Examining Federal Impact Aid's Reimbursement for Local School Districts

I. INTRODUCTION Currently, there is a large theoretical and empirical literature that has examined the demand and supply of publicly provided goods and services (Bergstrom and Goodman, 1973; Inman, 1978; Bergstrom et al., 1982; Rubinfield and Shapiro, 1989). This literature has formed the foundation for an understanding of the mechanisms of publicly provided goods and services. Intertwined in this literature are evolving theories of intergovernmental relationships and the effect these relationship has on the provision of publicly provided goods and services. Collectively, this research has helped articulate broad themes on the appropriate roles of governments and the efficient provision of publicly provided goods and services. However, this research has been underutilized in determining the appropriate provision of specific services. In this current research, the authors examine a specific federal program, the Department of Education's Impact Aid program, and draw on the existing literature of the provision public services to estimate the adequacy of funding. The results have direct implications for the Impact Aid program, but the analysis also has implications for the provision of other government services and as an empirical example of the effect of intergovernmental aid programs. Overview of Impact Aid Program The Impact Aid, originally created in 1950, (1) is a nearly $1 billion program constructed to reimburse local school districts for federal activity within the districts. These activities could include the placement of federal employees and their families on or near nontaxable federal property, which could create two adverse effects for the school district. First, federally connected students may create an additional cost burden for a local school district, and second, the school district may have a reduced tax base. On this premise, the federal government reimburses the school district through Impact Aid for the additional burden federal activities create within the district. Currently, the program provides funds for 1.2 million children in over 1400 school districts nationwide; as a result, the program not only affects students directly associated with these federal activities, such as children that live on Indian reservations and military bases, but also all other students who attend schools within these districts. Of the various activities, military bases plays an important role of the Impact Aid program. Impact Aid supports a portion of the education expenditures for 416,000 military-related students attending public schools operated by the local school district. About 37% of these students reside on military bases that are not subject to local property taxes. The remainder resides in local communities and support local schools explicitly through property taxes (if homeowners) or implicitly through rental payments (if renters). Both on- and off-base military residents work on federal facilities and do not contribute directly to the local tax bases through levies on their employment site. Finally, all military members have access to on-base shopping facilities that do not collect local sales taxes. The premise of Impact Aid payments is that military families are not paying their fair share of local school revenues because they are insulated from a portion of the local tax liability. The primary schooling option for military families assigned in the United States is the local public school system. (2) Most military-related children live in civilian communities and attend nearby schools like their civilian counterparts. Children in on-base residences generally attend an on-base school that is operated by the school district for the nearby community. The Impact Aid law has received bipartisan support, but there has been continuing debate over whether the program reimburses local school districts adequately. In this current research, the authors draw on the existing literature of publicly provided goods and services to estimate the adequacy of funding for the publicly provided Impact Aid program. …