School finance reform first emerged as an important issue in South Carolina in the early 1970s, when lawsuits challenging the constitutionality of state school funding systems in California, Texas, and New Jersey received national attention. The Education Finance Act (EFA) was signed by Governor James Edwards on June 10, 1977; first appeared in the state Appropriations Act in 1978; and was phased in over five years.
EFA is a “foundation program,” the type of school-funding system used in most states. Conceptually, foundation programs are designed to provide a “fiscal foundation”—a minimum funding level—that will enable schools to deliver a set of core education services. They are also called “equalization grants” because funding assistance from the state is intended to equalize—or compensate for—differences in local property wealth. All school districts are required to fund a portion of the foundation program through local property taxes, but property-poor districts receive more state aid, while property-rich districts receive less.
Despite EFA’s goal of funding equalization, disparities in per-pupil spending between rich and poor districts still exist because EFA does not limit how much local tax revenue can be raised beyond the required local contribution. Further, since EFA revenue accounts for only about half of all state assistance to schools, non-equalized revenue from other state funding sources further con- tributes to spending disparities. Since 1977 some policy reports have recommended changes to EFA to accommodate the increased costs associated with special-education students and an expanding set of “core educational services.”