Property Tax Feels Weight Of Demands

By David J. Hoff — April 21, 2004 8 min read
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After four years of tight state budgets, school districts trying to make up for sluggish funding increasingly are turning to a familiar source: local property taxes.

But they’re finding that drawing more revenue from property owners—even if it’s to make up for the slow flow of state aid—is especially difficult in an era when policymakers have tried to move away from that traditional mainstay of school finance.

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View the accompanying table, “Survey Results.”

“New York has basically been passing down costs to municipalities,” said Thomas Rogers, the executive director of the New York Council of School Superintendents, echoing local school leaders’ criticism of such burden-shifting in his and other states.

In the 1991-92 school year, local property taxes supplied 31 percent of all K-12 revenues, according to the U.S. Census Bureau. By 2000-01, the latest year for which figures are available, that percentage had fallen to 27 percent.

Those numbers reflect, in part, efforts to raise the states’ share of school funding, principally through sales- and income-tax revenues. But with the recent state budget crises amid an ailing economy, those sources haven’t kept up with schools’ needs.

Since 2002, average per-pupil state K-12 aid has decreased 3.6 percent in inflation-adjusted dollars, according to research by Andrew Reschovsky, a professor of applied economics and public affairs at the University of Wisconsin-Madison.

In some states, such declines have forced districts to raise revenues by as much as 20 percent just to keep up with inflation and enrollment growth, he added.

And that means asking property owners to pay. Some districts are being forced to lay off teachers because voters have already rejected their budget requests or because school boards don’t want to risk a defeat at the polls by asking for too much. Other districts are closing libraries, canceling activities, and imposing new fees on students. Some are struggling to find the resources they need to bolster student achievement.

In New York state, for example, state aid declined this school year, forcing school leaders to make a tough choice: mount aggressive campaigns to raise property taxes, or scale back programs.

“Just as we made things more rigorous” under the federal No Child Left Behind Act, Mr. Rogers said, “we’re hacking away at the programs needed to achieve those standards.”

In an Education Week survey last fall, one of the most frequently cited problems with states’ school finance systems was the reliance on property taxes.

The responses cited the levies’ inability to replace sluggish state spending, voter discontent with the amounts they pay in property taxes, and state caps on property-tax revenue that limit school spending.

Those responses, as well as school districts’ recent financial troubles, suggest that the tax that has been the foundation of American school finance for generations may be crumbling. At the same time, school leaders and finance experts say sales, income, and other taxes simply aren’t generating enough money to replace it.

Across the Country

Property-tax problems are occurring in a variety of states and taking several forms. Following are some examples:

  • In Ohio last month, only 46 percent of property-tax levies for districts’ operating or capital expenses gained voter approval. Over the previous four years, 60 percent of such initiatives passed.
  • In New Jersey this week, school officials are awaiting the results of the April 20 municipal elections in which every district’s budget was subjected to voter approval. Last year, 60 percent of the measures failed, according to Frank Belluscio, the spokesman for the New Jersey School Boards Association. Those defeats left it to town councils to approve district budgets—almost always lower than the ones voters rejected.

From 1999 to 2001, more than 80 percent of district budgets won voter approval, according to the New Jersey schools boards’ group.

  • In Texas, lawmakers were slated to meet in a special session on school finance this week to alter its “Robin Hood” school aid program, in which communities with high property values send tax revenue to the state to help pay for poorer districts.
  • In Kansas, the most controversial part of Gov. Kathleen Sebelius’ proposed package of taxes to increase school funding was a small hike in the statewide property- tax rate, legislators there say.

“In a rural state like Kansas, people think of the property tax as the worst tax of all,” said Rep. Bill Reardon, a Democrat. “If you’re a farmer with a lot of land, you’re land-rich and cash- poor, and you have to pay the property tax with cash.”

Shaky Foundation

Property taxes have been the foundation on which schools in this country have been financed since Colonial times. In the 2000-01 school year, they paid $108 billion of K-12 schools’ $402 billion total spending, or 27 percent.

Since World War II, though, the percentage of government costs underwritten by property levies has declined gradually, according to Thomas A. Downes, an associate professor of economics at Tufts University in Medford, Mass.

In Illinois, for example, property taxes accounted for 35.4 percent of local and state government revenues in fiscal 1992, Mr. Downes said. That percentage fell to 32.8 percent seven years later, according to Census Bureau data.

“Illinois doesn’t look highly unusual,” Mr. Downes said. "[The trend] shows up again and again in other states.” With states’ shift of precollegiate funding to other revenue sources, local school officials are finding that the public is reluctant to agree to property-tax increases needed to compensate for sagging state revenues.

“The property tax is … such a visible tax,” said Janet S. Hansen, the director of education issues for the Committee for Economic Development, a Washington-based business group that promotes policies to improve the economy.

While people rarely notice the sales tax on retail receipts, and they are accustomed to income-tax withholdings from their paychecks, Ms. Hansen said, “a lot of people end up writing a big check” for property taxes.

And voters often reject property taxes, school leaders say, because it is their only chance to reject a tax increase at the ballot box.

In six states, including New York and New Jersey, communities must annually approve school districts’ budgets and the property-tax rates needed to fund them in town elections. In another 15 states—including Arizona, Minnesota, and Mississippi—districts may ask voters to raise property taxes to supplement state aid or override state spending caps.

Voters often reject property-tax levies “because they can,” said Ben Schwarm, the associate executive director for advocacy and government relations for the Illinois School Boards Association. “We’re the only ones who have to ask, and that’s their chance to say no.”

While legislatures and county commissions adopt sales and income taxes, people in many states have direct control over their property-tax bills by voting on special tax levies.

In many places, voter reluctance to pay property taxes is forcing school officials to make hard decisions.

Twice in the past six months, voters in the Breckville-Broadview Heights City School District south of Cleveland have rejected supplementary property taxes to finance school operations. In March, the community rejected a proposed rate increase that would have cost the average property owner $193 a year for every $100,000 in value. The school board will ask for that amount again.

If voters reject the levy again on Aug. 3, the Breckville-Broadview Heights district faces “catastrophic cuts” in programs for the gifted and talented, middle school course offerings, and the teacher workforce, according to the district’s Web site. The district would need to require students to cover the costs of sports, band, and other extracurricular activities. For a high school football player, the fee would be $1,050, said Steven L. Farnsworth, the superintendent of the 4,700-student district.

Students now pay $25 for every sport they play and $15 for every extracurricular activity, up to $50 a year. Even if the levy passes, those rates will double.

The fees are necessary politically in a community where 75 percent of households do not have children attending the schools, Mr. Farnsworth said. “People are saying they don’t mind paying for the basics, but the extracurriculars ought to be paid by the parents and the kids,” he said.

As anti-tax forces across the country chalk up more victories against proposed tax increases, such fees are replacing tax revenues for schools and other government services, according to Mr. Downes, the Tufts University economist.

Conservative Requests

While many districts in Ohio are struggling to supply the basics, district officials throughout New Jersey were hoping voters would help them this week by approving budgets that provide for the basics—but not much else.

“We’re just trying to keep things status quo,” said James W. Grube, the superintendent of the Netcong school district, a 300-student K-8 district in the northwestern corner of the state. “We’re not offering all of the programs that we’d like.”

The district’s proposal would generate a 2.6 percent increase in its $3.5 million budget for the 2004-05 school year. The school board was deliberately conservative in how much it decided to seek, Mr. Grube said, because risking voter rejection could mean cuts in spending in the end.

“You sit there and say, ‘I’d like to have this,’ ” he added. “When we prepare the budget, the idea is: We can’t ask for more than this.”

Those same thoughts are in the minds of school officials throughout New York state, according to Mr. Rogers of the superintendents’ group. If voters in a district reject the proposed budget, the district must trim spending to fit under a cost-of-living cap. For the 2004-05 school year, the state-imposed cap will be about 2.5 percent more than this year, Mr. Rogers said.

“People think that a ‘no’ vote is worse than the self-inflicted cuts” proposed by the district, he said. “A lot of districts will hack away at their budgets in order to get the [property-tax] impact down.”

The decisions are especially vexing, he argued, now that schools are under heightened federal pressure to raise student achievement. Most of the measures that improve student learning, he said, such as reducing class sizes, offering extended-day programs, and providing tutoring, are expensive.

“They all take time,” Mr. Rogers said. “In the school context, time is teacher time, and that costs money.”


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