The property tax has a bedrock role in the funding of K-12 education, and the Lincoln Institute is proud to make new research freely available on the subject in a special issue of the journal Education Finance and Policy. Eight articles in the Fall 2014 issue of the journal can be downloaded without charge from the website of the Association of Education Finance and Policy.
A fresh look at the intersection of the property tax and school finance is important for several reasons. Total revenues devoted to public education have fallen in recent years, revenue growth is sluggish in many states, and there are diminished prospects for increased federal funding for K-12 education. Taken together these developments imply that local school districts will be under growing pressure to increase property taxes or to turn to alternative sources of local government revenue.
An introductory chapter by Lincoln Institute fellows Daphne Kenyon and Andy Reschovsky sets out three themes: the potential for unintended consequences from state legislation; the potential for state school finance and property tax policies to provide greater advantages for high-wealth or high-income school districts than for low-wealth or low-income districts; and the enduring importance of the property tax in the funding of public education in the United States. Among the significant findings of the research is the following:
- In New York State, sharp cuts in state education aid following the Great Recession were partially offset by property tax increases. On average a reduction of one dollar per pupil in state aid led to a 19-cent increase in property taxes. However, most of the property tax increases in response to the cuts in state aid occurred in school districts with the highest level of per pupil property wealth, a fact that undercuts state efforts to equalize educational opportunities across school districts. (Chakrabarti, Livingston, and Roy)
- Michigan restricts local school districts from increasing property taxes to fund school operating expenses, and distributes state aid relatively evenly across school districts, although the wealthiest districts tend to receive higher than average levels of per pupil aid. In Ohio, school districts face no limits on raising local revenues and state aid disproportionately benefits the poorest districts. As a result of these policies, Ohio has been much more effective in reducing property-wealth related inequalities in school spending than neighboring Michigan. (Conlin and Thompson)
- Since 1997, New York State has provided homeowners with large property tax exemptions through its School Tax Relief (STAR) program. By reducing the cost of education borne by individual homeowners, STAR has induced voters to spend more on education. This increased spending, which is financed through higher property taxes, has the unintended effect of offsetting part of the original property tax relief provided by STAR. The offset is nearly 80 percent in Albany, Buffalo, and Syracuse, and over 40 percent in many of New York’s upstate small cities and rural communities. (Eom, Duncombe, Nguyen-Hoang, and Yinger)
- Passed by voters in 1980, Massachusetts’ Proposition 2½ limits each local government’s annual increase in property taxes to 2.5 percent. These property tax limits can be increased if local voters approve an override referendum. An unintended consequence of the referendum process has been to increase racial segregation across school districts in Massachusetts. Communities that pass overrides have higher incomes and lower minority enrollments than communities that don’t, and successful overrides appear to reduce minority enrollment. (Zabel)
- Tax increment financing (TIF) is used by municipal governments in most states as a tool to reduce blight or promote economic development. During the life of a TIF district, no tax revenues generated by increases in the assessed value of the district flow to overlying governments, such as school districts. In Iowa, the establishment of TIF districts has resulted in modest decreases in public school spending, with the largest impacts of TIFs occurring in low-income or low-wealth districts. Once TIFs expire, they do not, however, lead to increased spending. (Nguyen-Hoang)
- Between 1995 and 2010 the revenues of school-supporting nonprofits, such as parent-teacher associations and charitable school foundations, grew by nearly 350 percent. Despite this growth, on a per pupil basis these organizations provide a very small share of the total revenue of public schools. Furthermore, these non-profit organizations tend to provide assistance to more well-off districts. The evidence shows that contributions from nonprofits do not generally substitute for property tax revenue. Instead, school districts with higher revenues from federal sources and from property taxes also have higher contributions from school supporting charities. (Nelson and Gazley)
- Though school districts might be expected to increase reliance on fees and other sources of local nontax revenue, revenues from these sources actually grew at a slower pace. By 2011, they remained under $400 per pupil. The slow growth of school district revenue from fees may be due to the limited opportunities available to most school districts for fee-based financing. (Downes and Killeen)