School finance equity has been one of the key issues in educational policy for the past few decades. Since the 1970s, states have implemented a number of educational finance reforms in response to court orders, and political forces and public demand to equalize funding distribution among districts (Ladd, Chalk, & Hansen, 1999; Ladd & Hansen, 1999). In particular, widespread finance disparities among school districts became a legal challenge in many states. Education finance systems in 43 states had been involved in litigation between 1971 and 1999, and school funding systems in 19 of those states were declared unconstitutional (Minorini & Sugarman, 1999). These legal decisions forced states to change state funding formulas, school finance policy, or state education systems in order to improve school finance equity.
Similar to many other states, Missouri's funding formula change was primarily influenced by court decision. In 1993, the circuit court of Cole County ruled "The existing school finance system does not provide an 'equal ... opportunity' for all school age children as is required by ... the Missouri Constitution" (Committee for Educational Equity v. Missouri, 1993, p. 29). As described in the decision, "various statistical measures confirm the degree and extent of these wide inequalities" (p. 13) and "All relevant standard measures of equity ... clearly and consistently indicate that Missouri funding for its public schools is highly disequalized and is getting worse" (p. 15).
National data, furthermore, showed that Missouri was the worst state in school finance equity in the early 1990s, measured by selected equity indices. In 1992, Missouri's school finance equity indices in total revenue were 39.58 for the coefficient of variation, 1.54 for the federal range ratio, and 0.18 for the Gini Coefficient (Parrish, Hikido, & Fowler, 1998). Among the 49 states, excluding Hawaii, which has only one school district, Missouri had the highest scores in all three equity indices, showing the very wide disparities across districts in the state.
This finance funding inequality had been an issue during the 1980s. Although Missouri revised its school funding formula twice, in 1969 and 1977, to improve finance equity, "the formula was vastly under-funded and was not serving the equalization purpose for which it was originally designed" (Lamb, 1997, p. 59). In 1992, state lawmakers started to redesign the school finance system in anticipation of a court decision that would be overturned, increasing the demand on equal distribution of school funding. A few months after the court decision declaring the school funding system unconstitutional, the Missouri legislature adopted the Outstanding Schools Act in 1993, which established new programs and policies to significantly improve the quality of education and local school districts' accountability. One of the important elements of the Act was to introduce a new foundation funding formula designed to raise additional state revenue of nearly $400 million for schools and to ensure greater finance equity in the allocation of basic state aid to school districts (Missouri Department of Elementary and Secondary Education, 2001).
The new foundation formula is driven by the local school district's eligible pupil count, times a guaranteed tax base, times the local general operating tax rate. This formula introduced several important features to bring about school funding equity (The Office of State Auditor of Missouri, 2003; Missouri Department of Elementary and Secondary Education, 1999; Ogle, 1999). First, the foundation formula used a guaranteed tax base (GTB) in the calculation of a district's entitlement. The GTB is designed to equalize the revenue-raising ability of each school district, at least up to some point (Odden & Picus, 2004) In the previous formula, GTB was an add-on used to reward districts that levied higher tax rates, but the new formula put equal emphasis on a foundation (Lamb, 1997). …