Abstract

The development of any adequacy based school finance system involves three components, which correspond to the three substantive sections of this paper:

• First, a state must select measures of adequacy, either in terms of resources or student performance. Such measures are necessary to identify school districts below the standard. Although these measures can be controversial and difficult to develop, this choice is unavoidable.
• Second, a state must estimate the cost of reaching a given performance standard in each district. The cost function approach presented in this study relies on statistical methods to extract from actual data the impact of student needs, resource prices, and enrollment size on the spending required to reach a particular standard.
• Third, a state must develop a school aid formula. This formula should provide all school districts the resourcesthey need to reach the adequacy standard selected by the state.

This paper explains how each of these steps can be implemented, with illustrations based on data from New York State. Our objective is to provide guidance for any state that wants to design an adequacy-based finance system.