Building Equity: Fairness in Property Tax Effort for Education

Local property taxes provide $180 billion for education nationally (29 percent of all funding), which makes the administration’s $20 billion promise seem cheap. A new study by EdBuild looks into the fairness of the local property taxes that raise those funds.

Discussing taxes can be opaque, so let’s start with the end goal: funding schools. Imagine two nearly identical school districts; one, a wealthy suburb, the other, a community with modest homes and incomes. The authors were concerned that the more modest district would have to tax itself more heavily (i.e. at a higher rate) to sufficiently fund its schools. In other words, they were worried that local property taxes are regressive in ways that “overburden low-income households or low-wealth homeowners.”

So they did some digging. They used district-level taxation, income, and property value data from eighteen states and the 2014 American Community Survey to investigate the relationship between a school district’s affluence and local property tax rates. They also closely examined three states (South Dakota, New Jersey, and Pennsylvania) to write a case study on the interplay between state policy and local taxation. The state-local funding dynamic is critical because, nationally, 90 percent of education money is sourced on these levels (the remainder comes from national funds).

The clearest trend they found was that local taxation is indeed regressive, but generally not in a way that overburdens less well-off homeowners. Rather, they point out that properties such as factories, businesses, and farms pay disproportionately low tax rates. They argue that while homeowners generally pay fairly for schools, local governments could fund their schools in a more equitable way by further taxing these non-residential properties. Doing so would better fund schools in low-income areas.

Their more politically palatable recommendations emerge from the case studies. South Dakota set a “maximum” tax rate that localities apply by default, but allowed voters to change their local rate easily. Of 150 school districts, only one lowered its rate, while 67 voted to tax themselves more heavily than the state maximum. The result was a landscape of local taxes that are “mixed to progressive.” Conversely, Pennsylvania provided no tax guidance to localities, and consequently, district tax rates vary haphazardly from one town to the next.

These local taxation issues matter because states pay the rest of the education bill. Fair taxation at the local level frees states to direct limited resources to schools in proportion to need or to accomplish other objectives. The authors endorse, among other policies, state-level guidance on local taxes as a good way to ensure fairness between districts.

While the authors rarely mention students, their emphasis on fairness arises from the value that all children should be given equal chances to raise themselves up, regardless of zip code. Makes sense to us.

SOURCE: Zahava Stadler, Yi Li, Kailey Spencer, and Sara Hodges, “Building Equity: Fairness in Property Tax Effort for Education,” EdBuild (February 2017).

Christopher Rom
Christopher Rom Research Intern