Analyzing the Relative Equity of School Aid Distribution Relating to Oil and Gas Tax, Employing Impact Aid, Property Tax, and Severance Tax Systems

Date of Award


Document Type


Degree Name

Doctor of Education (EdD)


Teaching & Learning


Statement of the problem: The purpose of this study was to define "relative equity" and then propose an alternative to the present system for more equitable financial assistance to school districts in which taxes on severed resources are substituted for taxes on increment of property wealth related to existence of resources.

There apparently was a great deal of dissatisfaction among school administrators in North Dakota, as well as those individuals in the public sector who are informed of the issues, concerning the present system of generation and distribution of oil and gas tax revenues in North Dakota. It has been argued that the present formula for generation and distribution of oil and gas tax revenue does not meet the intent of the North Dakota State Foundation Aid Program. The intent of the foundation program was to provide equal educational opportunity, as reflected by weighted dollars, for every student in the state.

An additional need for this study was outlined in federal legislation which addresses itself to providing "equity guidelines" to use in developing state foundation aid programs. House Concurrent Resolution 1037 of the Forty-Fifth Legislative Assembly indicated the need for this study when it stated that recent court decisions, e.g., (Serrano versus Priest) have focused attention on the fact that the state had an obligation to provide an equal opportunity for all students and that local support could not be the function of the wealth of the local school district. This resolution further resolved that there was a need to study the financial effect on school districts of large industrial plants, both those subject to property taxes and those subject to taxes in lieu of property taxes, including a study of deductions from state foundation program payments for taxes received from such plants and other sources of tax revenue.

Method of the Study: Four alternative models were tested to determine the difference in the amount of state and local aid received by sample school districts. Plan A which was the present severance tax model; Plan B which was the capitalization of income model; Plan C which was the property tax model; and Plan D which was an impact aid model, were tested using the statistical method of multiple linear regression in this study. Comparisons were made by analyzing the present North Dakota model and the three alternative models, identified later in the study. These comparisons were made to determine which elements within each model contributed most significantly to an equitable distribution of the tax on severed resources. An equitable distribution was a distribution where the actual per pupil cost of education matched the predicted per pupil cost of education.

After determining the effect of elements within the present North Dakota model and the three alternative models, a composite model for generation and distribution of oil and gas tax was to be developed. Attempts to construct a composite model failed. As a result, a composite model is not presented in this study.

A systematic sample was taken of all school districts in North Dakota which received oil and gas tax revenue during the 1976-77 school term. The sample was obtained by listing all oil and gas districts by county in alphabetical order. Every third district was selected from this list.

The Results:

Research Hypothesis number one stated whether school districts were being compensated excessively, sufficiently, or insufficiently for additional students generated by oil and gas activity. As a result of an analysis using an established range it was found that fifteen school districts received certain amounts of oil and gas tax revenue that were above the hypothetical equity range. One school district received revenue which was below the hypothetical equity range, while five school districts received sufficient revenue according to the present formula of generation and distribution of oil and gas tax revenue and based on the hypothetical equity range.

Research hypothesis number two stated what features of alternative systems of generation and distribution of oil and gas taxes to school districts provided them with more "relative equity" than the present system. Using a descriptive statistical procedure it was found that there were differences in "relative equity" for various school districts from one alternative model to the other. Although these differences were evident between models for various school districts, none of the four alternative models were more equitable than the present model.

Research question number three asked whether there was an eclectic model of generation and distribution of oil and gas tax that would be more equitable than the present system. As a result of analyzing the variable data from the four alternative plans of generation and distribution of oil and gas revenue, the writer was unable to determine any characteristics of any of the four plans that seemed to be consistently more equitable. Since no apparent commonality was identified in any of the variables in any of the four plans no eclectic model was presented.

Conclusions: The following conclusions were drawn from the analysis of the data collected and from the review of the literature.1. There was a high correlation between the per pupil cost of education and the per pupil oil and gas tax fevenue.2. The utilization of a hypothetical equity range showed that certain school districts received sufficient revenue from oil and gas taxes which were within the range, while others received amounts above the range, and one district received revenue below the range under the present system of generation and distribution of oil and gas tax revenue.3. The identified independent variables contributed a low percentage to the prediction of the dependent variable.4. The size of a school district had a substantial effect on the "relative equity" of generation and distribution of oil and gas tax revenue.5. There seemed to be no consistent similarities in data that could have a causal effect on high or low residuals. The writer could not determine the reason for this inconsistency other than conjecture that some other variable or variables, that had not yet been identified, were having an effect on the dependent variable.6. The variables identified did not determine the "relative equity" of generation and distribution of oil and gas taxes.7. The "relative equity" of the distribution of oil and gas tax revenue affected individual districts differently in four alternative plans.8. The mean mill levy for school districts that received oil and gas taxes was low in comparison to the state average local mill levy.

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