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Local Sales Tax Revenue Plummets, Putting Additional Squeeze on Education Funding

By Daarel Burnette II — June 05, 2020 2 min read

In 2013, Philadelphia’s schools were in fiscal freefall. After having laid off thousands of employees in order to fill a multimillion-dollar deficit, district officials at the time said the city needed another source of revenue or else administrators wouldn’t be able to open schools’ doors that fall.

The city and the state came up with a solution: They would double the sales tax from one percent to two percent in Philadelphia in order to pay down the district’s ballooning pension fund and avoid even more layoffs. For every dollar spent on parking, lottery, hotel rooms and other purchases in the city, two cents would be sent directly to the school district.

By doing so, the city joined more than 400 school districts in the nation that are reliant on a local sales tax to bring in revenue to fund the constructions of buildings, prekindergarten programs, or a variety of other services.

Polk County school district, for example, instituted a half-cent sales tax 17 years ago to fund new school construction throughout the district.

Fulton County schools in Georgia in 1997 instituted a 1 percent sales tax to bring in money for school construction and technology.

But COVID19 has sent that sales revenue tumbling as the vast majority of businesses shut their doors in order to prevent the spread of the disease. The revenue will be slow to return even as businesses gradually reopen. That makes these districts especially vulnerable to teacher layoffs this fall,as they also will be hit from a revenue plunge in state sales and income tax aid.

Property tax revenue remains relatively stable during recessions because it’s reassessed so infrequently. For wealthy districts that can afford to do so, school board members typically raise the property tax in order to withstand recessions.

Philadelphia’s plight is a prime example.

In 2016, Philadelphia collected more than $381 million from local sales tax, according to federal data. That made up more than 13 percent of its revenue. City and state officials that the revenue has almost been wiped out in recent weeks. There’s no telling when it will rebound.

Philadelphia’s school officials projected in April that if the governor’s fiscal projections were accurate, the district would face a $1 billion deficit over the next five years.

The Pennsylvania legislature last month decided to spare districts by holding their funding flat until congress decides whether or not to provide states with a bailout package this summer.

Search below to see if your district has a local sales tax.