A thoughtful mix of local property tax revenue and state aid can help public school systems provide high-quality education for all students, according to a new report co-authored by La Follette School of Public Affairs Professor Emeritus Andrew Reschovsky.
The report from the non-partisan Lincoln Institute of Land Policy, titled “Rethinking the Property Tax-School Funding Dilemma,” analyzes traditional school funding sources and presents case studies of five states to illustrate the complexities of financing public education. It concludes with a dozen recommendations for state policymakers to consider in finding the right mix of property taxes and state aid to finance public schools.
Maintaining at least partial local funding is necessary for meaningful local control of K–12 education. Local control promotes civic engagement and can make spending more efficient. The property tax is the predominant source of local revenue, accounting for 36 percent of total school revenue in the United States, according to the report.
“The property tax is a more efficient tax for schools than alternatives like sales or income taxes because it can’t be easily avoided,” Reschovsky says. “You can’t pick up and move your property.”
However, as the report notes, the property tax has shortcomings. Property values vary across jurisdictions, which allows wealthy school districts and their students to flourish while students in districts with lower property tax bases are at a disadvantage.
While state aid can offset the inequities of relying on property taxes, it is not without its own flaws. State aid is not always allocated fairly or in ways that target the poorest school districts. Also, as state aid is primarily funded by sales and income taxes, it is often cut during recessions when revenues decline.
“State aid can be used to reduce disparities between areas with high and low property tax revenue, but it is often underused or inequitably disbursed. A good school funding system needs an effective mix of state aid and property taxes,” Reschovsky says.
The case studies of California, Massachusetts, South Carolina, Texas, and Wisconsin focus on the complex interactions between property taxation and state funding of public education. For example, California has shifted funding away from property taxes and other local revenues. While this centralized funding has led to more equity, it has also reduced local control and community involvement in public education.
Meanwhile, Massachusetts serves as a model for the report on how to manage the property tax-school funding dilemma. The state relies heavily on property taxes while also effectively distributing state aid to districts that need it most. The state annually ranks near the top for academic achievement in the U.S.
In Wisconsin, school funding is intertwined with efforts to reduce property taxes. State-imposed revenue caps that mandate property tax rate reductions limit school districts’ ability to use state equalization aid to increase education spending. At the same time, the state’s equalization aid formula does not account for differences in the spending needs of school districts.
The report notes that this likely contributes to the large differences among districts in students’ academic performance. Racial gaps in educational performance remain extraordinarily large, and despite efforts to reduce property taxes, the share of public-school revenues from the property tax remains above the national average.
The authors conclude their report with a dozen policy recommendations for state policymakers to consider. Recommendations include relaxing or repealing restrictive state-imposed property tax limits, acknowledging the higher costs of educating low-income students in state aid formulas, and increasing state rainy day funds to prevent cuts in state aid during future recessions.
“The bottom line is that we could be doing much more across the board to ensure that all children in our country have access to a high-quality education,” Reschovsky says.