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unless there is some help from the Federal Government and some real mobilization of citizens and political and educational support for changes of this kind that we may look back 10 years from now

Mr. VEYSEY. Mr. Berke, I think that is where the States are wrong. They are spending the money, they are not getting the results. Now the cost of reform is changing their ineffective methods of approach to the problem.

Mr. PUCINSKI. Would my colleague yield?

You know we just flip off statements like "States are spending money but not getting results." There are 45 million children attending American schools and by and large I think the educational system is doing a pretty darn good job under very difficult conditions. They are underpaid, they are underfinanced and they have got social problems and court orders and massive busing and realinements and all sorts of other enormous pressures on the school systems. I don't think that my colleague from California means that. Really, I am sure he does not mean that we are spending the amount of money and not getting results. We are getting results.

Mr. VEYSEY. Let me say we are getting results but not commensurate with the amount of money that we are spending. I can take you, you know where the schools are, where lots of money is being spent and very little education takes place and other schools with the same amount of money, or less, and a great deal is taking place.

Yes, we are getting a lot of education but not as much as we could be getting, or as much as we should be getting.

I think we need a careful assessment of the output, not the input altogether.

Mr. PUCINSKI. Well, I think perhaps you are right on that score but I just get somewhat disturbed when I hear the blanket indictment of the educational system because generally, as you look across the scope of America the crisis is to a great extent in the urban areas. For instance, in my own community around Chicago the suburban schools. are beautiful and the young people are getting a fantastic education, a better education than any generation ever got across the board. You cannot say the same thing in the inner city schools.

Mr. BELL. Could I change this tack? I think you know it is a matter of degree that we are talking about, basically.

Mr. Berke, you are studying this particular point of finance also, is that right?

Mr. BERKE. Yes.

Mr. BELL. I gathered that you feel that the present system of taxing by the local property tax is not the answer. Now you come to the question of what is the answer. One that is proposed is to change the local property tax burden and have the States carry a larger share based on the property tax, and then have the Federal Government come in for varying degrees, you mentioned I believe 8 percent, somebody else mentioned 30 percent, which I now tend to agree with.

I think the Federal and the State should carry a larger proportion of the burden of this thing. But then the question comes up as to just what method of taxation do we use. You talk about the property tax, which some people say is too regressive, so let's have an income tax. Well, that is unvotable. Nobody could vote an increase in income tax today and survive in my district.

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Now the other possibility that I have heard of is the one being used in Europe: the value added tax. Have you reached any conclusions or given any thoughts as to which route we should go?

This is really where the bat meets the ball, as far as I am concerned, particularly from your standpoint in your work. That is a nice, easy question.

Mr. BERKE. The property tax-well, the ideal system, if I had my druthers is the one which you say is unvotable. That is, we would shift financing to the State level but finance it increasingly through the graduated income tax.

Now an interim measure is to use the property tax, administered on a statewide basis for part of the costs of education, shifting somewhat more onto the income tax and, hopefully, increasing that as times. change and as it becomes more possible and I am not sure it is impossible, but you are the expert on that to get more from the income tax, the State income tax. I think that by shifting the property tax to the State level you do improve the property tax considerably, or you can, the possibilities of getting away from the system of local assessment which has so much built-in inequity and unfairness and just plain arbitrariness becomes more possible.

The potential for introducing some sort of circuit breaker approach which some of the States have adopted whereby they have an income floor below which you don't pay property taves-in other words, it seems to me you can tinker with the property tax more if you make it a statewide levy.

Mr. BELL. How about the possibility of a combination of the figures that I have studied. The value added tax which is being used successfully in Europe is much less regressive than the property tax certainly at the lower levels, and as long as you have the fact that you can't use the income tax because it is unvotable-you just can't survive in an election in any major State if you advocate an increase in income tax in the State, they would kill you with it. So the only answer is not what we would like to have but what is the most practical that we can get which is the least regressive.

I am wondering whether you adequately studied the value added tax income by nation with the graduated tax, if you will. It is somewhat less regressive than the property tax and it might have a little more of an appeal to reduce the property tax a little and join with the value added tax. Have you studied that?

Mr. BERKE. I am not an expert on the value added tax. I have heard some discussions on the value added tax, as you have. It has appeal for those who like hidden taxes as being more votable. and just as the withholding on the income tax was such an important change in increasing the total amounts of revenue. I think the value added tax has some appel depending on how it is devised.

The regressivity is something that the economists debate endlessly, and I have not heard the end of that discussion.

Mr. BELL. Did you study that, Miss Levin?

Miss LEVIN. We did not study either a Federal or a State value added tax.

Mr. PUCINSKI. Thank you very much, Mr. Berke. I understand that you have a plane to catch so we won't detain you any longer, but I

am very grateful that you are here and I think that you certainly emphasize for the committee again this is not an easy job but it is one that has to be done. There is no question that the local communities can't bear a greater cost of education.

As you have quite properly pointed out, the housekeeping costs of cities have risen at such an alarming rate: Fire protection, police protection, sanitation, so that education becomes, of course, a stepchild when it ought to be the first priority.

I am most grateful to you for your contribution here this morning. Thank you very much.

Mr. BERKE. Thank you.

Mr. PUCINSKI. I hope you make your plane.

Mr. BERKE. Thank you.

Mr. PUCINSKI. Miss Levin, your entire statement is in the record already and we have gone through some of the slides. If you would like to continue where we left off last time, we would be very grateful to you.

STATEMENT OF BETSY LEVIN, DIRECTOR OF EDUCATION STUDIES, THE URBAN INSTITUTE, WASHINGTON, D.C.

Miss LEVIN. I'd like to briefly summarize some aspects of our studies. Mr. William J. Scanlon, who also worked on these studies, is with me today. Although Mr. Berke and I did our research for two separate institutions, I think much of our data really illustrates many of the points that he has made as well as some of the statements that the subcommittee has made today.

The first problem, as you have already mentioned, is the inadequacy of school revenues. We know of cutbacks in staff, the reduction of programs and temporary closings of schools. This is largely due to the fact that the cost of education has been rising astronomically in the last decade, at 10 percent per annum, while the property base is expanding very slowly-at 4.6 percent per annum. Since this is the major source of education funds, that means there had to be tremendous increases in tax rates in order to meet these rising costs and taxpayers are rebelling more and more against tax overrides and bond issues.

This has led to a search for alternative ways of financing education that would lessen the reliance on the property tax. At the same time, the court decisions have focused on the problem of school finance from another aspect, the fact that differences among districts in terms of property values and property tax rates, has led to inequalities in per pupil expenditures among school districts. It is really on that part of the problem that we focused our attention and our research.

The focus of the recent court cases, as you recall, was not only on the inequalities in spending levels but also in tax rates. The courts pointed out there are some districts which have to tax themselves at a very high rate and still are unable to raise as much money per pupil as wealthier districts with low tax levels. So we have looked at both the expenditure and tax burden issues.

I would like to illustrate through the use of some slides the results of our study, based primarily on the work which the Urban Institute undertook for the President's Commission on School Finance, which the subcommittee has asked me to review.

For the President's Commission study, we selected nine States which are diverse in their level of State aid, ranging all the way from Hawaii with full State funding, down to New Hampshire which has the lowest proportion of State aid of any of the States in the country. The States included in our study are Hawaii, Delaware, North Carolina, and Washington (high State funding), California, Michigan, and New York (moderate State funding), and Colorado and New Hampshire (low State funding).

We looked at the disparities in spending levels which might result from the different financing systems in each of these States. We then looked at alternative ways of financing education. We divided each of these States up into four types of districts-central city, suburban, smaller city, and rural school districts-to see what impact the existing financing system had on each of those types and also what the impact would be under alternative ways of financing.

The total number of districts we studied, excluding Hawaii which is unique, was 649 districts. Most of the data we are presenting to you today results from analysis of these 649 districts in eight States.

Using the State of California for purposes of illustrating differences in per pupil expenditures by type of district, we find that central cities on the average are spending more than suburbs and smaller cities, with the rural areas spending the least. This pattern is similar to that found in the other States in our study. The interesting thing is, though, that when we subdivided suburban districts into two types of suburbs based on the rate of population growth we found a somewhat different picture. Slow growth suburbs, represented by industrial communities like El Segundo, Calif., or Dearborn, Mich., or wealthy residential suburbs such as Grosse Point, Mich., or Beverly Hills, Calif., spend considerably more per pupil on the average than all the other types of districts. In contrast, districts which have experienced a rapid population growth, in California at least, are spending at a lower level than rural districts.

These data are based on averages. Disparities are even greater if you look at individual districts. In our sample of districts in California the range runs from $1,261 per pupil in Berkeley to $581 in Calexico, which is a rural district.

The reasons for the occurrence of these intrastate inequalities in per pupil expenditures is by now well known to this subcommittee. I will just summarize them briefly based on our analysis of eight States.

As you know, in 49 States, Hawaii being the only exception, the funding of schools is a joint enterprise of State and local governments. with just a very minor Federal input. In most States, the financing system relies heavily on property tax, which is a major cause of the inequalities we find.

Differences in the property base are one factor contributing to the differences in expenditures.

Figure 2 is based on the 649 districts in our sample. It shows that central cities have a substantially higher property base than the suburbans, smaller city, or rural districts. Rural districts have the lowest property values on the average in every State we studied except California and Colorado.

The reasons why central cities have such high property values are several: First, there is a higher concentration of commercial and, to a lesser extent, industrial property in cities.

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