Since 1647, when the Massachusetts Bay Colony first required any town of more than fifty families to hire and support a local teacher with funds from the “general inhabitants,” local and state governments have primarily funded public education through locally levied property taxes. The result has been an increasingly impoverished public education system with wide—and educationally harmful—disparities between wealthy and poor districts. States are increasingly unable or unwilling to use state funds to compensate for shortfalls in property tax revenue, and these funding disparities have, with growing frequency, become the subject of state court litigation. Courts in several states have found that funding inequities and deep educational cuts violate state constitutional guarantees of “through and efficient education” or “sound basic education.” In short, every state is wrestling with the issue of educational funding inequity.
Nowhere is this issue more apparent than in Pennsylvania. Upper Darby School District, a diverse working-class and majority-minority suburb immediately outside the city limits of Philadelphia, spends approximately $13,000 per student, whereas its wealthier, and whiter, neighbor five miles away, Marple Newtown School District, spends $22,000 per student. By virtue of zip code alone, one student will receive $9,000 dollars in extra education spending. While per student spending is not the only measure of educational success, it is fundamentally unfair that the resources available to educate students are predicated on the wealth of their community. Amplifying this unfairness is the racial and economic segregation that underlies property tax disparities. For a variety of reasons, including the legacy of redlining in the home mortgage loan industry, minority families are often concentrated in the communities with the lowest property values—and therefore attend schools with the least resources.
State government cannot remedy this disparity because most states face serious budget shortfalls. Pennsylvania, which currently ranks 45th in state education spending and faces a $1.7 billion budget deficit, has no new dollars for education spending. It is not alone; 35 states currently spend the same as or less than they did in 2008.
Taking aim at this problem in an unorthodox way, the Pennsylvania legislature is considering abolishing property taxes altogether. Under the Property Tax Independence Act (PTIA), all school property taxes would be phased out over two years except for a percentage levied to pay school districts’ long-term debt. (According to proponents of PTIA, this amount would be less than 10 percent of the current property tax.) Public schools would be funded instead by an increase in the state sales tax—from 6 to 7 percent—and in the state income tax—from 3.07 to 4.95 percent. The state sales tax would also expand to include goods currently exempt, such as food, non-prescription medication, and public transportation fares.
If Pennsylvania abolished local property taxes, it would become the first state where all school funding would come from the state government. Under the proposed legislation, the state would be required to fund school districts at their 2016 property tax level. For example, if school district A raised $1 million in school property taxes in 2016, the state would be required to provide $1 million in sales and/or income tax revenue to that school district. Future funding increases would be tied to inflation and the state would not be required to distribute a penny more.
Given the problems associated with property tax-based education funding, abolishing property taxes would seem like a logical solution. However, it’s not—it’s a disaster.
The proposed legislation is a classic bait and switch; it is advertised as an improvement in school funding yet it codifies the status quo funding inequities. Property tax revenue is insufficient to support all public schools because of wealth disparities between communities, but its removal and substitution with a similarly unequal revenue stream is not the answer. For example, Mount Carmel, a town in rural, central Pennsylvania, spends $8,659 per student; Lower Merion, a wealthy suburb of Philadelphia, spends $22,962 per student. PTIA does nothing to address this funding inequity, and it provides no mechanism to increase education spending statewide or provide under-funded schools with additional dollars. Instead, the legislation expressly limits any funding increases to yearly inflationary adjustments. When, as in the last eight years, inflation is low or non-existent, Pennsylvania schools would receive little to no additional funding.
Another consequence of the legislation is that it redistributes money from urban commercial centers, which have the highest sales tax volume and weakest property tax revenues, to wealthier suburban communities. These wealthier communities would receive the highest share of future state education dollars because they had the highest property tax revenues. Thus, PTIA would reinforce and subsidize the advantages that the wealthiest districts enjoy instead of increasing investment in the urban school districts that desperately need additional education dollars.
Proponents of PTIA promise they will fund school districts dollar for dollar for lost property tax revenue; however, an analysis of the legislation by the Independent Fiscal Office (IFO) disputes that claim. The IFO, a non-partisan state organization that reviews the financial impact of proposed legislation, concluded that the legislation would miss its proposed revenue target by $1.15 billion for fiscal year 2017-18. Unless the sales or income tax were increased even more to close this shortfall, school districts would receive less money than they do from property tax revenue.
The IFO also notes that sales and income tax are more volatile revenue sources than property taxes because they are tied to the health of the overall economy. While properties, and therefore property taxes, tend to hold value even during a recession, any economic downturn will immediately affect sales and income tax receipts. Education funding, like the rest of the state budget, would be linked to the health of the overall economy, inviting deep and perhaps legally problematic educational cuts.
Even worse, PTIA places all school funding under the control of the often-ineffective and legendarily corrupt Pennsylvania legislature. In this decade alone, eight of its former leaders, including two former House Speakers, have been convicted on corruption charges. Without any ability to rely on local revenues, school districts will have to trudge to Harrisburg to beg for additional monies for capital projects, teacher salaries, or books for students. The barometer of local school funding will become the effectiveness of your local state representative.
Finally, PTIA shifts the burden of funding education onto younger wage earners, mainly millennials, and renters. According to the IFO’s report, working-age (21-44) renters will see a tax increase of 11 percent and working-age families (renters and homeowners) will see a tax increase of 4 to 5 percent, while retired homeowners will see a 38 percent tax decrease. PTIA’s increase in the sales tax hits working-age families particularly hard because they consume more than retired homeowners. Plus, the broadening of taxable items includes a number of products familiar to any young family, including diapers and baby food. PTIA also shifts the burden of supporting education entirely onto individuals by eliminating all property taxes for corporations. There is no evidence, either cited by PTIA proponents or in the IFO report, that shifting the burden to fund education onto millennials, who are themselves burdened with historically high levels of education debt, is a sound funding strategy.
Proponents of PTIA are right to point out that property taxes are too high in too many parts of the commonwealth and hurt older residents disproportionately. Seniors should not be forced to bear alone the cost of educating the next generation, but neither should younger workers and renters. PTIA is bad policy because it is aimed at mollifying one segment of the electorate, retired homeowners, while burdening the remainder.
Instead of adopting PTIA’s one-track approach—focusing exclusively on property tax abolishment—proponents of education funding reform should develop a coherent and comprehensive approach that increases state education funding for underfunded urban and rural districts, provides limited property tax relief, and protects the ability of local communities to support their public schools. A good start for Pennsylvania would be to apply its new fair-funding formula to all education spending, not just new education spending, and to reduce the number of school districts from the currently absurd number of five hundred—for 67 counties—to a more manageable number. Larger districts provide a wider tax base to support public schools, freeing poorer communities from the burden of funding their schools alone. If, for example, Upper Darby School District and Marple Newtown School District became part of a Delaware County School District, the $9,000 funding disparity between them would be erased and students from both communities would benefit from the greater resources of the entire county.
Supporting public education is one of the oldest and most important responsibilities of state and local government. Our ability to meet that commitment for future generations of students is threatened by tight state budgets and the inadequacy of property taxes. PTIA’s property tax abolishment approach is not the answer. Comprehensive education-funding reform, including addressing systemic funding inequities, is critical to the continued vitality of public education. Our commitment to public education dates back to the 17th century; our education funding approaches should not.