost index that accounts for both input and environmental costs for dis-tricts in New York and find substantial variation. Their

estimates imply that the cost of achieving the same level of performance is nearly 3.5 times as great for New York City as it is for the average district in the state. As is evident, the Big 5 districts have costs that substantially exceed those in the remainder of the state. In part, this is a result of higher input costs. More importantly, the environmental costs in these cities are very high. Support for the high environmental costs in these large city school districts is found in their relatively high incidence of poverty, female-headed households, and students with limited English proficiency.

By implication, districts with higher costs will need proportionately more resources to reach the same level of performance. Duncombe and Yinger estimate that to just improve the performance of the lowest 50% of dis-tricts so that they meet the current median performance level would require an additional $25 billion. This would mean both substantial increases and redistribution of state aid, or very large property tax increases for these low performing districts, or some combination. It is likely that the Regents learning standards would imply an even higher expenditure.

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316 J.H. Wyckoff, M. Naples / Economics of Education Review 19 (2000) 305–318 occurred if these same districts had been fiscally

inde-pendent.

Downes employs data for school districts in 12 East Coast states from 1990 to 1994. Some of these states have large central cities, like the Big 5, which are fiscally independent, while others have smaller dependent dis-tricts. His analysis shows that fiscal dependency may matter but it doesn’t seem to affect the level of aid that ultimately gets spent in schools. Dependent districts may spend somewhat less than independent districts. How-ever it appears that state aid reaches schools at the same rate in fiscally dependent districts as occurs in inde-pendent districts. Rather, lower spending by the Big Five may well reflect the fact that these districts have substan-tially higher costs and lower ability to pay. These dis-tricts have high needs for most public services and treat resources as fungible. This would be true whether they are dependent or independent. Once these differing cir-cumstances are recognized state aid may well have effec-tively promoted spending.

4.4. Reallocating existing resources

Several of the policy briefs indicate that districts may be able to make some progress toward higher learning standards by reallocating existing resources. Monk and Hussain make this point using an analysis of statewide data for 1992 and 1996 where they compare changes in resource allocations in districts with large increases in Regents participation to those of districts with smaller increases in participation. They find that changes in the level of Regents participation had no effect on total expenditures. However, they find weak evidence that dis-tricts with the greatest increases in Regents participation have reallocated resources to support the increased stan-dard. These districts provide more teachers per student, protect academic course staffing levels, and reduce remedial course offering more than districts with smaller increases in Regents participation.

To explore these types of relationships in more detail, two of the policy briefs make use of case studies in 10 districts. The Monk and Hussain policy brief and the Bishop, Moriarty and Mane policy brief both analyze how ten districts with large increases in Regents partici-pation over the 1992–96 period and strong student per-formance have managed their resources. Both briefs con-clude that in response to increasing performance pressures brought on by the increased Regents partici-pation, these districts provide additional class time for students during school, additional instructional opport-unities outside of regular school hours, and altered the type of instruction. They find that these opportunities are provided through a combination of reallocating existing resources and uncompensated time provided by teachers and others. Monk and Hussain conclude that schooling systems in New York State enjoy some capacity to

increase pupil performance in response to the widespread desire to raise standards. They are cautious, however, about how successful this approach will be with univer-sal adoption of the Regents standards.

Bob Strauss argues that additional capacity may exist within the teacher hiring process. He provides extensive evidence from Pennsylvania that those being trained as teachers are not drawn from the most qualified college students, they are not well trained, standards for certifi-cation are low, and hiring practices do not select the most qualified applicants. Standards for teachers in Pennsyl-vania and most other states are remarkably low when compared to what is expected of other professionals. For example, only 32% of those taking the CPA exam passed any portion of the exam; 50% failed all portions of the exam. Pass rates on the law bar exam are less than 70%. In contrast, teacher certification tests frequently pass more than 95% of those taking the exam. Based on a survey of all Pennsylvania school districts, Strauss con-cludes that “…most districts do not actively seek new teacher applications through vigorous advertising and recruiting. The result is that a high proportion of hired teachers are simply those the district knows best, their own graduates.” Hiring poorly qualified teachers will make attainment of high learning standards very difficult. Teacher salaries are the single largest expenditure that school districts make. By reallocating this substantial investment in teacher salaries to more qualified teachers, students will be better prepared and more likely to reach these high standards.

4.5. Alignment of goals, incentives and accountability

Creating incentives for agents, such as administrators and teachers, to act in ways that are consistent with the goals of the high learning standards for all students will increase the likelihood of achieving those goals. In many cases, the new learning standards represent a change in organizational culture. Stakeholders need signals and incentives to alter the culture in ways that are consistent with the goals. In addition there should also be clear lines of accountability for achieving those goals.

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these placements than would be received if placed in public schools may work against the least restrictive environment goal stated by the Regents and mandated by the federal Individuals with Disabilities Education Act. Placing students in the least restrictive environment is also important as it shifts the responsibility and account-ability for their performance from the special education staff to the whole school community. This aligns the control that school districts have with accountability for high standards outcomes.

Downes’ policy brief calls into question the impor-tance of fiscal dependency on the relationship between state aid and expenditures in the Big Five, as noted above. Nonetheless, he argues that if policy makers want to address this situation, one potentially fruitful way may be to place responsibility for the outcomes of education with the general-purpose government. Thus the mayor and city council would be accountable for education. This has the effect of placing responsibility for outcomes with those who have significant control over finances. This is an approach adopted in Chicago, when that city became dissatisfied with the operation of its schools, which were fiscally independent from the remainder of city services. This change in organizational structure would align incentives for the Regents standards and increase accountability for their achievement.

Finally, Strauss provides evidence from Pennsylvania that it may be difficult to align local administrators and school boards with the goals embodied in the Regents standards. He argues that even if there are high learning standards and these standards are well aligned with the State’s finance system, ultimately education occurs in classrooms.

5. Policy implications

Several policy implications flow from the analysis done in the policy briefs.

O Increase overall capacity for school districts.

O Most districts will require greater resources to suc-cessfully implement high learning standards.

O Curriculum and staff development should begin in elementary and middle school.

O Methods are needed whereby districts can share information on what approaches are more and less successful in reaching high learning standards.

O There is a need to create opportunities in and out-side school to provide extra help to students having difficulty achieving.

O Align the finance system with the differing needs of districts and students.

O The majority of state aid should be allocated to explicitly account for the differing input and

environmental costs across districts. This implies an output-based, cost-adjusted aid formula.

O All aid formulas need to provide incentives con-sistent with the high learning goals for all students. This is particularly true for special education stu-dents.

O Encourage districts to reallocate resources to meet the learning goals.

O It is important that information be shared on how resources can be fruitfully reallocated.

O Teacher hiring practices need to be closely exam-ined.

6. Summary

The research performed for the symposium, Edu-cational Finance to Support High Learning Standards, has important implications for educational policy in New York and elsewhere. This approach represents a rela-tively unique collaboration between state policy makers and the academic research community. As we attempt to further improve the educational outcomes of students, these collaborative efforts need to become more com-mon. They provide an important mechanism for these two groups to communicate with each other in substan-tively important ways. Policy makers communicate their questions and concerns and researchers attempt to address these issues through well-grounded research. These interactions create a doorway through which both groups can move more freely and consequently learn a great deal more about educational policy.

Acknowledgements

Karen Landers and Betsy Tessler provided excellent research assistance that supported the work of the sym-posium and editing of the papers in this volume.

Appendix A. The Commissioner’s charge to the Panel on School Finance for High Learning Standards

The study group is charged with answering the follow-ing questions:

O How does one define adequacy of a school finance system to meet high learning standards set by the Regents?

O What are the components of a finance system

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low-318 J.H. Wyckoff, M. Naples / Economics of Education Review 19 (2000) 305–318 performing schools? What can we learn from the

vari-able performance among like schools with respect to:

O District and building leadership

O Teacher effectiveness

O Staff development

O Parent involvement

O Special education

O Early childhood education

O Concentrations of students in poverty

O Prevention and support services

O Adequacy of school facilities

O What are the most cost-effective methods to

implement and maintain these strategies (for example, show casing models, technical assistance, research and development, State accountability reports, etc.)?

O Does meeting high standards in urban school systems raise unique problems that require unique solutions?

O How does fiscal dependency of school districts on municipal budgets affect school finance strategies to meet high learning standards?

O In designing a finance system that supports high

learning standards, how should the heavy reliance on both State and local revenue be taken into account?

O How should the finance system encourage collabor-ative efforts between school districts (and BOCES), municipalities, community agencies and private busi-ness to facilitate student learning in a high stan-dards curriculum?

References

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Bishop, J. (1997). The effect of national standards and curricu-lum-based external exams on student achievement. Amer-ican Economic Review, 87 (2), 260–264.

Education Week (1997). Quality counts (supplement), January 22.

Education Week (1998). Quality counts, January 8, pp. 80–81. Mathers, J. (1997). Education accountability systems in 50