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ECON 385 - Problem Set 2 (Due 10/17 by 11:59pm)

There are three school districts with the following property tax bases:

· District 1 - $300,000 per pupil

· District 2 - $600,000 per pupil

· District 3 - $900,000 per pupil

a) If each district taxes property at 1% in order to finance education spending, how much do they have available to spend?

District 1

District 2

District 3

Recognizing the uneven distribution of education spending, the state government decides to implement a new state finance system.  They are choosing between two systems:

· System 1 – Guaranteed Tax Base: Under the guaranteed tax base system, the state would guarantee each district a tax base of $800,000 per pupil on which to base their education funding taxation efforts.

· System 2 – Foundation Aid: Under the foundation aid system, the state would define an adequate spending level of $6,000 per pupil and a minimum tax rate of 1%

b) Write out the general guaranteed tax base formula.

c) Write out the general foundation aid formula.

d) Under System 1, how much would each district receive in state aid and what would be their total per pupil spending on education assuming all three districts tax at 1%? Assume also that the state does not plan to engage in recapture.

District 1 (1% tax)

District 2 (1% tax)

District 3 (1% tax)

e) Under System 2, how much would each district receive in state aid and what would be their total per pupil spending on education assuming that the state does not plan to engage in recapture?

District 1

District 2

District 3

f) If you were on the school board in district 1, which system would you lobby the state legislature to implement?  Why?