When one looks at fiscally distressed cities, it is easy to conclude that insolvency is simply a product of ineffective management, a lack of financial discipline, or the incompetence or corruption of local government. However, several important countervailing facts are worth considering: fiscal insolvency of municipalities today is often the artifact of bad planning decisions made decades ago; many events that led to local fiscal insolvency, including bad planning decisions, were beyond the control of municipalities; and the delicate dance of matching irregular revenues against unpredictable expenditures challenges even the best-run municipalities.

Many planning decisions that catalyzed the decline of Detroit and other Rust Belt cities were made at higher levels of government. For example, construction of federal interstate highways in the 1950s often ran slipshod over local plans and preferences and greased the skids of urban exodus for families, enterprises, and wealth—motivated by the tax advantages of jumping municipal borders. The city of Detroit lost some 60 percent of its population and much of its industry and commerce between 1950 and 2000, while the population of the metropolitan area remained fairly stable. Tax bases and populations of nearby municipalities grew substantially while Detroit’s evaporated during that half-century.

Similarly, policies at state and federal levels imposed unpredictable and often unmanageable spending requirements on local governments. Over decades, localities were buffeted by revisions in revenue-sharing formulae of higher-level governments or unfunded mandates. The Clean Water Act, for example, established a much-needed regulatory framework that has cleaned up waterways and protected citizen health since 1972. It also imposed draconian financial demands on local governments, saddling them with the costs of expensive water systems upgrades to meet ever more stringent standards, and the seemingly impossible challenge of separating storm water and wastewater in commingled underground systems built a century ago.

As municipalities internalize the message that poor financial performance is a local problem, they often take remedial actions that inflict more serious damage on their economic and social futures. One of the underreported aspects of the unfolding tragedy in Ferguson, Missouri, is the extent to which the violence and recrimination there is rooted in fiscal challenges. Ferguson, like many jurisdictions in St. Louis County, chose to supplement insufficient local revenues with traffic fines that were harshly enforced. Many similar jurisdictions derived 30 percent or more of their general revenues from enforcement of traffic violations. It is best left to the courts and the Justice Department to determine whether the pattern and practice of enforcement in Ferguson was discriminatory. But there is a separate issue involving the conflation of public safety and revenue generation, which can lead to perverse outcomes.

St. Louis County is not unique in its creative use of local courts as a revenue generator; it is pattern and practice in municipalities across the United States and other continents. In a 2006 study of North Carolina counties by the St. Louis Federal Reserve Bank, humorously named Red Ink in the Rear View, the authors found that a 10 percent decrease in annual revenues led to a 6.4 percent increase in traffic citations. Interestingly, there was no reversion to fewer citations when revenues rose. In one astounding case, the town of Waldo, Florida, derived half of its general revenues from traffic fines. New York City netted $624 million in general revenues in 2008 using aggressively priced and enforced parking violations. On the international front, the BBC and The Guardian accused London’s Hammersmith and Fulham Council of using traffic courts as a major revenue source in 2013.

Another dangerous way that municipalities shore up finances is through the sale of tax liens to investors. Although this practice attracts needed revenue, conveying powerful tax liens leads to unintended consequences that are difficult to manage. The dominance of tax liens over all other liens gives extraordinary power to those exercising foreclosure. Savvy investors who pay a small share of outstanding arrearages to purchase liens can acquire properties at pennies on the dollar of actual value. These new owners manage their holdings to maximize return, which often runs counter to public interest when it promotes naked speculation on vacated properties or accelerated neighborhood decline through widespread absentee ownership.

Municipalities make desperate choices like these to improve fiscal status in part because of popular opposition to property taxes, the dominant source of local revenue. Any municipality that considers raising property taxes to cover obligations faces the prospect of local tax revolts or increased pressure to relieve residents and businesses of tax burdens. In this issue, Adam Langley analyzes the property tax credits and homestead exemptions that provide individual relief from this unpopular tax, but further constrict local public budgets (p. 24). Constraints imposed by property tax limitations often lead to more reckless measures to make ends meet.

Perhaps there are other approaches available to municipalities to restore fiscal health. In Detroit, an unprecedented partnership among the public, private, and civic sectors supported a participatory planning exercise called Detroit Future City. More than 100,000 residents contributed to the design of this extraordinary land use and economic redevelopment strategy. John Gallagher reports on early implementation of projects that are intended to bring this community vision to reality in the Motor City and turn around decades of decline (p. 14).

Municipalities in developing countries confront a different set of fiscal challenges. In many countries, as national governments devolve responsibility for supplying public goods and services to localities, municipalities must invent new local public finance systems; most see property taxation as a promising revenue option. However, effective property tax systems are built on foundations such as land registries and value assessment tools. The difficulty of building these systems is magnified in cities with expansive informal settlements, where residents and their homesteads are not officially registered or recognized. Ryan Dubé reports on some of the challenges of establishing and maintaining a property registration system in Lima, Peru, where an upgraded system has not delivered on hypothetical benefits proposed by theorists (p. 6).

The challenges of attaining and sustaining municipal fiscal health are manifold and complex but not insuperable. During the 1960s and 1970s, today’s hottest American urban economies also struggled with population flight, urban blight, and insurmountable fiscal challenges: the cities in or near bankruptcy then were Boston; New York; Washington, DC; Seattle; and San Francisco. Their renaissance might have had less to do with their intrinsic greatness than the work of larger forces at higher levels of geography. This is not to cast aspersions on our great coastal cities; it is simply to make the larger point that municipal insolvency is a structural problem, not necessarily a product of any particular deficiency in local leadership.

Sound planning and effective public management lay at the heart of municipal fiscal health. A sound fiscal stance is required to finance public investment in projects that build a prosperous and sustainable local economy. A robust local economy grows a tax base that throws off revenues, which local governments need to pay for the public goods and services that support a good quality of life. But chronic and unpredictable variability of both local revenues and expenditures requires effective planning to survive inevitable bumps in the road.

In October, I named redevelopment—the effective reuse of previously developed land—a millennial challenge. Managing and sustaining the fiscal health of local governments is another such challenge. We need a better understanding of the theory and practice of planning, taxation, and valuation that can guide municipalities’ efforts to pursue this elusive goal. The Lincoln Institute of Land Policy is uniquely poised to inform such efforts. In this issue, we’ve touched on a few topics that relate to municipal fiscal health; this millennial challenge will remain a major focus of our work here at the Institute.

An informed citizenry is an empowered one, but educating taxpayers and voters can be difficult. While most people care deeply about various community issues—such as whether to build a new library branch or provide curbside recycling—very few of us spend our limited free time paging through spreadsheets to understand the specifics of a municipal budget and the likely implications of a funding decision. This disconnect is unfortunate, because buried in those reams of data is the story of our individual communities—a map of the ways in which a single decision impacts the quality and availability of the public services we rely on in our daily lives, such as road maintenance, public education, and emergency services.

“To be fiscally strong, local governments have to be in a dialogue with residents,” says Lourdes Germán, an expert on municipal fiscal health and a fellow at the Lincoln Institute of Land Policy. “Residents have to know what key decisions are facing town officials, what those decisions mean financially, and how tax dollars are being used. All sorts of important things are up for a vote by the residents at town meetings, and often that meeting is the first time people hear about the issues, which is too late.”

Annie LaCourt agrees. A former selectman for the Town of Arlington, Massachusetts, LaCourt came up with the idea to convert the piles of spreadsheets that constitute Arlington’s municipal budget into a simple visual that could be understood by all community members, including those lacking any previous knowledge of the budgeting process.

“For Arlington, we do a five-year projection of our budget and have lots of discussions with the public around what those projections mean and how they relate to our taxes,” explains LaCourt. “I wanted to make that conversation more public, more open, and more transparent for people who want to know what’s going on.”

Specifically, she envisioned an interactive website where residents could input their individual tax bill and receive a straightforward, graphical breakdown of how the town spent the funds. She hoped that providing taxpayers with more accessible, digestible information would encourage them to engage more fully in the critical, if seemingly esoteric, decisions that go into crafting a municipal budget. LaCourt enlisted Alan Jones, Arlington’s finance committee vice-chair, and Involution Studios, a design firm that donated its services to the project. And in September 2013 the Arlington Visual Budget (arlingtonvisualbudget.org) was born.

“The Arlington Visual Budget enables taxpayers to think about the budget on a scale that is more helpful to them,” says LaCourt. “Instead of trying to understand millions of dollars’ worth of budget items, a taxpayer can look at the costs to her, individually, for specific, itemized public services. In Arlington, for example, we spent $2 million on snow removal last year, which is the most we’ve ever paid. Using the website, the resident with a $6,000 tax bill will see that he personally paid $90 for those services, which is a bargain. When you see your tax bill broken down by services, and you see that your share of the total cost for all these services is relatively low, it starts to look pretty reasonable.”

Adds Jones, “It also shows people that their taxes are going to things they don’t necessarily think about—things that people don’t see driving down the street every day but are important parts of the budget—like debt service on school buildings built 10 years ago, pension and insurance payments for retirees, or health insurance for current employees.”

Another benefit of the website is that it makes it easier to see how public policy has evolved over time. “The Arlington Visual Budget has data going back to 2008 and projections out to 2021, so citizens can really understand how the budget has changed and how that impacts them,” says Adam Langley, senior research analyst at the Lincoln Institute of Land Policy. “Taxpayers can see that state aid for general governments was cut in half from 2009 to 2010, and that it hasn’t recovered at all since then. Because of that cut, the share of Arlington’s budget funded by state aid has fallen, while the share covered by property taxes has grown from 70 percent to 76 percent. The impact of government decisions on household budgets becomes clearer.”

Brendhan Zubricki, the town administrator for Essex—a community of approximately 3,500 people roughly 26 miles north of Boston—quickly understood how the interactive budgeting tool could help local residents make an important financial decision in real time. For the past hundred years, the town has leased to private leaseholders a parcel of publicly owned seaside property known as Conomo Point. Essex relies on the approximately $500,000 in annual property taxes collected on the land to help cover its $6.4 million tax-funded budget, which doesn’t include the $7.4 million it pays to participate in two regional school districts. In May 2015, Essex taxpayers asked to vote on whether to continue leasing the land with improved public access to the prime strip of waterfront or take over the whole parcel for public use. Should residents vote in favor of a park, the land would no longer be taxable, at which point they would experience a tax increase to cover the $500,000 in lost revenue.

Zubricki turned to the visual budgeting tool to model the various tax scenarios at a town meeting that was called in advance of the vote. “The basic model was a visualization tool to help the average person understand the budget. But we took it a step further and used it to explain Essex’s financial future as it related to this one major item. It worked well. We got a lot of positive feedback from meeting attendees,” says Zubricki. Months later, in a nonbinding vote, residents overwhelmingly opted to continue leasing the land at Conomo Point and explore ways to improve access to existing waterfront parks and other public spaces (the binding vote will take place in May 2016).

In keeping with the principles of the civic technology movement—“open data, open source”—LaCourt, Jones, and the team at Involution Studios made the visual budgeting tool available to the public at no cost. Doing so enabled local government officials to repurpose the tool, free of charge, for their respective municipalities simply by incorporating their community’s budgeting data, all of which is publicly available.

“By making the software open source, Annie and Alan are really helping smaller municipalities that can’t afford a chief technology officer or a developer or a design firm, and have to balance competing concerns like whether to fund a school program or build a website,” says Germán. “These communities can use the tool by just plugging in their own data.”

Germán goes on to say that the software also helps local officials to plan better for the future. “Visual Budget enables public officials to model multiyear scenarios. Multiyear forecasting and planning is critical for fiscal health and stability, but is not necessarily available to small towns.” The site has won numerous awards, including the 2014 Innovation Award from the Massachusetts Municipal Association.

Earlier this year, LaCourt, Jones, and the Involutions Studios formed Visual Government (visgov.com) in response to growing interest in the software. Visual Government “continues the commitment to make meaningful budget presentations affordable for municipalities and civic groups of all sizes.” While the software remains available for free, Visual Government also offers a consulting package, which includes building and hosting a website, and assisting the municipality to compile past, present, and future budget data. Determined to remain affordable, the package costs $3,000 and is designed primarily for communities that lack the staff to create their own website.

“The visual budget websites aren’t high-volume sites,” says Jones. “But they are high-value sites. They show the consequences of financial decisions in a way that feels more evidence-based, and less anecdotal. We always refer to them as the ‘No Spin Zones.’”

Loren Berlin is a writer and communications consultant based in Greater Chicago.

This feature is excerpted from A Good Tax: Legal and Policy Issues for the Property Tax in the United States, by Joan Youngman, scheduled for publication in April 2016.

Some of the most significant policy discussions concerning the property tax do not deal with the tax itself but rather with the use of its revenue to support local public schools. This vigorous and long-running controversy highlights the role of the property tax, but the tax itself is of secondary importance to the substantive points at issue, such as the amount of total education spending, its distribution across school districts, and the levels of government that are to provide these funds. If income taxes constituted the primary local revenue source and property taxes were imposed at the state level, the school finance debate could continue as it stands, merely substituting the term “income” tax for “property” tax.

School funding challenges generally begin with one basic problem: how best to expand the revenue available to schools in impoverished districts whose own resources cannot support adequate public education, even at tax rates far higher than those imposed by more affluent jurisdictions. This is not a property tax problem, but a local tax problem. A needy area restricted to its own income tax or sales tax revenues would find it equally difficult to support a successful school system, no matter how high its tax rates. Some transfer of external resources is essential for districts that cannot fund their vital services independently. This statement may seem self-evident, but it sometimes represents the limit of consensus in this extremely heated debate.

By itself, this consensus only establishes that no local tax can serve as the sole support for basic services when the local tax base is inadequate for that purpose. This is a far cry from demonstrating the unfairness of the property tax or any other local tax. But the traditional use of the property tax as a primary support for local schools has sometimes given rise to that implication.

Although the property tax generally functions as a local tax in this country and provides the largest share of independent local revenue, this has not always been the case. Before widespread adoption of state sales and income taxes in the twentieth century, property taxes were a major source of revenue at the state level. At the same time, many local jurisdictions also impose other taxes, such as sales or income taxes. Nevertheless, the overwhelming majority of U.S. property tax collections fund local government operations, and the property tax remains the main source of autonomous revenue for most local jurisdictions, including school districts. Therefore, debate over reliance on local resources to fund education generally questions the fairness of using property taxes as the primary means to finance local schools. It is important to clarify the extent to which the property tax itself is at issue in this debate, and the extent to which it is simply the most commonly used instrument for raising the revenue whose distribution and use is in question.

The Property Tax and Equalization of School Funding

Property taxes were most dramatically linked to the equalization of school funding in the 1971 California Serrano decision, which ushered in a new era of state constitutional challenges to education finance. In that case, the California Supreme Court found that divergent local property tax bases led to constitutionally unacceptable variations in school budgets: “The source of these disparities is unmistakable: in Baldwin Park the assessed valuation per child totaled only $3,706; in Pasadena, assessed valuation was $13,706; while in Beverly Hills, the corresponding figure was $50,885—a ratio of 1 to 4 to 13. Thus, the state grants are inadequate to offset the inequalities inherent in a financing system based on widely varying local tax bases.”[1] Within a decade, California had pioneered a new system of centralized school finance. Instead of districts setting their budgets on the basis of local revenues, budget decisions were made for each district at the state level.[2] The initial phase of school finance reform in California focused strongly on equalization of basic funding, with the very first judicial decisions seeking to limit variations in per-pupil spending across the state to no more than $100.[3]

The same decade saw California voters lead a wave of property tax limitations with the passage of Proposition 13 in 1978. In the wake of this initiative, the state legislature changed the system for distributing property tax revenue as well. As a result of these measures, state law now governs the property tax rate, the budgets of local school districts, and the distribution of property tax collections. Approximately one-third of property tax revenue is allocated to K–14 school districts.[4] The California experience demonstrates that the property tax can be a tool for centralization and equalization of school finance as well as for decentralization and local variation.

Complexities of Centralized School Finance

Although Proposition 13 closely followed school finance reform in California, the causal connection between the two remains controversial. One perspective considers centralized, standardized school finance and administration to erode homeowners’ support for the property tax.[5] “Homeowners were willing to pay higher property taxes if they were convinced this led to quality schools. The school finance litigation movement essentially breaks this tie—local property tax revenues tend now to be redistributed statewide and not directed, on the margin, to local schools.”[6] At the same time, other scholars vigorously contest this hypothesis on statistical and historical grounds: “[T]he evidence does not support the claim that Serrano caused Proposition 13.”[7]

Whatever their connection, these two elements—constitutional challenges and property tax limitations—reinforced one another in shifting authority and responsibility for school funding from localities to the state government. This process also exposed school budgets to new political pressures. At the local level, school spending is often the single most important element of the budget, but wider state needs include public health and safety, transportation, corrections, and higher education. Centralization also carries the challenge of maintaining parental contact and involvement if crucial educational decisions are perceived to be the province of state or other higher-level officials.

The California experience has demonstrated that these concerns should be taken seriously. In 1969–1970, before centralization of its school finance and the introduction of Proposition 13, California ranked 11th among all states and the District of Columbia in per-pupil K–12 spending. By 2013, it had fallen to 36th.[8] Its shortfall in spending is even greater than per-pupil figures indicate, because California teacher salaries, to be competitive, are above the national average. Eric Brunner and Jon Sonstelie observe, “California students performed considerably better in the period before the transformation from local to state finance. . . . This apparent decline in average performance would be less troubling if it were accompanied by equalization across districts and income groups. There is little evidence of equalization across school districts, however.” They note that the decline in performance cannot be attributed to resources alone. “The dismal performance of California students on achievement tests is a disappointment, but that performance is due more to the inefficiency with which funds are deployed than to the paucity of those funds.”[9] This situation is the result of many complex factors, but it is clear that state support for local education in California has not fulfilled the high expectations of early proponents of school finance reform.

Michigan undertook a major centralization of its school finance system in 1994, but the state’s continuing economic difficulties have diminished its ability to maintain funding levels. As in California, changes in school funding were part of a set of sometimes contradictory goals, including educational improvement, enhanced equity, and tax relief. Michigan’s 1994 “Proposal A” reduced property taxes dramatically and substituted a number of other sources, such as portions of state income tax collections and revenue from state sales tax increases, for school purposes.

Ten years later, two analysts who judged the results of Michigan’s centralization to be “decidedly positive” nonetheless expressed concern that the state’s revenue base for its school aid fund was “dangerously vulnerable to cyclical fluctuations.”[10] In 2010, the Citizens Research Council of Michigan reported:

Given the practical realities of the current financing system, state-controlled revenues (directly or indirectly) comprise nearly 85 percent of the total operating funding for local schools. As a result, state, not local, policy makers control the purse strings of Michigan’s local schools. . . . In addition to the fiscal challenges posed by Michigan’s near-decade-long economic malaise, which have been exacerbated by the Great Recession, public education finances also face another serious long-term problem. Since the early 2000s, the state has failed to come to grips with the dual structural deficits affecting its major operating funds, General Fund and School Aid Fund.[11]

In a little-noticed provision of Michigan’s 1994 legislation, typical of the intricacies of such enactments, the state government’s former annual payments to the school retirement fund became a local responsibility.[12]

A shift to centralized school finance does not in itself address the issues of adequacy and efficiency crucial to education reform, no matter what tax is utilized as the source of education revenue. The substantive challenges of education reform are larger than the choice of a tax instrument.

Property Taxes and Local Supplementary Spending

Local taxes can also be controversial when they are used to supplement centrally set spending levels. No state is likely to fund all schools at the level the wealthiest districts might set for themselves if they made these budgetary decisions independently. This presents a choice when a state intervenes to ensure that less wealthy districts receive necessary funding. The state may direct resources to needy districts without guaranteeing them a per-pupil budget equal to that of the highest-spending jurisdictions. Alternatively, it may impose spending restrictions that limit the ability of affluent districts to supplement their budget from their own resources. Under the former approach, use of the property tax to increase the local school budget would be acceptable; under the latter, it would not. For example, Michigan does not permit local districts to seek additional tax revenue for school operations. High-spending districts that have seen their funding decline brought a new dimension to school finance litigation by considering legal action against the state.[13]

One of the attorneys who filed the original challenge to California education funding argued that it is unfair to permit parents to raise funds for local schools: “If we have a lousy education system, then the parents of the rich have to be just as concerned as the parents of the poor.”[14] The opposing position considers some variations in spending a reflection of legitimate local choice, particularly if parents who cannot supplement baseline budgets may withdraw from the public school system altogether and instead send their children to private schools.

Vermont experimented with a unique approach to the issue of above-average spending after the state’s Supreme Court overturned its method of school funding.[15] The legislature responded with Act 60, which from 1999 to 2004 provided a uniform statewide allowance for all elementary and secondary students. At the time, 90 percent of Vermont’s school districts were already spending more than that standard amount per pupil. However, under Act 60, districts that chose to spend more had varying amounts of these additional local funds allocated to a state pool to benefit poorer areas. The wealthier a district, the greater the amount that was allocated to this “sharing pool.” The state could reallocate more than two-thirds of the funds raised from the wealthiest districts to support schools in poorer districts. As reported in 2004, “Roughly 91 percent of Vermont’s school districts receive more funding under the new scheme, and the residents of property-poor districts have actually experienced tax reductions. Taxes have more than doubled in the wealthiest districts, though, and per pupil spending in those districts has decreased. These results engendered an intense response from Vermont’s wealthier districts, sparking civil disobedience, local withholding from the state education fund, circumvention of the ‘sharing pool’ through the use of tax deductions, and an unsuccessful lawsuit challenging the constitutionality of Act 60.”[16]

This controversy was a major reason for later legislative change. In Vermont, as in other states, limitations on school budgets also led to extensive private fundraising and the use of charitable foundation grants to replace tax revenues lost to local schools. In California, for example, private voluntary nontax contributions to public schools accounted for $547 million in 2011 alone.[17]

To some observers, the ability of affluent parents to purchase extra educational resources for their children’s schools signals a return to the situation that gave rise to education finance court challenges in the first place. A New York teacher expressed the view that the very concept of public education “suppresses all distinctions between groups of individuals as inherently unjust.”[18] On the other hand, the opportunity for local support can help foster a broad-based commitment to the public schools.

From Equalization to Adequacy

A 1986 California decision in the long line of related Serrano cases offered another perspective on the problems faced by spending equalization. “The adverse consequences of years of effective leveling down have been particularly severe in high spending districts with large concentrations of poor and minority students. Some of the state’s most urban districts, with high concentrations of poor and minority students, are high-revenue districts.”[19] As this opinion noted, “high wealth” jurisdictions with large amounts of commercial or industrial property can be home to low-income urban residents who could actually lose funding under a strict equalization approach. Many large cities with poor students need to spend more, not less, than the statewide average per student on public education.[20]

Efforts to address the needs of underserved students have shifted the focus of school finance reform from equalization to provision of sufficient funds for adequate achievement. “In 1989, the Kentucky Supreme Court declared the entire state system of public elementary and secondary education unconstitutional and held that all Kentucky schoolchildren had a constitutional right to an adequate education. The decision resulted in a dramatic overhaul of the state’s entire public school system, and sparked what many scholars have called the ‘adequacy movement.’”[21] Yet it is far easier to calculate differences in funding than to provide an operational definition of an adequate education. This influential decision by the Kentucky Supreme Court interpreted the state’s constitutional requirement of “an efficient system of common schools” in terms of seven fairly abstract goals, including “sufficient oral and written communication skills to enable students to function in a complex and rapidly changing civilization” and “sufficient self-knowledge and knowledge of his or her mental and physical wellness.”[22]

In the absence of a federal constitutional claim to equality in school finance[23], these cases are left to state courts. However, challenges to state systems cannot address the most important source of nonuniformity in education spending: differences in spending across states. These are far more significant than differences among districts in any individual state. “[R]oughly two-thirds of nationwide inequality in spending is between states and only one-third is within states, and thus school-reform litigation is able to attack only a small part of the inequality.”[24]

Complexities of Per-Pupil Spending

The shift in focus from strict equalization in spending to directing adequate resources to needy districts can weaken the argument against allowing localities to choose to tax themselves to supplement state-mandated revenues. If many disadvantaged and low-performing urban districts need to spend far more than the average per-pupil budget, uniformity will not be an optimal outcome.

Nevertheless, uniform spending will always have an intuitive appeal. In California, decades of centralized school finance have effectively broken the connection between education spending and local property wealth. However, a 2011 report by the Center for Investigative Reporting’s “California Watch” illustrated the ways in which per-pupil spending continued to vary widely across districts. The report quoted the president of the Alameda Education Association: “For us not to receive the same amount as other districts near us is like saying, ‘We are going to value one child more than another.’” This report went on to describe California’s post-Serrano funding system:

In the landmark 1971 Serrano v. Priest ruling, the court found that using local property taxes to fund schools resulted in vast differences between a wealthy district like Beverly Hills and Baldwin Park, a low-income community east of Los Angeles.

The Supreme Court ruled that differences in the basic amount spent per student—so-called “revenue limit” funding—had to be within $100 across all districts. Taking inflation into account, the permissible difference is now $350 per student. Although larger differences remain among some districts, disparities in the basic amount districts receive from the state have been substantially reduced.

But that reduction has been wiped out by local, state, and federal funds for close to a hundred different programs. A large part of the money is based on formulas established in the 1970s for meals, transportation, and other services that often have little connection to current student needs.

The inequities the court sought to alleviate with its Serrano ruling persist. About two-thirds of districts now spend at least $500 above or below the state average, according to California Watch’s analysis.

“What happened since the Serrano case is that we tried to equalize base funding for students across the state,” said [Julia] Brownley, the Santa Monica assemblywoman. “But since then, we have instituted hundreds of different categorical funds that added to the base. That has taken it to another level and skewed spending again.”[25]

Several aspects of this report are noteworthy.From a property tax perspective, perhaps the most significant conclusion is that continuing disparities in district budgets are not the result of differences in local property tax collections, since the allocation of property tax revenue is determined by the legislature and the governor.

Moreover, the goal of equalizing spending to within a few hundred dollars per student across a state as vast and varied as California is inappropriate. Costs of goods and services differ dramatically across regions, and between urban and rural centers. One of the major criticisms of Michigan’s centralization of school finance concerned its failure to account adequately for cost differentials faced by school districts in different areas serving different populations.[26] The same criticism was applicable to California.

Many shortcomings of the post-Serrano funding system in California were addressed in landmark legislation signed by Governor Jerry Brown in 2013, “the most sweeping changes to the way California funds its public schools in 25 years.”[27] This legislation seeks to direct more funds to needy districts, such as those serving low-income students and nonnative English speakers, rather than to equalize spending among districts.

As a numerical measure, per-pupil spending can sometimes offer a misleading suggestion of exactness. The calculations vary according to a multitude of choices about the figures to be included, such as capital expenditures, debt service, adult education, after-school programs, retirement contributions, and state administrative expenses, to say nothing of the many ways in which enrollment may be measured.[28] Appropriations may differ from budgeted amounts, and both may differ from actual spending. Thus, it is possible for the U.S. Census Bureau to calculate New York City’s 2011 per-pupil spending as $19,770 and for the City’s Independent Budget Office to find that figure to be under $8,000.[29] Comparisons of individual school district budgets can also be distorted if a few very small or remote districts necessarily incur very high per-pupil costs. And of course it goes without saying that the use of school funds, and not the amount of spending alone, is critical to improving instructional results.

All of these crucial issues are far removed from property tax policy, yet property taxes are still used as a convenient target in seeking blame for poor school performance. A 2013 New York Times editorial considering the reasons for this country’s low ranking in international math and science tests took this position:

American school districts rely far too heavily on property taxes, which means districts in wealthy areas bring in more money than those in poor ones. State tax money to make up the gap usually falls far short of the need in districts where poverty and other challenges are the greatest. . . .

. . . Ontario [Canada], for example, strives to eliminate or at least minimize the funding inequality that would otherwise exist between poor and wealthy districts. In most American states, however, the wealthiest, highest-spending districts spend about twice as much per pupil as the lowest-spending districts, according to a federal advisory commission report. In some states, including California, the ratio is more than three to one.[30]

After more than four decades of extremely ambitious school finance reform, centralization, and equalization, the deficiencies of California’s educational system are not the fault of the property tax. An easy resort to criticism of the tax evades the enormously challenging and far more complicated problems of improving educational outcomes.

Statewide Property Taxes

The fairness of the property tax is an issue in this debate only to the extent that local funding is deemed unfair—and then only when the property tax serves as the local tax source. Therefore, a statewide property tax would not be judged unfair in the same way. Some states impose a small surtax on local property taxes and use the proceeds to fund education. But statewide property taxes can encounter serious problems when they are imposed on property values computed through nonuniform local assessment practices.

This was the situation faced by New Hampshire when its school funding system, which relied primarily on the local property tax, was ruled unconstitutional by the state Supreme Court in 1997.[31] New Hampshire is the only state in the nation without either a statewide sales tax or a general income tax, leaving the property tax as an essential mainstay of public services. In response, the state imposed a tax on real property at a rate of .66 percent, based on locally assessed values equalized by the New Hampshire Department of Revenue Administration. A superior court ruled that a statewide tax could not be based on nonuniform local assessments.[32] However, a sharply divided state Supreme Court quickly reversed this decision, finding that a violation of the state’s uniformity clause could only be established by “specific facts showing a ‘widespread scheme of intentional discrimination.’”[33]

Other states have also made use of local property taxes to fund centralized school budgets. In Michigan, a property tax on nonhomestead property, such as vacation residences and second homes, is dedicated to the state school aid fund. This is not formally a statewide property tax, but districts that do not impose the tax do not obtain full state funding of their education grant. As in New Hampshire, a locally administered tax has become in substance a state levy.

In California, property tax assessments and collections remain a local responsibility, but the state legislature determines the use of the funds. With regard to education, the state determines funding according to a formula known as the revenue limit. As the state Department of Education explains, “A district’s total revenue limit is funded through a combination of local property taxes and state General Fund aid. In effect, the State makes up the difference between property tax revenues and the total revenue limit funding for each district.”[34] In 2009–2010, the average per-pupil revenue of California school districts was $8,801, and the average property tax received per pupil was $2,210, with state aid accounting for the difference. An increase in property tax revenue would cause a corresponding decrease in state aid. The property tax functions as an instrument of centralized state school finance. As noted, this has by no means eliminated objections to funding disparities between school districts. A report found that, among small elementary districts, the highest revenue limit funding per pupil in 2005–2006 was $31,237, and the lowest was $4,727.[35]

Impacts of Capitalization

School finance sometimes stands in a unique relationship to the property tax through the process of capitalization. The benefits of superior local public services clearly can have a positive influence on the value of real property within a jurisdiction. It is intuitively clear that if two houses are comparable in other respects, including their tax liabilities, the one in a municipality that enjoys a higher level of public services will command a higher price. At the same time, equivalent houses in different municipalities that receive similar services but bear unequal tax liabilities will command prices that reflect this difference in tax payments.

These two aspects of capitalization—the enhancement in price caused by superior services and the diminution in price caused by increased taxes—affect the school finance debate.[36] Excellent school systems can be expected to increase local property values, providing an incentive even for homeowners without children in local schools to support effective education spending. This also offers a reason to oppose wasteful or ineffective spending that may reduce the value of local property. There is no similar financial incentive for homeowners to support state-funded school spending, because their state tax payments do not affect their local property values. This is one potential advantage to local participation in school funding and operation decisions, and one reason for the hypothesis that centralized school finance helped gain support for Proposition 13 in California.

Clarifying the Debate

School finance reform is an immense challenge involving questions ranging from fundamental definitions of adequacy to legal interpretations of state mandates and measurement of costs. Public officials must balance sometimes competing concerns for equalization, adequacy of funding, centralization, and local autonomy. Moreover, school finance reform is only one part of the much larger challenge of improving educational outcomes. In many cases, the role of the property tax is only incidental to these overriding issues. The operation of the tax and the use of its revenues can be structured to support any of a number of desired financing outcomes, and a focus on the property tax as the cause of educational deficiencies can be a distraction from the essential and daunting task of improving school quality. Efforts to reduce schools’ reliance on property tax revenue may draw as much or more support from anti-tax activists as from those motivated by a belief that these steps can foster greater equity or educational effectiveness. Debate on the property tax should proceed on its own merits and clearly distinguish between issues concerning its operation and the use of its proceeds.

Joan Youngman is a senior fellow and chair of the Department of Taxation and Valuation at the Lincoln Institute of Land Policy.

Photograph: Alamy

References

[1] Serrano v. Priest, 5 Cal. 3d 584, 594; 487 P.2d 1241, 1248; 96 Cal. Rptr. 601, 608 (1971) (citation omitted).

[2] Brunner, Eric J., and Jon Sonstelie. 2006. “California’s School Finance Reform: An Experiment in Fiscal Federalism.” In The Tiebout Model at Fifty: Essays in Public Economics in Honor of Wallace Oates, ed. William A. Fischel. Cambridge, MA: Lincoln Institute of Land Policy.

[3] Fischel, William A. 1989. “Did Serrano Cause Proposition 13?” National Tax Journal 42(4): 465–473.

[4] California Legislative Analyst’s Office. 2012. Understanding California’s Property Taxes, 19. Sacramento, CA: Legislative Analyst’s Office.

[5] Fischel, William A. 1996. “How Serrano Caused Proposition 13.” Journal of Law and Politics 12(Fall): 607–636.”

[6] Brunori, David. 1999. “Interview: Steven M. Sheffrin on the ‘Worst Tax,’ Local Options, and Prop 13.” State Tax Notes (December 27): 1721–1723.

[7] Stark, Kirk, and Jonathan Zasloff. 2003. “Tiebout and Tax Revolts: Did Serrano Really Cause Proposition 13?” UCLA Law Review 50(February): 853. Also: See also Martin (2006).

[8] U.S. Census Bureau, Education Finance Branch. 2015. Public Education Finances: 2013.

[9] Brunner and Sonstelie (2006), 73, 88.

[10] Arsen, David, and David N. Plank. 2004. “Michigan School Finance under Proposal A: State Control, Local Consequences.” State Tax Notes (March 15): 903–922.

[11] Citizens Research Council of Michigan. 2010. State and Local Revenues for Public Education in Michigan, Report 363 (September), vii, 50. Livonia, MI: Citizens Research Council of Michigan.

[12] Thiel, Craig. 2012. “Rising School Retirement Contribution.”

[13] Coffman, Jennifer. 2012. “AAPS Mulls Suing State Over School Aid Fund.” Ann Arbor Chronicle, January 22.

[14] Seligman, Katherine. 1988. “Creative Fund-Raisers for Schools Keep Affluent Districts Humming.” San Diego Union-Tribune, November 18.

[15] Brigham v. State, 166 Vt. 246, 692 A.2d 384 (1997).

[16] Obhof, Larry J. 2004. “Rethinking Judicial Activism and Restraint in State School Finance Litigation.” Harvard Journal of Law and Public Policy 27: 569–607. 593 (citations omitted).

[17] Weston, Margaret. 2015. Voluntary Contributions to California’s Public Schools. San Francisco: Public Policy Institute of California.

[18] Becker, Sidney. 1997. Letter to the Editor. New York Newsday, Queens Edition, October 14: A39.

[19] Serrano v. Priest, 200 Cal. App. 3d 897, 226 Cal. Rptr. 584, 619 (1986).
Shelby County Assessor v. CVS Pharmacy, Inc., 994 N.E.2d 350 (Ind. Tax Ct. 2013).
Sioux City Bridge Co. v. Dakota County, 105 Neb. 843, 182 N.W. 485 (1921), rev’d, 260 U.S. 441 (1923).

[20] Minorini and Sugarman. 1999b. “School Finance Litigation in the Name of Educational Equity: Its Evolution, Impact, and Future,” 38. In Equity and Adequacy in Education Finance, ed. Helen F. Ladd, Rosemary Chalk, and Janet S. Hansen. Washington, DC: National Academy Press.

[21] Minorini, Paul A., and Stephen D. Sugarman. 1999a. “Educational Adequacy and the Courts: The Promise and Problems of Moving to a New Paradigm.” 175. In Equity and Adequacy in Education Finance, ed. Helen F. Ladd, Rosemary Chalk, and Janet S. Hansen. Washington, DC: National Academy Press.

[22] Rose v. Council for Better Education, 790 S.W.2d 186, 212 (Ky. 1989).

[23] San Antonio Independent School District v. Rodriguez, 411 U.S. 1 (1973).

[24] Murray, Sheila E., William N. Evans, and Robert M. Schwab. 1998. “Education-finance Reform and the Distribution of Education Resources.” 808. American Economic Review 88(4): 789–812.

[26] Freedberg, Louis, and Stephen K. Doig. 2011. “Spending Far from Equal Among State’s School Districts, Analysis Finds.” California Watch, June 2.

[26] Arsen and Plank (2004).

[27] York, Anthony. 2013. “Jerry Brown Signs School Funding Overhaul.” Los Angeles Times, July 1.

[28] California Department of Education (2013). Comparison of Per-Pupil Spending Calculations. Sacramento, CA: California Department of Education.

[29] U.S. Census Bureau (2013); New York City Independent Budget Office (2014). U.S. Census Bureau. 2013. “Per Student Public Education Spending Decreases in 2011 for First Time in Nearly Four Decades, Census Bureau Reports.” Press Release. May 21.

[30] New York Times. 2013. “Why Other Countries Teach Better.” Editorial, December 18: A22.

[31] Claremont School District. v. Governor, 142 N.H. 462, 703 A.2d 1353 (1997).

[32] Sirrell v. New Hampshire (Rockingham Superior Court, January 17, 2001).

[33] Sirrell v. New Hampshire, 146 N.H. 364, 373, 780 A.2d 494, 501 (2001).
Sirrell v. New Hampshire, 146 N.H. 364, 780 A.2d 494 (2001).

[34] California Department of Education. 2008. “School District Revenue Limit.” http://www.cde.ca.gov/fg/fo/profile.asp?id=1296.

[35] Weston, Margaret. 2010. Funding California Schools: The Revenue Limit System. San Francisco: Public Policy Institute of California.

[36] Oates, Wallace E. 1969. “The Effect of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis.” Journal of Political Economy 77: 957–971.

———. 2006. “The Many Faces of the Tiebout Model.” In The Tiebout Model at Fifty: Essays in Public Economics in Honor of Wallace Oates, ed. William A. Fischel. Cambridge, MA: Lincoln Institute of Land Policy.

El impuesto sobre la propiedad es un tema tan contencioso en Pensilvania que los residentes de por lo menos 84 grupos de base distintos se han unido para presionar por cambios que incluyen la eliminación del impuesto escolar sobre la propiedad, aunque ello signifique transferir el financiamiento de la educación a otras fuentes que quizá no sean tan confiables.

Una década de reforma fracasada

Especialmente en los últimos años, los residentes y otros propietarios del sexto estado más poblado de los Estados Unidos han acudido a reuniones, han escrito a sus legisladores y han alzado la voz en contra del tributo que los gobiernos locales imponen sobre sus casas, suelo y otras propiedades. Los ciudadanos de Pensilvania soportan una de las cargas tributarias más fuertes del país, y muchos propietarios frustrados se quejan de que el impuesto sobre la propiedad es demasiado alto. Las tasas del impuesto sobre la propiedad han seguido aumentando, a pesar de que la mediana de ingresos de los hogares se ha estancado o reducido en la mayoría de las ciudades del estado. Mientras tanto, la legislatura estatal aprobó una reforma del impuesto sobre la propiedad en 2006 que no ha dado los resultados esperados, en parte por no ceder a los residentes el control que querían sobre la porción más grande de su factura de impuesto sobre la propiedad: la parte que financia las escuelas públicas, que en algunas comunidades supera la mitad de todo el impuesto. Bajo la Ley de Alivio al Contribuyente, cada junta escolar tiene que obtener la aprobación de los electores antes de poder adoptar una tasa tributaria que exceda un cierto límite, actualizado con la inflación. Durante años, sin embargo, docenas de distritos escolares han eludido un referendo electoral mediante la solicitud de exenciones especiales al Departamento de Educación de Pensilvania.

Estas inquietudes son prioritarias para los legisladores. Pero los dirigentes estatales reconocen que un cambio en el sistema del impuesto sobre la propiedad es mucho más complejo de lo que parece. Si se recorta el impuesto a algunos grupos de personas, habrá que aumentarlo a otros, a menos que los líderes puedan encontrar nuevas fuentes de ingresos para generar por lo menos la misma cantidad de dinero necesario para la educación pública, la protección policial, la recolección de basura y otros servicios gubernamentales locales. Hoy en día, los distritos escolares, los condados y las municipalidades de Pensilvania dependen en gran parte del impuesto sobre la propiedad. De hecho, las escuelas estatales dependen del impuesto sobre la propiedad más que las escuelas de la mayor parte del resto del país. Alrededor del 45 por ciento de los fondos que pagan por las escuelas públicas en la mancomunidad de Pensilvania provienen del impuesto sobre la propiedad, según datos de la Oficina del Censo de los EE.UU. para el año fiscal 2013. En todo el país, alrededor del 37 por ciento de los ingresos de los distritos escolares provino del impuesto sobre la propiedad ese año.

Si bien los legisladores de Pensilvania reconocen la necesidad de hacer reformas, no han elaborado aún un plan que cuente con el acuerdo de residentes, gobiernos locales, comunidad de negocios y otras partes interesadas.

Ley de Independencia del Impuesto sobre la Propiedad

En los últimos años han surgido múltiples propuestas que fueron rechazadas una a una. Un proyecto de ley controvertido introducido en 2015 propone unos de los cambios más drásticos de cualquier reforma del impuesto sobre la propiedad en los últimos años. El proyecto de ley 76 del Senado de Pensilvania, también conocido como Ley de Independencia del Impuesto sobre la Propiedad, se propone recortar significativamente el impuesto sobre la propiedad al eliminar la porción destinada a las escuelas. Por una diferencia mínima, la medida no obtuvo los votos suficientes el año pasado para ser aprobado por el Senado de Pensilvania, pero sus patrocinadores quieren forzar otra votación este año. El proyecto cuenta con el respaldo de ambos partidos y también de la Asociación de Corredores Inmobiliarios de Pensilvania, además de grupos como la Campaña Tricondado para la Libertad y la Asociación de Contribuyentes del Condado de Lower Bucks. Bajo el proyecto de ley 76 del Senado, los impuestos escolares sobre la propiedad se irían abandonando paulatinamente. Los distritos con deudas podrían seguir recaudando una pequeña cantidad, pero sólo lo suficiente para financiar los pagos anuales de su deuda, y sólo hasta que la deuda existente se termine de pagar. La legislación permite a los distritos recaudar un impuesto local sobre el ingreso del trabajo o sobre el ingreso personal para programas y proyectos específicos, pero estos planes requerirían la aprobación de los electores.

Los impuestos escolares sobre la propiedad serían reemplazados por un impuesto más alto sobre las ventas, un impuesto sobre el ingreso personal más alto y otros cambios. Los promotores de la ley esperan que estas nuevas fuentes de financiamiento generen los miles de millones de dólares al año necesarios para ayudar a pagar a los maestros y al personal escolar, manteniendo así en funcionamiento los 500 distritos escolares públicos del estado. Este año académico se estima que los impuestos escolares sobre la propiedad recaudarán $13.700 millones de dólares en todo el estado, según proyecciones de la Oficina del Procurador Independiente de la Legislatura publicadas a fines de 2014.

El senador estatal Mike Folmer, que tiene dos hijos y siete nietos, es uno de los más activos defensores de esta ley. Folmer ha dicho que hace falta un cambio drástico porque los impuestos han subido significativamente en partes de Pensilvania, dejando a algunos residentes con dificultades para pagar sus facturas. Las familias quieren ayuda. “Cuando voy a una casa, llamo a la puerta de un residente cualquiera y digo ‘¡Hola! He venido a informarle sobre el proyecto de ley 76 del Senado’, y me hacen pasar a su casa. . . Me dicen, ‘¿Sabe qué? Estoy de acuerdo con usted. Me parece bien’”, dice Folmer, que vive en Lebanon City. “Están abrumadoramente a favor. Pensándolo bien, no recuerdo que nadie me haya dicho que está en contra”.

Los ciudadanos de Pensilvania han expresado su preocupación por el impuesto sobre la propiedad. Una encuesta realizada en la primavera de 2015 por Franklin & Marshall College en Lancaster indicó que el 77 por ciento de los electores cree que hay que reformar el sistema tributario. La mayoría de los participantes de esa encuesta —el 60 por ciento— dijo que favorecería un plan para aumentar el impuesto estatal sobre el ingreso del 3,07 por ciento al 3,7 por ciento, si con eso se redujera su impuesto sobre la propiedad en US$1.000.

Entre los que defienden este tema firmemente está Kelly Sharp, de Grantville, quien dice que casi perdió su casa hace algunos años porque estaba desempleada y no podía pagar su impuesto sobre la propiedad. En ese momento tenía dinero suficiente para cubrir el pago de su hipoteca, pero no para cubrir también su impuesto sobre la propiedad. Después de batallar con el banco por varios meses, finalmente pudo negociar pagos mensuales al alcance de su bolsillo. Actualmente, esta madre de cinco hijos es gerente de la cantina de base local de veteranos de guerra. Si bien ella y su esposo ahora tienen trabajos de tiempo completo, seguirá siendo un problema conseguir los US$6.814,80 dólares que tienen que pagar de impuesto sobre la propiedad este año por su casa de cinco dormitorios. Sharp dice que se quiere mudar a un estado menos caro. “Simplemente ya no podemos quedarnos”, dice. “Este impuesto es una locura a muchos niveles. No sólo por la cantidad, sino por el poder y la autoridad que la gente tiene para destruirnos con estos impuestos”.

Hay muchas razones por las que el proyecto de ley 76 del Senado ha obtenido el respaldo de decenas de miles de propietarios en todo el estado, dice David Baldinger, vocero de la Coalición de Asociaciones de Contribuyentes de Pensilvania, una organización que representa los grupos de base que están luchando contra los impuestos para la educación. Si bien muchas personas mencionan su frustración por el aumento del impuesto sobre la propiedad y el miedo a perder sus casas, otras creen que es más justo financiar las escuelas usando impuestos sobre las ventas y el ingreso, porque hay una mayor proporción de gente que paga esos impuestos, dice Baldinger. Señala que los residentes pueden controlar lo que pagan en impuestos sobre las ventas, que también pagan decenas de millones de visitantes que viajan a Pensilvania todos los años.

“Sin lugar a dudas, [los propietarios] saben que ahorrarán dinero si se libran del impuesto escolar sobre la propiedad”, dice Baldinger, un jubilado de Reading cuya factura del impuesto sobre la propiedad asciende a alrededor de US$8.000 por año, de los cuales alrededor de US$6.500 corresponde al distrito escolar local. Sin embargo, no se ha efectuado ningún análisis legislativo reciente para calcular si los propietarios ahorrarían dinero en caso de que el estado reemplazase el impuesto escolar sobre la propiedad con un mayor impuesto sobre las ventas y sobre el ingreso, y cuánto ahorrarían.

Oposición al proyecto de ley 76 del Senado

A pesar del apoyo de muchos propietarios, el gobernador de Pensilvania Tom Wolf se opone al proyecto de ley 76 del Senado, y docenas de organizaciones se han movilizado también en contra de la medida. Entre ellas están los grupos de defensa de los niños y los pobres, como la Asociación de Educación Estatal de Pensilvania, Ciudadanos Públicos para los Niños y la Juventud, el Consejo Eclesiástico de Pensilvania y la Coalición contra el Hambre. Algunos opositores objetan porque la ley aumentaría el impuesto sobre el ingreso personal del 3,07 por ciento actual al 4,34 por ciento. El proyecto de ley propone aumentar el impuesto sobre las ventas del 6 al 7 por ciento, así como también ampliar la lista de bienes tributables para incluir algunas prendas de vestir, ciertos tipos de comida, servicios de guardería y medicamentos de venta libre.

La comunidad empresarial también se ha manifestado en contra de la medida. La Cámara de Negocio e Industria de Pensilvania ha expresado su preocupación de que un mayor impuesto sobre las ventas afectaría a las empresas locales, sobre todo a las tiendas minoristas en comunidades que limitan con Delaware, que no tiene impuesto sobre las ventas, y Maryland, donde la tasa es del 6 por ciento.

Kathy Swope, presidenta de la Asociación de Juntas Escolares de Pensilvania, criticó el proyecto de ley porque permite que las grandes corporaciones y otras empresas dejen de pagar el impuesto escolar sobre la propiedad. Una porción significativa de los impuestos escolares sobre la propiedad se recauda de propiedades comerciales e industriales del estado. En el distrito escolar de la ciudad de Filadelfia, por ejemplo, más del 44 por ciento de la propiedad se clasificó como comercial o industrial en 2012, según un análisis del Centro de Presupuesto y Política de Pensilvania. “La tributación funciona mejor cuando se distribuye entre muchos contribuyentes”, dice Swope. “No estoy seguro de que la mejor manera de resolver este problema sea eximir a las empresas de su obligación de contribuir”.

En noviembre de 2015, se realizó una votación preliminar sobre el proyecto de ley 76 del Senado y casi fue aprobado. Después de más de una hora de debate, el voto de los legisladores terminó empatado 24 a 24. El vicegobernador estatal, Mike Stack, como presidente del Senado, emitió un voto de desempate en contra, hecho que ocupó la primera página de los periódicos en todo el estado. Pero los patrocinadores del proyecto van a intentarlo de nuevo. El senador David G. Argall, que es el patrocinador principal, ha dicho que un resultado tan estrecho de la votación demuestra la importancia de recortar los impuestos en Pensilvania.

Un vocero de Argall dice que el Senador piensa presentar la medida a consideración de sus pares en los próximos meses. Y el proyecto de ley 76 del Senado puede tener una mayor posibilidad de ser aprobado esta vez. Uno de los copatrocinadores estuvo ausente en la última votación, y también faltó un senador recién electo que probablemente esté a favor de la ley, según las noticias locales. “En cada sesión seguimos recibiendo respaldo de todos los rincones del estado”, dijo Argall, un republicano que representa a 95 municipalidades en los condados de Berks y Schuylkill, en una declaración preparada de antemano. “Tengo noticias para el gobernador y para el vicegobernador que votó en contra de nosotros: No nos vamos a dar por vencidos”.

No se sabe bien cuánto apoyo tiene el proyecto de ley 76 del Senado en la Cámara de Representantes. Pero el gobernador Tom Wolf ha dicho que está preocupado por que el proyecto de ley 76 del Senado no recaudaría el dinero suficiente, dijo su secretario de prensa, Jeffrey Sheridan. Si bien Wolf quiere ofrecer a los residentes alivio en el pago del impuesto sobre la propiedad, también quiere mejorar el financiamiento de las escuelas, más allá de lo recaudado por medio del impuesto sobre la propiedad. El gobernador ha pasado el último año tratando de aumentar el financiamiento de la educación, en un esfuerzo por revertir el recorte de mil millones de dólares que se hizo en el presupuesto escolar cuando asumió sus funciones a comienzos de 2015. Sheridan dice que estos recortes del presupuesto fueron en gran medida la razón por la que los distritos escolares tuvieron que aumentar las tasas del impuesto sobre la propiedad, además de aumentar el tamaño de las clases y reducir los puestos docentes.

En marzo del año pasado, Wolf presentó una propuesta de presupuesto para 2015–2016 que aumentaba la participación del financiamiento estatal de las escuelas públicas al 50 por ciento por primera vez desde la década de 1970, según un comunicado de prensa de su oficina. Hoy el estado paga mucho menos, alrededor del 36 por ciento, según los datos recopilados en el año fiscal 2013, los más recientes disponibles del Centro Nacional de Estadísticas Educativas. Un informe conjunto publicado el verano pasado por la Asociación de Administradores Escolares de Pensilvania y la Asociación de Funcionarios de Empresas Escolares de Pensilvania indica que la participación del estado en el financiamiento de la educación se ha reducido desde 2008–2009, a pesar de que los distritos escolares tienen que cubrir aumentos en el costo de la educación especial, las pensiones de los empleados y las prestaciones de salud, entre otros rubros. “La razón por la cual no podríamos simplemente eliminar el impuesto sobre la propiedad en Pensilvania es que la participación estatal es inadecuada”, dice el vocero del gobernador. “Esto es algo que hemos heredado. Es desafortunado que los distritos se vean obligados a aumentar el impuesto sobre la propiedad, y eso es lo que estamos tratando de arreglar”.

El plan de gastos original para 2015–2016 de Wolf incluía cambios en el impuesto sobre la propiedad que hubiera recortado la tasa específicamente para los propietarios residenciales. Proponía reducir el impuesto sobre la propiedad en US$3,8 millones en todo el estado y reducir el impuesto escolar sobre la propiedad para el propietario promedio en más de la mitad. Casi 300.000 hogares de personas de la tercera edad no tendrían que pagar el impuesto escolar sobre la propiedad. Como el proyecto de ley 76 del Senado, la propuesta de Wolf se hubiera basado en un aumento del impuesto sobre las ventas y sobre el ingreso para cubrir el costo del cambio. Ese plan de gastos, sin embargo, fue descartado en medio de las tensas negociaciones presupuestarias en curso con la legislatura. Wolf introdujo un segundo presupuesto estatal en febrero que no incluía cambios en el impuesto sobre la propiedad.

La confiabilidad del impuesto sobre la propiedad

Mientras los dirigentes de Pensilvania discuten sobre la mejor manera de reformar el sistema del impuesto sobre la propiedad, funcionarios de otras partes del país están lidiando con problemas similares. Por ejemplo, un comité del Senado de Texas está organizando reuniones en todo el estado para examinar opciones para aliviar la carga del impuesto sobre la propiedad antes de efectuar recomendaciones a los legisladores. El gobernador Pete Ricketts de Nebraska propuso recientemente un paquete de alivio del impuesto sobre la propiedad que, entre otras cosas, trata de limitar cuánto puede crecer el valor del suelo agrícola y hortícola. A fines del año pasado, el Comité de Finanzas e Impuestos de la Cámara de Representantes de Florida consideró brevemente un plan para reemplazar el impuesto sobre la propiedad por un impuesto mayor sobre las ventas.

A medida que sigue el debate, economistas y otros expertos se han puesto en contacto con los dirigentes estatales para ayudarles a comprender las investigaciones realizadas sobre estrategias tributarias y advertirles sobre las consecuencias de recortar el impuesto sobre la propiedad como una fuente clave de recaudación, sobre todo para las escuelas públicas. Andrew Reschovsky, economista y fellow del Instituto Lincoln de Políticas de Suelo, dice que el impuesto sobre la propiedad es generalmente una fuente de financiamiento mucho más estable y confiable durante una recesión que los impuestos sobre las ventas y el ingreso. Está en contra de desvincular el financiamiento de la educación del impuesto sobre la propiedad.

Reschovsky, que también es profesor emérito de la Universidad de Wisconsin–Madison, ha escrito extensamente sobre el impuesto a la propiedad. En un informe publicado en 2014 explora la dependencia de los estados del impuesto sobre la propiedad para financiar la educación pública y concluye que los datos de recaudación tributaria demuestran “la estabilidad duradera del impuesto sobre la propiedad”. Además, él y la consultora de finanzas Daphne A. Kenyon, también fellow del Instituto Lincoln, coeditaron un número especial de la revista académica Education Finance and Policy sobre el impuesto a la propiedad y el financiamiento escolar, que incluyó varios artículos enfocados en los cambios en el impuesto sobre la propiedad en estados como Michigan, Massachusetts, Nueva York y Iowa.

Por ejemplo, en 1996 Michigan reformó su sistema de finanzas escolares reduciendo su dependencia del impuesto sobre la propiedad residencial al tiempo que aumentó los ingresos estatales principalmente por medio del impuesto sobre las ventas. El nuevo sistema de financiamiento de la educación está altamente centralizado a nivel estatal, y los fondos estatales se distribuyen de forma relativamente equitativa entre los 540 distritos escolares locales del estado. En los últimos años, sin embargo, el 20 por ciento más rico de los distritos ha estado recibiendo alrededor de US$600 más por alumno en fondos del estado que otros distritos. Sigue habiendo problemas de financiamiento sustanciales. En septiembre del año pasado, un miembro principal del Consejo de Investigación Ciudadana de Michigan informó de grandes diferencias en los gastos de educación especial entre distritos, e inequidades importantes en los gastos de construcción de escuelas.

Carolina del Sur es otro estado que cambió su sistema tributario en respuesta a las demandas de los propietarios. La Ley 388, promulgada en 2006, eliminó el impuesto estatal escolar sobre las propiedades ocupadas por sus dueños y lo reemplazó por un nuevo impuesto del 1 por ciento sobre las ventas. Laura Dawson Ullrich, profesora de economía de Winthrop University, dice que el cambio no ha sido favorable para el estado. “El aumento en el impuesto sobre las ventas nunca compensó la reducción en el impuesto sobre la propiedad”, dice Ullrich. “Las jurisdicciones han aumentado los impuestos sobre las empresas y los propietarios de casas no ocupadas por sus dueños para compensar la brecha”. Según The Greenville News, los legisladores echan la culpa a una combinación de factores, como la Gran Recesión, proyecciones de ingresos excesivamente optimistas, y la dependencia de una fuente de ingresos que no es tan estable como la que reemplazó.

Fusibles y otras soluciones

Reschovsky dice que en vez de abandonar el impuesto escolar sobre la propiedad, los legisladores de Pensilvania deberían hacer el impuesto más atractivo para los propietarios. Una manera de hacerlo es por medio de “programas fusible”, que ofrecen reducciones impositivas a personas individuales con cargas tributarias elevadas en relación a sus ingresos. “Pensilvania tiene un modesto programa fusible que está disponible sólo para los contribuyentes mayores de 65 años de edad y los discapacitados”, dice Reschovsky (figura 1, pág. 14). “Si se pusiera el programa fusible a disposición de todos los contribuyentes que tienen una alta carga tributaria, independientemente de su edad, la oposición al impuesto sobre la propiedad probablemente se reduciría”.

La expansión de los programas fusible de Pensilvania es una de las recomendaciones del Centro de Presupuesto y Políticas de Pensilvania, un proyecto progresivo de investigación política con sede en Harrisburg que ha dicho que la eliminación del impuesto escolar sobre la propiedad es una “respuesta extrema a un problema limitado”. Ha estado urgiendo a los legisladores a que reformen el sistema tributario realizando cambios específicos que no causen daño a las escuelas. El Centro también sugiere obligar a los condados a revaluar las propiedades periódicamente.

Esto es importante porque el impuesto sobre la propiedad depende tanto de las tasas tributarias fijadas por los gobiernos locales como por la valuación del suelo, las estructuras y otros bienes sobre los que se impone el tributo. Un informe del Centro de Presupuesto y Políticas de Pensilvania publicado en 2014, cuando los legisladores estaban considerando una versión anterior de la Ley de Independencia del Impuesto sobre la Propiedad, indicó que el 43 por ciento de los condados no había actualizado las valuaciones desde hacía más de 20 años y que sólo un tercio las había revaluado en la última década.

El informe del Centro de Presupuesto y Políticas de Pensilvania también sugirió que los impuestos altos sobre la propiedad son la excepción en el estado. El análisis del Centro demuestra que en la mayoría de los condados el impuesto total sobre la propiedad es menor de US$2.000 por año, desde un mínimo de US$850 por año en el condado rural de Forest, que incluye parte del Bosque Nacional Allegheny, hasta un máximo de US$4.364 en el condado de Chester, un suburbio rico de Filadelfia. Los datos de la Encuesta Comunitaria Americana del Censo de 2014, sin embargo, indican que hay una mayor proporción de propietarios que tiene que pagar impuestos altos sobre la propiedad en Pensilvania que en el resto de los Estados Unidos. En el ámbito nacional, alrededor del 34 por ciento de los propietarios pagó US$3.000 o más en impuestos sobre la propiedad por ano. En Pensilvania, este porcentaje asciende al 41 por ciento.

Pero las facturas de cobro del impuesto no son siempre la mejor medida de la carga tributaria sobre la propiedad. Muchos economistas prefieren medir el impuesto sobre la propiedad como un porcentaje del ingreso personal. En Pensilvania, el impuesto sobre la propiedad ascendió al 3,0 por ciento del ingreso personal en 2013, apenas por debajo del promedio nacional del 3,1 por ciento, según los datos del último censo disponible. Los impuestos se consideran altos en 30 de los 500 distritos escolares del estado, donde el impuesto sobre la propiedad excede el 4 por ciento del ingreso personal tributable total del distrito. Mientras tanto, un análisis publicado en diciembre de 2015 por el Centro de Datos Estatales de Pensilvania reporta que la mediana del ingreso de los hogares se redujo o se mantuvo igual en 55 de las 57 ciudades de Pensilvania analizadas por la Oficina del Censo de los EE.UU. entre 2005–2009 y 2010–2014.

Sarah Cordes, una profesora de Políticas en liderazgo educativo de la Universidad Temple de Filadelfia, afirma que el problema más urgente en el financiamiento de la educación no es la fuente de financiamiento. El hecho es que Pensilvania es uno de los pocos estados que no tienen una fórmula de financiamiento educativo que asigne fondos estatales en función de las características actuales de un distrito, como su riqueza, características de los estudiantes y cambios en las distintas categorías de matriculación. Cordes dice que el sistema de Pensilvania para distribuir el dinero del estado a las escuelas es “básicamente una asignación automática” que depende principalmente de cuánto dinero recibieron las escuelas el año anterior. Un informe de 2015 del Centro para el Progreso Americano señaló que los distritos de mayor pobreza de Pensilvania reciben hasta más de un 30 por ciento menos por estudiante que los de menor pobreza. Pero cuando se compara a Pensilvania con el resto del país, el informe La calidad cuenta de Education Week de 2016 dio a Pensilvania una calificación de B en gastos de educación y equidad de financiamiento, usando una escala de A a F. Mientras tanto, le dio una calificación de C en el desempeño estudiantil desde el jardín de niños al 12° grado. Dice Cordes: “Si el objetivo es mejorar el desempeño educativo y hacerlo más equitativo para todos los niños del estado, entonces… lo más importante es que el estado encuentre una fórmula para financiar la educación”.

Kenyon, la consultora de finanzas públicas, recomienda que los dirigentes de política aborden el problema del financiamiento escolar y la reforma del impuesto sobre la propiedad como dos temas separados. Sugiere ofrecer ayuda estatal a los distritos escolares necesitados para afrontar los problemas mayores de rendimiento escolar. Mientras tanto, urge a los legisladores que brinden reducción tributaria a los propietarios que tienen una carga tributaria alta del impuesto sobre la propiedad. “El consenso entre los investigadores de finanzas públicas es que la reducción del impuesto sobre la propiedad se debe otorgar a hogares de ingresos bajos a moderados por medio de un mecanismo como un programa fusible estatal del impuesto sobre la propiedad”, escribió Kenyon en un informe de 2007 que resume algunas de las conclusiones más pertinentes sobre el impuesto a la propiedad y las finanzas escolares.

Kenyon, que integró la Junta de Educación Estatal de Nueva Hampshire y la Comisión de Educación de los Estados, urgiría a los legisladores de Pensilvania que reconsideraran el problema del impuesto sobre la propiedad. “Yo diría que piensan que tienen que eliminar el impuesto sobre la propiedad porque no han tomado la medida más prudente y precisa, que yo recomendaría con entusiasmo: expandir los programas fusible”, dice.

Denise-Marie Ordway tiene una larga trayectoria como periodista educativa y es fellow de la Fundación Nieman de Periodismo de Harvard en 2015. En la actualidad es editora de Journalist’s Resource, un proyecto del Centro Shorenstein sobre Medios, Política y Política Pública de la Universidad de Harvard, Cambridge, Massachusetts. Se la puede contactar en denisemordway@gmail.com o vía Twitter en @DeniseOrdway.

Fotografía: Oficina del gobernador de Pensilvania, Tom Lobo

Referencias

Center for American Progress. 2015. A Fresh Look at School Funding. Mayo.

Education Week. 2016. Quality Counts 2016: Report and Rankings.

Kenyon, Daphne A., y Andrew Reschovsky. 2014. “Special Issue: Property Tax and the Financing of K–12 Education”. Education Finance and Policy 9(4). Otoño de 2014.

Kenyon, Daphne A. 2007. The Property Tax-School Funding Dilemma. Cambridge, MA: Lincoln Institute of Land Policy.

National Center for Education Statistics. 2013. National public education financial survey.

Pennsylvania Budget and Policy Center. 2014. Reform Not Repeal: Pennsylvania Can Provide Property Tax Relief and Protect Public Schools. Octubre.

Reschovsky, Andrew. 2014. “The Future Role of the Property Tax in the Funding of K-12 Education in the United States”. Documento de trabajo. Cambridge, MA: Lincoln Institute of Land Policy.

Significant Features of the Property Tax. 2014. Lincoln Institute of Land Policy and George Washington Institute of Public Policy.

Property taxes have become such a contentious issue in Pennsylvania that residents from at least 84 different grassroots groups have banded together to push for changes that include eliminating the school property tax—even if it means funding education through other sources that might not be as reliable.

A Decade of Failed Reform

Especially in more recent years, residents and other property owners in the nation’s sixth-most populous state have filled meetings, written their legislators, and spoken out loudly against the tax that local governments levy on houses, land, and other property. Pennsylvanians shoulder one of the largest overall tax burdens in the country, and many frustrated home owners there complain that property taxes are too high. Property tax rates have risen even as median household incomes have remained stagnant or declined in most cities in the Keystone State. Meanwhile, a property tax reform bill passed by the state legislature in 2006 has failed to live up to expectations, partly by failing to give residents the control they wanted over the largest portion of their property tax bills—the part that funds public schools and, in some communities, makes up more than one-half of the total tax bill. Under the Taxpayer Relief Act, each school board is required to get voter approval before it can adopt a tax rate that exceeds a cap tied to inflation. For years, however, dozens of school districts have avoided a voter referendum by asking the state Department of Education for special exemptions.

These concerns are priorities for lawmakers. But state leaders acknowledge that changing their property tax system is much more complex than it seems. Cutting taxes for some groups of people means boosting them for others, unless leaders can identify new sources of revenue able to generate at least the same amount of money needed for public education, police protection, waste management, and other local government services. Today, Pennsylvania school districts, counties, and municipalities rely heavily on property taxes. In fact, schools in the commonwealth rely on property taxes more than schools in most other parts of the United States. About 45 percent of the funds that pay for public schools in the commonwealth come from property taxes, according to data from the U.S. Census Bureau for fiscal year 2013. Nationwide, about 37 percent of school district revenue came from property taxes that year.

While Pennsylvania lawmakers acknowledge the need for reforms, they have not yet developed a plan that residents, local governments, the business community, and other stakeholders can agree upon.

Property Tax Independence Act

During the last several years, multiple proposals have come forward and then been rejected. A controversial bill introduced in 2015 offers some of the most drastic changes of any property tax reform measure to come before a state legislature in recent years. Pennsylvania Senate Bill 76—also known as the Property Tax Independence Act—aims to slash property tax bills by eliminating school property taxes. By a very narrow margin, the measure failed to garner enough votes last year to get through the Pennsylvania Senate, and its sponsors plan to push for another vote this year. The bill enjoys bipartisan support as well as backing from the Pennsylvania Association of Realtors and groups such as the Tri­County Campaign for Liberty and the Lower Bucks County Taxpayers Association. Under Senate Bill 76, school property taxes would be abandoned over time. Districts with debt would be able to continue charging a small amount, but only enough to finance the annual payments on their debt service, and only until that existing debt is paid off. The legislation does allow districts to levy a local Earned Income Tax or Personal Income Tax for specific projects and programs, but those plans would require voter approval.

School property taxes would be replaced by a higher sales tax, a higher personal income tax, and other changes. The bill’s sponsors expect these new funding sources to generate the billions of dollars a year needed to help pay teachers and staff and otherwise keep the state’s 500 public school districts running. This academic year, education property taxes will raise an estimated $13.7 billion statewide, according to projections that the Legislature’s Independent Fiscal Office released in late 2014.

State Senator Mike Folmer, a father of two and grandfather of seven who is among the bill’s most vocal proponents, said a drastic change is needed because taxes have risen sharply in parts of Pennsylvania, leaving some residents struggling to pay their bills. Families want help. “When I go to houses and knock on everyday folks’ doors, and I say ‘Hi! I’m here to educate you about Senate Bill 76’, and I go into it with them . . . they say, ‘You know what? I’m with you. I get this,’” says Folmer, of Lebanon City. “They’re overwhelmingly in favor. Actually, I cannot remember a ‘no.’”

Pennsylvanians have indicated property taxes are a key concern. A spring 2015 poll conducted by Franklin & Marshall College, in Lancaster, found that 77 percent of voters think the tax system needs to be overhauled. Most Pennsylvanians who participated in that poll—60 percent—said they would favor a plan that would increase the state income tax from 3.07 percent to 3.7 percent if it meant their property tax bill was chopped by $1,000.

Among those who feel strongly about the issue is Kelly Sharp, of Grantville, who says she almost lost her house a few years ago because she was unemployed and could not pay her property taxes. At the time, she had enough money to cover her mortgage but not enough for her mortgage and property taxes. After battling her bank for months, Sharp finally was able to negotiate monthly payments she could afford. Today, the mother of five is manager of the canteen at her local VFW Post. Although she and her husband now work full-time, it still will be tough, she says, to come up with the $6,814.80 she owes in property taxes this year on her five-bedroom home. Sharp says she wants to move to a less expensive state. “We just can’t afford it anymore,” she says. “These taxes are just crazy on so many different levels. Not just the amount, but the power and authority people have to destroy you with these taxes.”

There are multiple reasons why Senate Bill 76 has gained support among tens of thousands of property owners statewide, says David Baldinger, a spokesman for the Pennsylvania Coalition of Taxpayer Associations, an umbrella organization representing the grassroots groups that are fighting education taxes. While many people cite frustrations over rising property taxes and fears about losing their homes, a number of people also think it is more fair to fund schools using sales and income taxes—because a larger share of individuals pay those taxes, Baldinger says. He points out that residents can control the amount they pay in sales taxes, which are paid by the tens of millions of visitors traveling to Pennsylvania each year as well.

“Without question, [property owners] know they will save money by getting rid of education property taxes,” says Baldinger, a retiree from Reading who said his total property tax bill is about $8,000, with about $6,500 levied by the local school district. No recent legislative analysis has been done, however, to gauge whether and how much property owners would save if the state were to replace education property taxes with a higher sales and income tax.

Opposition to Senate Bill 76

Despite support from many property owners, Pennsylvania Governor Tom Wolf opposes Senate Bill 76, and dozens of organizations have rallied against the measure as well. Among them are advocacy groups for children and the poor, such as the Pennsylvania State Education Association, Public Citizens for Children and Youth, Pennsylvania Council of Churches, and Coalition Against Hunger. At least some opponents object because the bill would raise the personal income tax from the current 3.07 percent to 4.34 percent. The bill calls for increasing the state sales tax from 6 percent to 7 percent, as well as expanding the scope of taxable goods to include some clothing items, some types of food, child care services, and nonprescription medications.

The business community has spoken out against the measure, too. The Pennsylvania Chamber of Business and Industry has expressed concerns that increased sales taxes will affect local businesses, especially retail stores in communities that border Delaware, which has no sales tax, and Maryland, where the tax rate is 6 percent.

Kathy Swope, president of the Pennsylvania School Boards Association, criticized the bill for allowing large corporations and other businesses to stop paying education property taxes. A significant portion of school property taxes come from commercial and industrial property in the state. In the Philadelphia city school district, for example, more than 44 percent of property was assessed as either commercial or industrial in 2012, according to an analysis from the Pennsylvania Budget and Policy Center. “Taxation works best when it is spread across many contributors,” Swope says. “Completely relieving businesses of the obligation of any contribution—I’m not sure that is the best way to approach this.”

In November 2015, Senate Bill 76 came up for a preliminary vote and almost passed the Senate. Following more than an hour of debate, legislators cast a tie vote of 24 to 24. The state’s lieutenant governor, Mike Stack, in his role as Senate president, broke the gridlock by casting an opposing vote, which made front-page news across the commonwealth. But the bill’s sponsors will try again. The primary sponsor, Senator David G. Argall, has said the close vote demonstrates how important tax cuts are to Pennsylvanians. A spokesman for Argall says Argall hopes the Senate will vote on the measure again in the coming months. And Senate Bill 76 might have a better chance of passing this time around. One of the cosponsors was absent for the last vote, as was a newly elected senator who is likely to favor the bill, according to local news reports. “Each session, we continue to pick up support in all parts of the state,” Argall, a Republican representing 95 municipalities in Berks and Schuylkill counties, says in a prepared statement. “I’ve got news for the governor and the lieutenant governor who voted against us: We are not giving up.”

It was not immediately clear how much support Senate Bill 76 has in the House. But Governor Tom Wolf has said he is concerned that Senate Bill 76 would not bring in enough money, said Wolf’s press secretary, Jeffrey Sheridan. While Wolf wants to offer residents property tax relief, he also wants to improve school funding—beyond the revenue raised through property taxes. The governor has spent the past year pushing to increase education funding in an effort to reverse the $1 billion in cuts that were made to school budgets before he took office in early 2015. Sheridan says those budget cuts were, in large part, the reason why school districts have had to boost property tax rates as well as increase class sizes and cut teaching positions.

Last March, Wolf unveiled a budget proposal for 2015­–16 that called for boosting the state’s share of public school funding to 50 percent for the first time since the 1970s, a press release from his office states. Today, the state pays considerably less—about 36 percent, according to data collected in fiscal year 2013, the most recent available from the National Center for Education Statistics. A joint report issued last summer by the Pennsylvania Association of School Administrators and the Pennsylvania Association of School Business Officials indicates that the state’s share of education funding has slipped since 2008–­09, even as school districts must cover increases in the cost of such things as special education and employee pensions and health benefits. “The reason that, in Pennsylvania right now, we couldn’t just eliminate property taxes is because the state’s share is inadequate,” the governor’s spokesman says. “That’s something we inherited. It’s unfortunate that districts are being forced to raise property taxes, and that’s what he is trying to fix.”

Wolf’s original 2015–­16 spending plan included changes to property taxes that would have resulted in tax cuts specifically for home owners. He had aimed to reduce property taxes by $3.8 million statewide and shrink the average home owner’s school tax bill by more than half. Nearly 300,000 senior citizens’ households would not pay school property taxes. Like Senate Bill 76, Wolf’s proposal would have relied on increases in sales and income taxes to cover the cost of the change. That spending plan, however, was taken off the table in the midst of tense, ongoing budget negotiations with the legislature. Wolf introduced a second state budget proposal in February that did not include changes to property taxes.

The Dependability of the Property Tax

While Pennsylvania policy makers debate the best ways to revamp the state’s property tax system, officials in other parts of the country are wrestling with similar issues. For example, a Texas Senate committee is holding meetings statewide to examine options for property tax relief before making recommendations to legislators. Nebraska Governor Pete Ricketts recently unveiled a property tax relief package that, among other things, aims to limit how much the value of agricultural and horticultural land can grow. Late last year, Florida’s House Finance and Tax Committee briefly considered pursuing a plan to replace property taxes with a higher state sales tax.

As debates take place, economists and other experts have reached out to state leaders to help them understand the research behind tax strategies while also warning them of the consequences of cutting back on property taxes as a key revenue source, especially for public schools. Andrew Reschovsky, an economist and fellow at the Lincoln Institute of Land Policy, says the property tax is generally a much more stable and reliable funding source during a recession than sales and income taxes. He advises against decoupling education funding and property taxes.

Reschovsky, who also is professor emeritus at the University of Wisconsin­–Madison, has written extensively about property taxes. In a report published in 2014, he explores states’ reliance on property taxes to fund public education and concludes that tax revenue data demonstrate “the abiding stability of the property tax.” In addition, he and public finance consultant Daphne A. Kenyon, who is a Lincoln Institute fellow as well, co­edited a special issue of the academic journal Education Finance and Policy on the property tax and school finance, which included several papers focusing on property tax changes in states such as Michigan, Massachusetts, New York, and Iowa.

For example, in 1996, Michigan reformed its school finance system by reducing reliance on residential property taxes while raising new state revenue primarily from the sales tax. The new system for financing education is highly centralized at the state level, with state revenue distributed relatively evenly across the state’s 540 local school districts. In recent years, however, the richest 20 percent of districts have been receiving about $600 per pupil more in state revenues than other districts. Substantial funding problems remain. Last September, a senior associate from the Citizens Research Council of Michigan reported that wide disparities exist in special education spending among the districts and that there are significant inequities in school construction spending.

South Carolina is another state that changed its tax system in response to demands from property owners. Under Act 388, passed in 2006, the state eliminated the school property tax on owner-occupied homes and replaced it with a new penny sales tax. Laura Dawson Ullrich, an economics professor at Winthrop University, says the trade has not been good for the state. “The sales tax increase has never made up for the reduction” in property taxes, Ullrich says. “Jurisdictions have increased taxes on businesses and owners of non­-owner-occupied homes to make up for the gap.” According to The Greenville News, lawmakers blame a combination of factors, including the Great Recession, overly optimistic revenue projections, and reliance on a revenue source that is not as stable as the one it replaced.

Circuit Breakers and Other Solutions

Reschovsky says that instead of abandoning school property taxes, Pennsylvania legislators should try to make the tax more attractive to property owners. One way to do that, he says, is through “circuit breaker” programs, which offer relief to individuals with high tax burdens in relation to their income. “Pennsylvania has a modest circuit breaker program that is available only to taxpayers over the age of 65 and to the disabled,” Reschovsky says (figure 1, p. 14). “Making the circuit breaker available to all taxpayers, independent of age, who are facing high tax burdens would likely reduce opposition to the property tax.”

Expanding Pennsylvania’s circuit breaker program is one of the recommendations made by the Pennsylvania Budget and Policy Center, a progressive policy research project based in Harrisburg that calls the elimination of school property taxes “an extreme response to a limited problem.” It has been urging legislators to reform the tax system by making targeted changes that will not hurt schools. The center also suggests requiring counties to reassess property regularly.

This is important because property taxes are based both on the tax rates set by local governments and an assessment of the value of the land, structure, or other property on which the tax is being imposed. A report that the Pennsylvania Budget and Policy Center released in 2014, when lawmakers were considering an earlier version of the Property Tax Independence Act, found that 43 percent of counties had not conducted reassessments in more than 20 years and that only one-third had reassessed property within the past decade.

The Pennsylvania Budget and Policy Center report also suggests that high property taxes are the exception in the commonwealth. The center’s analyses show that, for most counties, total property taxes average less than $2,000 a year, with tax bills ranging from a low of $850 annually in rural Forest County, which includes part of the Allegheny National Forest, to a high of $4,364 in Chester County, a wealthy suburb of Philadelphia. Data from the 2014 Census’ American Community Survey, however, indicate that a larger proportion of home owners pay high property taxes in Pennsylvania compared to the United States as a whole. Nationally, about 34 percent of home owners paid $3,000 or more in property taxes. Meanwhile, about 41 percent did in Pennsylvania.

But tax bills are not always the best measure of property tax burden. Many economists prefer to look at property taxes as a percentage of personal income. In Pennsylvania, property taxes made up 3.0 percent of personal income in 2013—just below the national average of 3.1 percent, according to the latest available Census data. Taxes are considered high in 30 of the state’s 500 school districts, as property taxes exceed 4 percent of the districts’ total taxable personal income. Meanwhile, an analysis released in December 2015 by the Pennsylvania State Data Center reports that median household income declined or stayed the same in 55 of the 57 Pennsylvania cities surveyed by the U.S. Census Bureau between 2005–2009 and 2010–2014.

Sarah Cordes, a professor of educational leadership policy at Temple University in Philadelphia, asserts that the most pressing problem in education finance is not funding sources. It is the fact that Pennsylvania is one of the few states that do not have an education funding formula that allocates state funds based on the current characteristics of a district—for example, a district’s wealth, student characteristics, and changes in different categories of enrollment. Cordes says Pennsylvania’s system for distributing state money to schools is “basically an automatic allocation,” based primarily on how much money schools received in the previous year. A 2015 report from the Center for American Progress notes that Pennsylvania’s highest-poverty districts spend more than 30 percent less per student than the lowest-poverty ones. But when comparing Pennsylvania to the rest of the country, Education Week’s Quality Counts 2016 report assigned Pennsylvania a grade of B in education spending and funding equity. Meanwhile, it gave the state a C in K–12 student achievement. Says Cordes: “If the goal is to produce better and more equitable educational outcomes for children across the state, then . . . the most important thing that needs to happen is that the state needs to come up with an education funding formula.”

Kenyon, the public finance consultant, recommends that policy makers address school funding and property tax reform as two separate issues. She suggests targeting state aid to needy school districts to tackle the biggest student achievement challenges. Meanwhile, she urges lawmakers to target property tax relief to those property owners with hefty property tax burdens. “The consensus among public finance researchers is that property tax relief should be targeted to low- and moderate-income households through a mechanism such as a state-funded property tax circuit breaker program,” Kenyon wrote in a 2007 report that summarizes some of the more pertinent research findings related to property taxes and school finance.

Kenyon, who served on New Hampshire’s State Board of Education and on the Education Commission of the States, would urge Pennsylvania lawmakers to reconsider their property tax problem. “I’d say that they feel the need to eliminate the property tax because they haven’t taken the more sober and precise measure, which I would highly recommend, of expanding their circuit breaker,” she says.

Denise-Marie Ordway is a longtime education reporter and 2015 fellow of Harvard’s Nieman Foundation for Journalism. Currently, she is an editor at Journalist’s Resource, a project of Harvard’s Shorenstein Center on Media, Politics and Public Policy in Cambridge, Massachusetts. She can be reached by e­mail at denisemordway@gmail.com or via Twitter at @DeniseOrdway.

Photograph: Office of Pennsylvania Governor Tom Wolf

References

Center for American Progress. 2015. A Fresh Look at School Funding. May.

Education Week. 2016. Quality Counts 2016: Report and Rankings.

Kenyon, Daphne A., and Andy Reschovsky. 2014. “Special Issue: Property Tax and the Financing of K–12 Education.” Education Finance and Policy 9(4). Fall 2014.

Kenyon, Daphne A. 2007. The Property Tax-School Funding Dilemma. Cambridge, MA: Lincoln Institute of Land Policy.

National Center for Education Statistics. 2013. National public education financial survey.

Pennsylvania Budget and Policy Center. 2014. Reform Not Repeal: Pennsylvania Can Provide Property Tax Relief and Protect Public Schools. October.

Reschovsky, Andrew. 2014. “The Future Role of the Property Tax in the Funding of K-12 Education in the United States.” Working paper. Cambridge, MA: Lincoln Institute of Land Policy.

Significant Features of the Property Tax. 2014. Lincoln Institute of Land Policy and George Washington Institute of Public Policy.

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