Fiscal effort is relative. Obtaining one effort index really tells us nothing. Dollar amounts have more meaning
when placed in a relevant context. How much of a locality’s wealth is spent on education without a valid
comparison to another locality provides only one reference point. It must be in comparison with other localities,
states, or nations. This will make much more sense as you compare the two school systems in the next section
and when you complete the case study at the end of the chapter.
Since states vary broadly in their ability to raise revenues, comparing states on fiscal effort can be
misleading. Some states—including Alaska, North Dakota, and Wyoming—derive large revenues from
severance taxes from oil and gas. Other states—such as Delaware and New York—have a large capacity for revenue from businesses headquartered within their states. On the other hand, many rural states have limited
numbers of businesses headquartered within their boundaries. Using only one criterion to measure wealth,
therefore, will leave out other essential variables that could be considered. As a result, fiscal effort rankings
may change year-to-year as education spending and wealth measures change.
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