DID PENNSYLVANIA'S STATEWIDE SCHOOL FINANCE REFORM INCREASE EDUCATION SPENDING OR PROVIDE TAX RELIEF?

We examine how local school districts respond to statewide education finance reform. Specifically, we evaluate the impact of Pennsylvania's Act 61, which provided additional state aid to districts spending below state-determined adequacy targets (spending shortfall districts), on district tax effort in support of education. We find that high-tax shortfall districts reduced their property tax rates significantly more than districts without spending shortfalls and, as a consequence, did not increase educational spending compared with their no-shorffall counterparts. Our results suggest that state equalization aid for high-taxing districts with spending shortfalls was used for property tax relief rather than for supplementing education spending.