Our property taxes are too high, say homeowners. Public schools need to be equitably funded statewide, say the courts.
This push-and-pull facing policymakers across the country is examined in "The Property Tax-School Funding Dilemma," a recently released Lincoln Institute Policy Focus Report by visiting fellow Daphne A. Kenyon. Since schools are in most states the chief recipients of property tax revenues, any move to cut property taxes creates problems for education funding, which has been the subject of extensive litigation over the years. Trying to find a good substitute for property tax revenue is a tricky business, Kenyon says. It isn't necessarily effective to increase the state's share of local school funding, or to set a fixed percentage of that share at all, she says; and switching to a sales tax for a new revenue stream is not the answer, either: sales taxes are regressive relative to property taxes.
Citing the "demonizing" of the property tax, Kenyon recommends leaving the basic system intact, with a "mend it, don't end it" approach. To respond to the outcry about high property tax bills, states could make better use of targeted "circuit breakers," that limit the percent of income paid for property taxes. These circuit breakers are in place in some states, but the income triggers are too high or too low, or apply only to seniors. In terms of state aid for education, Kenyon suggests targeting funds to the neediest students, schools, and districts. Her bottom line: don't try to achieve the policy goals of reducing property taxes and maintaining school funding with a single instrument, such as state aid.
The report examines seven states - California, Massachusetts, Michigan, New Jersey, New Hampshire, Ohio, and Texas - to determine how the dilemma has been managed. California does the worst job calibrating its policies, as reflected by poorly targeted state aid and low test scores, the report says. Massachusetts, Kenyon says, is "as good as it gets."
About 90 people attended the event releasing the Policy Focus Report at Nine Zero Hotel, a block from the Massachusetts State House in Boston, on Thursday, Dec. 13, 2007. State legislators from Massachusetts and New Hampshire, as well as representatives of the administration of Massachusetts Governor Deval Patrick were there. Darcy Rollins Saas, deputy director of the New England Public Policy Center at the Federal Reserve Bank of Boston, commented that the report's "biggest contribution was the exposure and discussion of common misconceptions" concerning the property tax and school funding, particularly helpful at a time when "public policy is too often based on incomplete information and unchallenged assertions." An additional briefing, with special attention to the issues facing New Hampshire on property taxes and school funding, is planned for Jan. 17, 2008 in Concord, New Hampshire.