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PREFERENCES FOR SCHOOL FINANCE SYSTEMS
PREFERENCES FOR
SCHOOL FINANCE
SYSTEMS: VOTERS
VERSUS JUDGES
COLIN D. CAMPBELL
WILLIAM A. FISCHEL
*
&
*
Abstract – This paper examines a
theory that urges judges to decide, as in
Serrano v. Priest, that locally financed
school systems are unconstitutional. The
theory holds that courts must implement
reforms because the legislative process is
dominated by “property-rich” communities. A New Hampshire legislator ran for
governor in 1992 on a property tax and
school finance reform platform after it
had narrowly failed in the legislature.
Regression analysis shows that the
candidate’s fiscal platform was decisive
in her loss. We conclude that propertyrich districts are not unduly influential in
maintaining a system that relies heavily
on the property tax.
support public schools. After the
California Supreme Court decided
Serrano v. Priest (1971, 1976), many
other state supreme courts began to
look at the constitutionality of the
traditional method of school funding.
Local financing allows for different levels
of expenditures based in part on
differences in the property tax base per
student. The paradigmatic comparison
in Serrano was of “property-rich”
districts that could tax themselves at a
relatively low property tax rate and still
get higher spending per student than
“property-poor” districts (Coons, Clune,
and Sugarman, 1970). (Recent evaluations
of equalization as an economic policy are
given by Ladd and Yinger, 1994;
Oakland, 1994; and Reschovsky, 1994.)
INTRODUCTION
We emphasize at the outset that
property-rich communities often have
more poor people than property-poor
communities. The presence of commercial and industrial development can
make an otherwise poor district “rich”
in tax base (Ladd, 1976). Conversely,
affluent communities often deliberately
repel industrial development that would
make them property rich but environmentally poorer (Fischel, 1979). The lack
State Courts Have Overturned School
Finance Systems
This paper concerns the rationale for
having judges decide the constitutionality of the local property tax system to
*
Department of Economics, Dartmouth College, Hanover, NH
03755-3514.
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NATIONAL TAX JOURNAL VOL. XLIX NO. 1
of correlation between poor people and
property-poor districts is often overlooked in discussions of school finance
issues, even though the distinction has
been known for a long time (Yale Law
Journal Note, 1972).
regression analysis that the state share
of school spending has risen considerably in the states with Serrano-style
court victories.
Such victories did not guarantee that
total school spending from all sources
rose, however. Leyden (1988, 1992a)
and Rothstein (1992) offer theoretical
reasons for doubting that average
spending per pupil would necessarily
rise with equalization. Silva and
Sonstelie (1995) present empirical
evidence that the Serrano decision
caused a decline in California spending
relative to other states. Further,
equalized spending in California did not
reduce test score differences between
rich and poor districts (Downes, 1992).
Theobald and Picus (1991) summarized
the experience of California and
Washington schools after their courts
had ordered equalization: They were
“living with equal amounts of less”
because of competition for state funds
by other interests.
The 1971 Serrano I court held that such
fiscal inequalities were by themselves a
violation of the Equal Protection Clause
of the U.S. and California Constitutions.
After a subsequent trial found (inevitably) that inequalities in the property tax
base did exist, the California Supreme
Court ordered the state legislature in
Serrano II (1976) to fund schools in such
a way as to render differences in
property values per pupil irrelevant. In
practice, this remedy resulted in nearly
equal expenditures per pupil (Henke,
1986, p. 35).
The constitutional rationale for the
school finance decisions was quickly
shifted from the Equal Protection Clause
of the U.S. Constitution to state
constitutional grounds by San Antonio
Independent School District v. Rodriguez
(1973). The U.S. Supreme Court held
that the aforementioned inequalities did
not offend the U.S. Constitution, but it
permitted the state courts to go their
own ways. Many states mention
education in their constitutions, and
judges in more than a dozen states have
used these clauses as the basis for
holding locally funded systems unconstitutional. (Recent legal reviews that
summarize and categorize the cases are
Enrich, 1995, pp. 185–94; and
Underwood, 1994.) The objective of
the courts that found locally based
systems unconstitutional was to reduce
the spending variations associated with
tax base variations among districts. In
practice, this invariably meant having
the state government fund a much
larger share of school spending. Bahl,
Sjoquist, and Williams (1990) showed by
THE CONSTITUTIONAL BASIS FOR THE
DECISIONS IS UNCERTAIN
The present article asks why judges
should be the ones to decide what the
appropriate degree of equalization
among school districts should be. Two
theories, original intent and fundamental values, are briefly reviewed in this
section before the empirically testable
one is described in the next section.
The original intent of the many state
constitution framers does not suggest
much concern with equalization.
Sometimes the original intent is transparent. As U.S. Supreme Court Justice
Lewis Powell mentioned in his San
Antonio v. Rodriguez (1973) opinion,
Texas actually amended its constitution
in 1883 specifically to permit local
property taxation for schools, which had
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PREFERENCES FOR SCHOOL FINANCE SYSTEMS
formerly been financed solely by state
levies (411 U.S. at 6–7). In most other
cases, however, original intent concerning school finance must be inferred
from common practices at the time
state constitutions were adopted and
amended. In a work that is still regarded
as authoritative, Ellwood P. Cubberly
(1919) showed that tax-supported
public education was not a norm when
most of the original states’ constitutions
were adopted (p. 61). Acceptance of
the idea that education should be
supported by any form of taxation was
not widespread until about 1850
(p. 119).
of the California Serrano court in 1971.
After decades of wrangling with a
legislature that clearly preferred local
funding, however, the Indiana court
simply reversed itself in 1885, “thereby
putting its constitutional imprimatur
on what had become a legislative
reality and the national norm”
(p. 811).
Another popular theory of constitutional
adjudication holds that judges should
invoke their independent authority
whenever “fundamental interests” are
placed at risk by legislative enactments.
Such interests would normally be found
in the constitution, of course, but at
times they might be discovered by
2
judges
even if their mention was less
than specific. Although the U.S. Supreme
Court rejected the fundamental interest
2
argument
with respect to education in
San Antonio v. Rodriguez, it has
appeared in state court opinions that
struck down local financing and in law
review articles seeking to justify them
(Coons, Clune, and Sugarman, 1970;
Yudof, 1985). Even where state
constitutions explicitly mention education,
however, the question still remains: Why
should the courts single out education
for judicially enforced equalization
rather than the many other public
services mentioned in most state
constitutions? The assumption that
education is a fundamental interest
pervades nearly all of the court
decisions that have struck down local
funding.
When taxation came, it was local, not
state. Cubberly summed up the history
of American schooling as “completely
local . . . Everywhere development has
been from the community outward and
upward, and not from the State
downward” (p. 155). To illustrate this
localism, Cubberly pointed out that New
England towns, which were the national
leaders in public education, financed
schools by property taxation of separate
districts within each town, not by
taxation of the town as a whole (pp. 43,
162, 235–40). They were unequal from
the start. The submunicipal district
system spread to most other states in
1 North, and it persisted well into the
the
twentieth century, with critics constantly
decrying its tax base inequalities
(Swift, 1924, p. 214). There was no
1
golden
age of a rural society during
which local financing of education
drew upon approximately equal tax
bases.
The general difficulty with the fundamental interest argument is that it is
undemocratic. Constitutions are chiefly
instruments to set up representative
government. If legally enforceable
rights can be discovered by judges with
only the vaguest mention of them in the
constitution, there is no limit on judicial
power.
State courts of the nineteenth century
also recognized the inequalities of the
local property tax system. Stark (1992,
p. 809) describes an instance in which
the Indiana Supreme Court in 1854
struck down local financing for reasons
that sound remarkably similar to those
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The antidemocratic charge is often
brushed aside on the grounds that the
judges must act because the legislature
has tried to change the system and
failed (Banks, 1992, p. 155). Such a
claim neglects that the legislature may
have failed to act because it concluded
that the voters prefer the current
system. There is, moreover, a practical
difficulty with the fundamental interest
rationale for the education decisions.
The importance of such interest is not
easily discovered. With regard to
education, Americans seem to put
significant weight on equality of
opportunity, local autonomy, and
parental choice. The history of American education is replete with legislative
wrestling with these competing values.
There is no reason to suppose that
judges have any better ability to balance
fundamental interests than voters and
elected officials (Ely, 1980, ch. 3).
ment (which established national
authority over the states in its equal
protection and due process clauses): (1)
where the Bill of Rights was specific
about the right involved; (2) when the
political process might be defective in
3 it systematically excluded certain
that
groups from participation; and (3) when
“discrete and insular minorities” might
be at risk of political exploitation despite
their representation. Where these issues
were not raised, Justice Stone implied,
judicial deference to state legislative
decisions was in order.
John Hart Ely (1980) has become
Footnote Four’s best-known expositor.
Both Justice Stone and Professor Ely
regarded the judicial role under the
Fourteenth Amendment to be that of
guardian of the democratic process
rather than countermajoritarian lawgiver. Duly enacted laws are to be
respected except insofar as the laws
themselves prevent legislatures from
truly representing voters. Free speech is
obviously necessary to provide such
representation, so laws infringing upon
the First Amendment are especially
suspect. Judicial enforcement of the
one person, one vote rule is also
consistent with this theory, since state
legislators are naturally loathe to
redistrict themselves out of a job. The
application of the latter principle by the
Supreme Court to state legislatures in
the 1960s has wiped out nearly all
vestiges of disproportional representation at the state level (Baker v. Carr,
1962; Reynolds v. Sims, 1964).
A FAILURE OF POLITICS IS THE TESTABLE
CONSTITUTIONAL CLAIM
At least one constitutional theory might
warrant judicial intervention in school
finance matters without seeming
antidemocratic. It supposes systematic
failures of the political process to
generate outcomes desired by a majority
of the people. The pedigree of this
theory goes back to the most famous
footnote in U.S. Constitutional history,
Justice Harlan Fiske Stone’s Footnote
Four in United States v. Carolene
Products (1938).
Carolene Products is famous as the case
in which the U.S. Supreme Court openly
acknowledged that it would no longer
scrutinize government regulation of
business. In the fourth footnote of the
opinion, Justice Stone reserved three
areas in which the Court would scrutinize legislation under the open-ended
mandates of the Fourteenth Amend-
A related but more controversial aspect
of democratic process theory holds that
judges should intervene when “prejudice against discrete and insular
minorities . . . tends seriously to curtail
the operation of those political processes ordinarily to be relied upon to
protect minorities. . .” (Carolene, 304
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PREFERENCES FOR SCHOOL FINANCE SYSTEMS
U.S. at 153). This part of Footnote Four
is controversial because any group
dissatisfied with legislative outcomes
could be portrayed as such a minority
(Klarman, 1991, p. 773). The 1938 U.S.
Supreme Court regarded it as necessary
to include this qualification in Footnote
Four because of the historical problem
of racial prejudice, for which access to
the voting booth might not be sufficient
protection for racial minorities. The
school finance cases are in some ways
the intellectual successors to the school
desegregation cases (Wise, 1967). If
blacks confined by state laws to
segregated schools could be considered
a discrete and insular minority, why not
low income people “confined” to
property-poor districts?
Alexander, generalizing from his
experience with litigation in Kentucky,
asserted: “The need for an expanded
judicial role in the oversight of legislative
enactments is found in the obvious
restrictive influence of the affluent and
insular factions living in the state’s
wealthy school districts who shape
educational policy to their own designs”
(1991, p. 246). Perhaps because it
seemed “obvious” to him, Alexander
cited no evidence to support his claim.
Both the Harvard Note and Alexander
mix two different claims about the
political economy of school finance. The
claim that low wealth districts are a
discrete and insular minority that the
majority gang up on must be distinguished from the claim that the political
process is dominated by a small number
of property-rich districts. In the former
scenario, access to statewide wealth
would be denied to the low wealth
districts by the majority, which would
include districts of middling wealth as
well as the rich. The image would be of
robbing the poor to benefit the rich and
the middle class. That such a scheme
would seem unprofitable does not mean
it is logically impossible.
LOCAL FINANCING IS ALLEGED TO
RESULT FROM SPECIAL INTERESTS
A litmus of trends in academic law is
student notes in law reviews. A Harvard
Law Review Note (1991) forthrightly
addressed the legitimacy of judicial
review of school finance issues. The
note employed a reading of Professor
Ely’s and Footnote Four’s discrete and
insular minority rationale and applied it
to ongoing school finance litigation in
New Jersey. To show that there is
“systematic underrepresentation of the
school-finance plaintiff’s interests,” the
Harvard Note pointed to the “disproportionate influence of property-rich
districts in state legislatures” (1991,
p. 1078). The Note’s authors described
no evidence for this point other than
noting that the system of local finance
that they decry is persistently chosen by
legislatures. The Note did not entertain
the possibility that the system might
have been chosen for other reasons.
The latter scenario, in which propertyrich districts dominate politics, implies a
different process. Here, the propertypoor and middling districts are unable to
extract their fair share of the state’s
wealth because of the disproportionate
legislative influence of the property-rich
districts. This story, which is more in
accord with modern theories of political
economy (Stigler, 1971), suggests that
the constitutional infirmity is that a
discrete and insular minority—the
property-rich districts—are able to
defeat the will of the majority. In this
modernized version of Constitutional
politics, judges should intervene on the
side of the majority, even though
But the notion that property-rich
districts can block reforms is nonetheless
widespread (Guthrie, 1980, p. 8). Kern
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properly represented in the legislature,
because of the insidious nature of
interest group politics. It is this hybrid
proposition, which holds that discrete
and insular minorities have too much
political power, that we shall address as
an empirical proposition. (A critical
review of legal theories that invoke
interest groups to justify more intrusive
judicial review is given by Elhauge
(1991).)
This is similar to the remedies adopted
after state courts have found their states
system of school finance unconstitutional.
We find that in New Hampshire the
interests of voters in property-rich
districts have not been overrepresented
in the legislature. Support for more
centralized school finance appears, if
anything, to be greater among legislators than among voters. When New
Hampshire voters were given a direct
choice that was not subject to legislative
logrolling, they chose to retain their
locally financed school system.
The issue of legislative failure to equalize
school expenditures has not entirely
escaped previous empirical analysis.
Four Berkeley political scientists devoted
a book-length study to examining why
California did not equalize expenditures
prior to the 1971 Serrano decision
(Meltsner et al., 1973). A proposed
statewide property tax was the major
pre-Serrano means of equalization.
Meltsner et al. did mention opposition
by property-rich districts as a factor in
the defeat of the legislation (p. 212). It
was, however, only one of many
contributing causes. The main one was
the inability of groups favoring the tax
to agree on how the new state money
was to be spent (pp. 212–16). The
Meltsner et al. study also made it clear
that the best-funded and most influential interest group was the California
teachers union, which favored increased
state funding for schools and less
reliance on local property taxes
(p. 153).
NEW HAMPSHIRE’S 1992 ELECTION
FOCUSED ON PROPERTY TAXES
New Hampshire provides a useful test of
voter preferences because the state is at
a national extreme. As of 1992, 89
percent of New Hampshire’s school
spending was funded by local revenues,
by far the highest dependence on
property taxes in the nation. Education
accounts for 52 percent of all local
government expenditures. The state
does supplement local school spending
with a formula that targets towns and
cities with smaller property tax bases per
pupil, higher property tax rates, and
lower personal incomes (State of New
Hampshire, 1985).
The amount available for aid, however,
is small. The state’s penury is universally
attributed to its lack of a broadly based
tax. New Hampshire has no income
tax, except on businesses and on
interest and dividends, and it has no
general sales tax. (The state is also at
another extreme: after simply adjusting
for student participation rates, New
Hampshire was ranked first in the
nation in Scholastic Aptitude Test
scores by Graham and Husted [1993,
p. 199].)
The present study employs evidence
from the New Hampshire gubernatorial
election in November 1992, to examine
the argument that state legislatures are
unduly influenced by property-rich
districts. In this gubernatorial election,
the change offered voters was to shift
financing schools from local property
taxes to a more centralized system that
involved substantially increased state
funding from a proposed income tax.
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The 1992 Democratic candidate for
governor, Deborah “Arnie” Arnesen,
made it her platform to adopt an
income tax and earmark the revenues to
provide homeowners with property tax
relief. She explicitly linked her program
with education finance reform. In her
platform, Arnesen saw “returning
money from an income tax to communities as the key to making public schools
more equal regardless of community
wealth.” (In New Hampshire, school
districts are almost always coterminous
with town or city boundaries.) She
stated that “quality education in New
Hampshire has become an accident of
geography. We have pockets of
excellence but acres of mediocrity”
(Manchester, NH, Sunday News, Nov. 1,
1992, p. 14A).
regional newspaper that “The majority
of New Hampshire families would pay
less than they are now paying because
their property tax savings will exceed the
amount of their state income tax.”
They further noted that “most of the
new tax—about 42 percent of it—will
be paid by the 6 percent of New
Hampshire households who earn
between $75,000 and $300,000 or
more” (Lebanon, NH, Valley News, Oct.
22, 1992, p. 22).
Arnesen’s commitment to education
finance reform was underscored by her
supporters. One prominent worker in
her campaign was an attorney who was
representing low-property-wealth
municipalities in a lawsuit to declare the
present school finance system in New
Hampshire unconstitutional. (A step in
this direction was achieved on December 30, 1993, when the New Hampshire
Supreme Court ruled in Claremont v.
Governor that education is a state
responsibility, and the question of the
adequacy of the property tax system
was remanded to a trial court.) The
attorney, Andru Volinsky, said in an
election night speech following
Arnesen’s concession that he had
worked for Arnesen because her fiscal
plan would move in the direction his
lawsuit wanted the state to go. We
know of no other instance in which a
lead attorney for low wealth districts
had so forthrightly endorsed a political
candidate in support of his cause, and
his pronouncement was a catalyst for
our interest in the issue of why judges
should contravene the apparent will of
the voters.
Arnesen’s plan promised to appeal to a
majority of voters by redistributing the
tax burden. A six percent, proportional
income tax would collect the bulk of its
funds from people with higher-thanmedian incomes. (Proportionality is
required by the state constitution, but
liberal exemptions would have made the
tax progressive.) Her plan was to
earmark 80 percent of the income tax
proceeds for distribution to towns and
cities. It would have required the
municipalities to exempt from local
taxation the first $40,000 of assessed
valuation on each owner occupied
residence, and the new state funds
would make up for the loss of local
revenue. In addition to this reduction in
the local tax price for homeowners,
Arnesen’s proposed state taxes would
have funded new grants to school
districts amounting to $415 per pupil.
Nearly all observers regarded the fiscal
issue as the heart of the campaign.
Arnesen’s Republican opponent,
Stephen Merrill, made it clear that he
would not adopt a broadly based tax to
substitute for the property tax. Com-
During the election campaign, Arnesen’s
supporters pointed out that most voters
would pay less as a result of the new tax.
Two Democratic state representatives
wrote in a central New Hampshire
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plaints about property taxation had
risen prior to the election. Property
tax collections rose from 5.2 percent
of personal income in 1988 to 6.3
percent in 1991. The national recession
had brought the state’s vigorous
economic and population growth of the
1980s to a halt. Property values were
falling and tax rates were rising.
Arnesen’s campaign strategy of
focusing on her fiscal plan did not seem
quixotic.
1992. Arnesen was a good campaigner,
and she raised more funds than her
opponent (Concord Monitor, Nov. 2,
1992, p. A1).
A PHONE SURVEY SHOWED THAT
VOTERS RESPONDED TO FISCAL ISSUES
In this and the following sections, we
report empirical evidence that supports
our contention that fiscal issues generally,
and school finance specifically, were
decisive in the 1992 election. After we
had assembled the evidence we present
in the next section, we learned of a
Johns Hopkins economics dissertation
by Lisa Shapiro (1995), whose empirical
evidence provides even stronger support
for our contention that the local
property tax system was the key issue in
the campaign. Shapiro served as
research director for Arnesen during her
1992 campaign for governor. Shapiro’s
major empirical work for her thesis
analyzed a telephone survey that she
designed. The sample consisted of 438
New Hampshire voters interviewed in
February 1993, three months after the
1992 election.
Arnesen lost the election by a wide
margin, even though some forecasts
had predicted that the governor’s race
would be close (Concord Monitor, Nov.
3, 1992, p. 1). The vote was 56 percent
for Merrill, 40 percent for Arnesen, and
four percent for the Libertarian Party
candidate, who, needless to say, also
opposed a statewide income tax.
We read the defeat of Arnesen as a
rejection of her fiscal plan, but there
were other differences between the
candidates.
Merrill was opposed to abortion, while
Arnesen was clearly pro-choice. Abortion is not, however, a prominent
political issue in New Hampshire, and
little was said in the campaign about it.
Both candidates simply mirrored their
national party’s inclinations in this
respect. Merrill was a Republican
(though not the incumbent), and New
Hampshire has had only two Democratic
governors in the last 60 years. He also
enjoyed (as have almost all conservative
candidates) the support of the state’s
largest newspaper, the Manchester
Union Leader, and its television station.
However, Democrats had been doing
better in recent years. In 1990, Democrat Dick Swett won the state’s Second
U.S. Congressional District, and he won
again in 1992 with 62 percent of the
vote. President Clinton narrowly won
the state’s Electoral College votes in
Shapiro asked respondents how they
voted, their opinions about school
finance and other New Hampshire
fiscal issues, and their economic and
social characteristics. Using these data,
she calculated the anticipated economic
impact of the Arnesen plan on the
individual voter whom she interviewed.
She confirmed the claim by Arnesen’s
supporters (in the previous section)
that the median voter would gain from
this plan. Shapiro found that the median
voter in her sample would pay about
$780 more in income taxes but gain
$909 in property tax reductions (p. 96).
Using these data, she estimated a
logit model of voting in favor of
Arnesen.
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She found that fiscal variables and the
beliefs of voters about the efficacy of
Arnesen’s property tax reform were
decisive factors in the election. Significant variables that caused voters to
favor Arnesen were the respondent’s
expected drop in property taxes (as
calculated by Shapiro) from Arnesen’s
proposal; an expressed belief that New
Hampshire schools were funded
inequitably; an expressed belief that
Arnesen’s plan would successfully
reduce property taxes (as opposed to
just raise the overall level of taxes);
expressed support for a statewide
income tax; self-identification as a
liberal; being a college graduate; and
having attended a New Hampshire
public school. (Characteristics that
were not statistically significant were
age [negative effect on vote for
Arnesen], expected income tax payment
[positive!], expected improvements in
local services [positive], having children
in school [negative], and being a
public employee [positive].) Overall,
Shapiro’s model predicted the correct
vote 88 percent of the time
(p. 117).
mainstay of school finance is due to the
disproportionate influence of propertyrich districts.
We note that Shapiro regarded the
voters who did not believe in Arnesen’s
program as mistaken, despite evidence
to the contrary by Campbell (1994).
Our point here is only that voters made
a choice based on their evaluation of
the policy, not on the color of the
candidates’ hair, and most especially not
because residents of property-rich
districts got more than one vote per
capita.
VOTES BY TOWNS ALSO INDICATE THAT
FISCAL ISSUES WERE DECISIVE
Shapiro’s evidence is based on individual
observations, which, given the onevote-per-person rule, are most appropriate for our contention that New
Hampshire voters get the fiscal system
that they want. Our empirical contribution is more modest in that we have
collected data on votes by town and
city, not by individual voter. Examination
of municipal votes may be especially
relevant in the school finance issue
insofar as the system of local taxes and
spending itself was an issue. If a desire
to maintain “local control” was a special
factor in the election, it should show
up most clearly in votes by town and
city.
Shapiro then analyzed the significant
variables in a simulation to see the
magnitude of their effect on the
election. Her most striking finding is
that Arnesen would have won the
election if voters believed that Arnesen’s
policy would have reduced overall taxes,
as she had promised (p. 124). This
suggests to us (and to Shapiro) that the
election was indeed decided on fiscal
issues. Voters were aware of the policy
differences between the candidates and
made a choice based on their evaluation
of those policies. Inasmuch as each
voter’s ballot counted exactly the same
as all others, there was no evidence to
support the contention that the
persistence of the local property tax as a
Our sample consisted of every town and
city in New Hampshire that had an
elementary school or participated in an
elementary school cooperative district.
(Only 14 towns—all very small—were
excluded by this criterion.) Because of
the wide range in size—over half of the
state lives in the largest 25 towns and
cities—the 220 observations were
weighted in the regression by [NiPi(1 –
Pi)]–1, where Ni was the number of votes
cast in individual towns and Pi was the
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proportion of people in that town who
voted for Arnesen. Regressions that
were not weighted yielded the same
results as those reported below, except
that the R squared was about ten points
lower.
We selected independent variables that
we believe influenced voters’ evaluation
of Arnesen’s platform to substitute a
state income tax for local property
taxes to finance education. The
ordinary least-squares regression results
in Table 1 indicate that municipal
characteristics that significantly favored
Arnesen were as follows: (1) higher
property tax rates; (2) higher elementary
education costs per child; (3) lower
family incomes; (4) lower proportion
of renter occupied units; (5) lower rates
of population growth between 1970
and 1990; (6) a larger fraction of the
population with college degrees; (7)
fewer registered Republicans; and
(8) more registered Democrats. (A
We used the municipal votes for
Arnesen as the basis for our dependent
variable. The variable itself was the
“odds ratio,” the percentage of the
municipality’s voters who favored her
divided by the percentage of voters who
voted for the other two candidates. A
positive sign means that the independent variable increased Arnesen’s vote.
The independent variables are listed in
Table 1.
TABLE 1
REGRESSION RESULTS (ORDINARY LEAST-SQUARES)a
a
The dependent variable is the odds ratio of the percentage vote for Arnesen, who sought to adopt a state income
tax in order to reduce reliance on property taxes for schools. The sample consists of 220 New Hampshire cities and
towns.
Coefficient
t Ratio
Mean
(1) Property tax rate
per full market value
19.4008
7.75
0.0228
$4036
(2) Elementary school
expenditures per pupil
0.0000615
3.72
(3) Median family income
–0.0000277
–14.75
(4) Proportion of renter
occupied units
–0.9318188
–8.20
0.301
(5) 1970-90 population
growth
–0.1361444
–6.82
0.71
2.87228
17.81
0.255
–1.414583
–8.14
0.389
0.334
(6) College degree recipients as
a fraction of adult population
(7) Percent Republicans
(8) Percent Democrats
0.3478523
1.83
Constant
1.295191
8.25
$42,883
R squared = 0.7520. Adjusted R squared = 0.7426. F(8, 211) = 79.99.
Sources: Demographic data for variables (3), (4), (5), and (6) are from the 1990 U.S. Census. Fiscal data except
education costs are for 1992. Voter data for the dependent variable and variables (7) and (8) are for the 1992
election, reported in the State of New Hampshire, Manual for the General Court, 1993. Tax rate data for variable
(1) are from the State of New Hampshire, Department of Revenue Administration, 1992 Equalization Survey.
School expenditure data for (2) are the current operating costs per pupil for 1990. They are from the New
Hampshire Department of Education, Computer and Statistical Services, summaries of MS-25, annual financial
reports of each school district. The statistical program used was Stata.
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PREFERENCES FOR SCHOOL FINANCE SYSTEMS
substantial number of voters in most
towns and cities are registered as
Independents.)
were targeted by Arnesen’s plan lead us
to conclude, as did Shapiro, that the
gubernatorial election was largely a
referendum on the local property tax
system. (New Hampshire does not have
statewide initiative and referenda.) We
take this to be strong, though necessarily episodic, evidence that the persistence of local financing of public
schools is not the result of a failure of
the political process to reflect the desires
of voters.
Each of the first four variables is
consistent with the idea that voters
were aware of Arnesen’s fiscal reform
plan and responded to it. Her plan
would have conferred benefits on towns
and cities with (1) higher property tax
rates for all purposes and (2) higher
costs per pupil for schools. (We used the
cost of elementary schools because almost
all towns had their own, in contrast to
secondary schools, which are often
regional.) The income tax would have
taken relatively little from (3) lower income
people. Her plan focused on owner
occupants at the expense of (4) renters.
STATE LEGISLATORS FAVOR STATEWIDE
FINANCING MORE THAN VOTERS
The November 1992 gubernatorial
election in New Hampshire was preceded in March 1992 by a vote on a bill
(HB 763) in the New Hampshire House
of Representatives. The bill was
sponsored by then-Representative
Arnesen (and three others) to do what
she later campaigned on in the fall,
namely, adopt an income tax to replace
local property taxes. According to the
view of those who believe that judicial
action is necessary because property-rich
districts have undue influence in the
legislature, support for fiscal reform
should have been weaker in the New
Hampshire House of Representatives
than among those voting in the
gubernatorial election.
The effects of variables (5) and (6) are
less obvious. Arnesen’s support in
slower-growing communities (5) might
reflect the effects of a stagnant property
tax base, or it might reflect that rapidly
growing communities have more
newcomers who may have voted with
their feet to avoid higher state taxes in
Maine, Massachusetts, and Vermont.
The large and positive influence of
college educated adults (6) probably
reflects an ideological preference not
captured by classification as Democratic
or Republican. New Hampshire Democrats are generally conservative, as
suggested by the relatively small effect
of proportion of registered Democrats
(8) compared to Republicans (7). In any
case, the significant support for Arnesen
by those with college degrees suggests
that those favoring a more centralized
system of school finance are hardly
members of a defenseless “discrete and
insular minority,” as discussed above at
the conclusion of our third section.
The experience in New Hampshire was
just the opposite. In the gubernatorial
election, only 40 percent voted for the
candidate (Arnesen) supporting fiscal
reform. In the House of Representatives, the fiscal reform bill also did not
pass, but it was tabled by a 168 to 162
vote. Although tabling the bill leaves
some question as to how the legislators
would have finally voted on the bill, the
vote was surprisingly close. Our check
on the 123 legislators who voted
differently from the majority of the
voters in their districts in the gubernato-
The R squared for this regression is 0.75.
The high R squared and the statistical
significance of major fiscal variables that
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NATIONAL TAX JOURNAL VOL. XLIX NO. 1
rial election found that almost all of
them voted on HB 763 with those
pushing for a state income tax. The
voters, in other words, were more
favorably disposed toward the current
system than their representatives. (This
is consistent with the theoretical
approach of Leyden [1992b].)
cities within which a great majority of
the state’s population resided (Perrin
and Jones, 1984, p. 492). The 1973
Maine legislation was specifically
motivated by the school finance
litigation that began with Serrano I in
1971. Although the Maine Supreme
Court ultimately declined to follow the
California Serrano route after the U.S.
Supreme Court ruled in San Antonio v.
Rodriguez (1973) that states were not
compelled to do so, the Maine legislature adopted the redistribution plan in
anticipation of an adverse ruling
(Nickerson, 1973, pp. 48–49).
New Hampshire is not the only state in
which the school finance question was
subject to a popular vote. In the other
states, however, the vote was a referendum rather than a gubernatorial
election in which one of the candidates
advocated a major program of fiscal
reform. The answer the voters gave in
these states was, as in New Hampshire,
a clear preference for local funding of
schools, with all of its variations among
districts. This was the result of statewide votes in Colorado in 1972
(Carrington, 1973, p. 1245), Maine in
1977 (Perrin and Jones, 1984), Michigan
in 1978 (Courant, Gramlich, and
Rubinfeld, 1979), Oregon in 1973
(Crampton, 1988, p. 260), and California in 1972 (Barkume, 1976). (On the
differences between the failure of the
1972 California initiative and the
success of Proposition 13 in 1978, see
Fischel [1989, 1994].)
Despite the apparent fiscal benefits of
the program to most Maine residents,
the statewide tax was unpopular. A
referendum was held on the tax in
1977, and the vote to repeal it passed
with an overwhelming majority. Although the small property-rich towns
did vote disproportionately against the
state tax, a large majority of voters in
the municipalities that supposedly
benefited from the state tax also voted
against it. Perrin and Jones concluded
that “the amorphous issue of loss of
local control was successfully raised by
those groups seeking rejection of the
Uniform Property Tax” (1984, p. 496).
The 1977 Maine referendum is especially
relevant to our hypothesis, because it
was connected with both legislative
action and court decisions. In 1973, the
Maine legislature adopted by a nearly
unanimous vote a uniform statewide
property tax designed to “recapture”
taxable property in property-rich towns
and transfer it to other towns and cities
to pay for schools. Because only a few
towns (mostly resort towns along the
coast) had very high taxable property
per resident, the net effect of Maine’s
statewide tax was to take property tax
revenue from a small number of towns
and give the proceeds to towns and
Conclusion
Judicial Activism Is Not Justified
by Legislative Inaction
No one can be certain why New
Hampshire voters have favored candidates who support the local property tax
system. The authors have separately
suggested different (though not
contradictory) hypotheses. Campbell
(1994) emphasizes that the issue is
hostility to an income tax because of its
general drag on state economic
development, while Fischel (1992)
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PREFERENCES FOR SCHOOL FINANCE SYSTEMS
regards it as indirect support for the
realism of the Tiebout model of local
government. Regardless of whether
either explanation is valid, we submit
that there is no evidence to support the
idea that New Hampshire’s reliance on
local property taxes to finance schools is
the result of political process failure
within the legislature. The state
legislature had narrowly declined to
adopt a more centralized system of
school finance. An articulate, popular,
and well-financed legislator made
property tax relief and school finance
issues the centerpieces of her run for
governor. Whatever institutional
blockages there may have been in the
legislature, they were bypassed in the
statewide vote. That the candidate lost
by a large margin and that two independent statistical analyses show that
voters responded chiefly to her fiscal
platform indicate that the legislature
was responsive to the voters in this
case.
tax. We have not, however, conducted
a statistical analysis of the vote, in part
because the 1994 election results were
so lopsided and because the state’s
economy had improved considerably
between 1992 and 1994.
If voters in New Hampshire are so fond
of localism, why have local revenues in
the rest of the country fallen to only 47
percent of school expenditures? (U.S.
Department of Education, 1992, p.
151). One reason is that, in at least ten
states, courts of law have displaced the
political process and insisted on more
centralized financing. As Bahl et al.
(1990) found, the ten states had
significantly more state funds and less
reliance on local taxes after the court
decisions.
But in other states, the centralization of
school finance has occurred as a result
of legislative actions. When the issue
has been put explicitly to the voters in
initiatives and referenda in recent years,
they usually prefer local financing. Thus,
we cannot rule out that in many states
legislators have failed to respond to the
voters’ desires. Lobbying groups such as
the teachers’ unions that support
centralization have greater power in
state legislatures than among the voters
at large (Becker, 1983; Meltsner et al.,
1973). The political “failure” in this
case is a tendency to adopt more
centralized systems of school finance
than voters prefer, and court intervention that promotes equalization of fiscal
resources has accentuated this tendency
rather than offset it.
New Hampshire governors are subject to
elections every two years, and the issue
of local property taxes was again raised
in the 1994 elections. A statewide
property tax with redistributive intentions similar to those of Arnesen (and of
the Maine legislature in 1973) was
proposed by a Republican challenger to
the incumbent New Hampshire Republican governor in the 1994 primary. The
challenger was defeated by a large
margin. The governor’s Democratic
opponent in the 1994 general election
proposed a similar statewide property
tax plan. Governor Merrill, who had
defeated Arnesen in 1992 and who
opposed a statewide property tax, won
by a landslide. We regard this as
supportive of our claim that the local
property tax is chosen for reasons other
than the influence of property-rich
districts, who would have been the only
fiscal losers from the statewide property
ENDNOTE
We thank without implicating Patricia Anderson,
Rosemary Campbell, Gary Englehardt, Daphne
Kenyon, Jon Sonstelie, Lisa Shapiro, Richard
Winters, two anonymous referees, and participants
at the 1995 NBER School Finance workshop and the
1994 Public Choice Society meetings.
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NATIONAL TAX JOURNAL VOL. XLIX NO. 1
Elhauge, Einer R. “Does Interest Group Theory
Justify More Intrusive Judicial Review?” Yale Law
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