INCOME AS AN ABILITY MEASURE AND/OR FUNDING SOURCE IN PUBLIC SCHOOL FINANCE FORMULAS

Purpose. The study consists of three parts: (1) an examination of the school finance programs in those states which provide for the use of income as either an ability measure or funding source for local school district purposes; (2) a brief survey of current efforts to include income as either an ability measure or funding source in those states not currently utilizing income measures; (3) development of a program which includes those discovered features which might be appropriate for use in Indiana. The purpose of the study was to investigate the use of income as a means of providing educational policy-makers with income taxation as a possible new source of local school revenue and to ascertain the possibilities of strengthening local control of the schools by providing a measure of local leeway in funding to school districts in Indiana.;Selected findings. Although 12 states include some manner of income in their school finance formulas, only Iowa permits local leeway to result from the use of income. As an ability measure, income is used by nine states and as a funding source, by four. All states except Connecticut have state income taxes and four have provisions for local income taxes. The most common use of income is as an ability measure or as a direct modifier of property values. No single characteristic was common to all 12 states. Although Indiana has both a state income tax and an optional county income tax, income does not currently contribute to the school finance formula. In Indiana, income tax data are not available by school district.;Conclusions. The use of income as a funding source at the local level is not wide-spread and does not appear to offer much possibility; however, its use as an ability measure is much more wide-spread and appears both feasible and effective. Although the existing data base for Indiana is not ideal, it is usable for the development of a program that provides for the use of income as both an ability measure and funding source. The ability index for income and property combined appears to provide the most accurate measurement of taxpayer ability-to-pay. By using a uniform income tax rate and a combined income-property value ability index, creation of a formula that provides equal dollar amounts for equal effort becomes possible. At the same time, property taxes are generally reduced and the tax base is broadened. If income is used as a funding source at the local level, it must also be used as an ability measure or disequilization and inequity will result.;Procedures. From reports submitted to the U.S. Office of Education for 1978-79 by state school finance officials, it was determined that 12 states use income in some manner for school finance purposes. Officials who had submitted the reports were interviewed by telephone to verify, clarify, and expand when possible the information contained in the U.S.O.E. reports. The written profiles of the twelve states were additionally reviewed by the same officials. Data from the U.S. Bureau of Census, Indiana Department of Revenue, and the Indiana Department of Public Instruction were analyzed and ability indices based on income, property value, and a combination of the two were calculated. Hypothetical formulas using the ability indices and school finance data by district for Indiana were created.