Rethinking the Property Tax-School Funding Dilemma
This report focuses on the roles of the local property tax and state aid in the funding of public education and analyzes their strengths and weaknesses. A key theme is the property tax–school funding dilemma—the challenge of overcoming the drawbacks of both the local property tax and state aid in a way that assures that state school funding systems can finance an adequate education for all students equitably and efficiently.
Case studies of five states (California, Massachusetts, South Carolina, Texas, and Wisconsin) illustrate the complexities of the dilemma. The report concludes with 11 recommendations, some of which focus on ways to make the local property tax more equitable and efficient. Others suggest ways to improve state aid for K–12 education. A final recommendation argues for an expansion of federal education aid to assist low-income states and to address learning loss arising from the COVID-19 pandemic.
About the Authors
Daphne A. Kenyon, Principal, D.A. Kenyon & Associates, served as resident fellow in tax policy at the Lincoln Institute of Land Policy, where she authored several reports, including The Property Tax-School Funding Dilemma, Payments in Lieu of Taxes, and Rethinking Property Tax Incentives for Business, and was coeditor of the book Education, Land, and Location. Kenyon’s prior positions include president of the Josiah Bartlett Center for Public Policy, professor and chair of the Economics Department at Simmons College, senior economist with the U.S. Department of the Treasury and the Urban Institute, and assistant professor at Dartmouth College. She is president of the National Tax Association. Kenyon served on the New Hampshire State Board of Education and as a New Hampshire representative to the Education Commission of the States. Kenyon earned her B.A. in economics from Michigan State University and her M.A. and Ph.D. in economics from the University of Michigan.
Bethany Paquin is a senior research analyst in the Department of Valuation and Taxation at the Lincoln Institute of Land Policy. She is director of the State-by-State Property Tax at a Glance data toolkit. Her research has contributed to Lincoln Institute reports on school finance and payments in lieu of taxes. She has published articles on property tax limitations and is a coauthor of two Lincoln Institute Policy Focus Reports: Property Tax Circuit Breakers: Fair and Cost-Effective Relief for Taxpayers and Rethinking Property Tax Incentives for Business. She previously worked as a research assistant for the public finance consulting firm D.A. Kenyon & Associates. She earned a B.A. in political science from Grove City College.
Andrew Reschovsky is a professor emeritus at the University of Wisconsin-Madison. He has published widely on topics related to state and local government finance. He has testified to state legislatures in several states on the financing of public education and has served as an expert witness for the plaintiffs in Neeley v West Orange-Cove Consolidated Independent School District, a Texas case that successfully challenged the constitutionality of the Texas school finance system. He has also served as an advisor to the South African Financial and Fiscal Commission on issues of local government finance including the financing of public education. In 2014, along with Daphne Kenyon, he edited a special issue of Education Finance and Policy on the property tax and the funding of K–12 education. He has published eight papers on issues related to the funding of public education in the U.S. in journals including the National Tax Journal, Public Finance Review, and the Peabody Journal of Education. In 2011, he was awarded the Steven D. Gold Prize by the Association of Public Policy Analysis and Management in recognition of his contributions to state and local fiscal policy. He earned a Ph.D. in economics from the University of Pennsylvania.
“Understanding the relationship between local property taxes and state school aid is critical for understanding how public schools are funded. This Policy Focus Report provides concise guidance about the use of property taxes and the importance of state funds to equalize disparities in property tax revenues for schools. It is a must-read for anyone interested in, or part of, the school finance policy process, and an excellent introduction for those who want to dig deeper into these relationships.”
—Lawrence O. Picus, Professor of Education Finance and Policy, University of Southern California Rossier School of Education
“As a former state education official, I would have loved to have had a report like this to help me get up to speed on the critical issues around school finance policy. The report provides a very clear explanation of the role played by the property tax in funding public education and describes the complex issues involved in designing effective state aid systems. Anyone involved in or interested in school funding policy will benefit from reading this report.”
—Carrie Conaway, former Chief Strategy and Research Officer, Massachusetts Department of Elementary and Secondary Education, and Senior Lecturer, Harvard University Graduate School of Education
“Historically, property taxes have been a major funding source for public schools— but not without issues. Rethinking the Property Tax–School Funding Dilemma is a valuable resource both for understanding the major challenges of this relationship and for providing actionable ideas to fix some of the underlying structural problems. Every child in America should receive a quality education, regardless of economic status or place of residence, and the research in this report can help states realize that vision.”
—Michael C. Petko, Ph.D., Senior Researcher, Campaigns and Elections, NEA
“Rethinking the Property Tax–School Funding Dilemma is an eagerly anticipated and excellent update to the earlier foundational report on this topic. The authors clearly lay out the relationship between school funding, property taxes, and state aid, and they explain changes and challenges that have occurred over the last decade, including those wrought by the pandemic. This is an essential publication for policymakers, school finance researchers, and anyone else interested in understanding how schools are funded and what trade-offs need to be considered.”
—Kim Rueben, State and Local Finance Initiative Director, Urban Institute
“A perennial target in state education finance legislation, the property tax remains a much-discussed and asked-about topic in my work with state legislatures. This report will guide policy conversations about how to improve the sustainability, stability, and fairness of property tax systems, and also about education finance systems writ large.”
—Daniel G. Thatcher, Education Senior Fellow, National Conference of State Legislatures