Why It Matters: property taxes and school funding

Sunday’s Inquirer laid out one of the best reasons for why reform in property taxes has to go hand in hand with school funding.

In a study of more than 500,000 tax records, the Inquirer reports that “wildly disparate property tax rates are widening the economic divide between have and have not towns.”

Consider this:

For instance, in some economically distressed parts of eastern Delaware County, such as the six towns of the William Penn School District, the tax rates are nearly six times higher than those in West Conshohocken, a Montgomery County borough jam-packed with office towers. Just five years ago, the rates were 31/2 times higher.

Those poorer communities also tend to have lower-achieving students and far fewer resources than wealthy neighbors. The William Penn district - composed of Aldan, Colwyn, Darby Borough, East Lansdowne, Lansdowne and Yeadon - spends $12,701 per pupil. West Conshohocken is in the Upper Merion district, which spends $18,158.

Between 2002 and 2007 in poorer towns in the suburban counties, increases in millages - the taxes per $1,000 of assessed property value - were double those in affluent communities.

So the famous line touted by Philadelphia Student Union organizers in 2001 during the state takeover was that the quality of a child’s school system shouldn’t have to depend on their zip code. But that is indeed what happens here.

It’s important to remember that over the last couple of decades the state share of funding for education has declined from about half to currently 35% of district education costs. Under the Ridge administration, state funding for schools declined to its lowest point ever, hovering under a third. Rendell has made efforts to boost education spending in the state to its current level. Despite these efforts, Pennsylvania still ranks near the bottom of the nation, 44th in fact, in the amount of state contribution to school districts.

Because Pennsylvania refuses to adequately fund education, local districts rely upon their number one source of funds – property tax. The wealthier the district, the more funds they generate for schools. More important though, the wealthier the District, the less each individual homeowner is taxed since each homeowner can generate more taxes. It gets even better when the township is attractive enough to host businesses which also contribute to schools.

Great if you live in King of Prussia or Lower Merion. But when you live in Chichester or Colwyn, this system stinks. If the local property wealth is low, less money goes to schools, which forces townships to increase taxes on homeowners. Here’s how it feels:

Its [Coatesville Area School District] poorest part by far is the city of Coatesville; there, the average home price in 2006 was $120,000, compared with $294,800 across the other towns. Devastated by the loss of the steel industry that once defined it, Coatesville has a painfully sparse tax base, which forces higher rates on everyone in the district.

The circumstances are similar - and the taxes even higher - in the Chichester School District in eastern Delaware County. The district consists of Lower and Upper Chichester Townships and the ravaged riverfront boroughs of Marcus Hook and Trainer.

Upper Chichester, where Karl and Jean Dorschu live, is relatively well-off, with an average home price of $220,165. But in the other three municipalities, the tax base is paper-thin; houses average less than $95,000.

So the district's residents are forced to dig deep at tax time, paying up to $3,300 for every $100,000 in property value.

Had they stayed in Radnor, the Dorschus would be paying $1,138 per $100,000 in value. That district includes just one township, with $3.6 billion worth of real estate. That's four times the total for all property in the Chichester district.

One thing I appreciate about reporter Anthony Wood’s work is that he took the extra step of pointing out that in most school districts there’s not a whole lot of fat. Now I might struggle a bit with the notion that Lower Merion which spends over $20,000 a student is barely holding on, but what’s clear is that most district costs are locked into certain fixed costs: salaries and benefits, buildings, and legal mandates.

And as much as I take to task the spending within the School District of Philadelphia, at the end of the day, this system is underfunded by almost a billion dollars a year – and that’s just to attain adequacy. I can rip the SRC for having its p.r. consultants and high priced lawyers, but that alone won’t pay for the ten billion dollars in facilities upgrades that former CEO Paul Vallas once mentioned. Or an increase in teacher salaries so we’re competitive with our suburban neighbors.

What the article doesn't point out so much are the limitations of the legislative and grassroots attempts to address the situation. Both Act 1, which passed in 2006, and HB1275 (replacing property tax with sales tax and shifting school funding to the state-a bill currently stuck in committee) have separated issues of property tax reform and school funding.

Act 1, for example, is a property tax rebate for homeowners that does absolutely nothing for actually reducing property taxes and furthermore does nothing to ensure that schools receive their adequate funds. HB1275, by shifting the burden of school funding to a state that doesn't fund schools adequately, eliminates school funding options and potentially locks in a system of inequity for poorer communities. In addition, by eliminating property levies, it eliminates a stable source of funding as well as lets businesses off the hook for contributing a fair share of their wealth.

Rendell has argued that Act 1 in combination with his plan to boost spending for schools to a 44% share in six years will address the problem. While state legislators acknowledge interest in a first year effort to address the legislative costing out study on school funding, not enough show interest in sticking with the six year school funding plan -- and that's a problem.

A complicated issue like this needs less knee jerk reactions and some solid thinking. Act 1 is now in place, but education funding is not. There’s fewer compelling reasons for supporting a six year education formula than the tens of thousands of people living with the failures of government to address the situation.

The cliché in school circles is to say “it’s about the kids.” But the reality is it’s really about all of us.

Helen thank you so much for writing on this

The current property tax funding system results in both inequities between communities, and also works to entrench segregation.

Can you explain some what you see as a workable solution? Is the Rendell plan sufficient? Where do you see this going--lobbying the six year plan?

Sorry so many questions!

School funding

Right, so solutions. Sigh.

I guess that there have been any number of things tried in the dozens of states that have successfully sued re: inequitable school funding based on property taxes. Michigan for example shifted almost its entire burden to the state, where the state at one point assumed 80% of the school funding costs (up from 59% -- sort of makes PA look pathetic either way). In terms of equity, changes were 20% and below in terms of improvement and many people felt that the attempt at "equity" had disappointing results. Although as a caveat, the issue with Michigan had less to do with the funding formula, than the will of the legislature to put serious money toward the issue.

In New Jersey, the attempt was made, through a court decision, to create something called "adequacy," or a baseline minimum based on decent standards. In this case they averaged out the spending of the 100 top achieving districts in the state and determined a minimum then redistributed taxes to bring the lowest districts up to that minimum level of spending.

But at the end of the day, what we always come down to is the reality that quality public schools don't come cheap. And if the end result is to reduce, reduce, and reduce taxes, and never (as in PA's case) to raise or create new taxes, then there will never be a serious effort at adequacy or equity in school funding or any other area for that matter.

Rethinking Schools has a great article by Stan Karp that summarizes some of the major successes and downfalls of school funding reform. In Karp's opinion, states can only achieve limited attempts at equalizing school funding. A true infusion must come in the hundreds of billions of dollars at the national level.

In either case, in terms of starting small, what we want to encourage PA to do is to push the dialogue between property tax reform and school funding reform. We need the Governor's budget to go through for the full six years. The Senate is a big sticking point currently: with leaders like Dominic Pileggi and Sam Smith being key players. Letters, phone calls, and letters to the editor are strongly encouraged.

I am also no expert on change in Harrisburg, so I'd welcome any suggestions as well.

Thank you again!

I know a little bit about what NJ and VT tried, less about elsewhere. But we don't have the courts pushing us, either....

Yeah I have been curious--I went to a panel discussion at White Dog with lawyers and advocates and there seemed (unless I was misreading things) to be confidence that the costing-out study and the plan would get us where we needed, which surprised me a little. I guess the difficulty is in getting things passed and protecting what is won afterwards.

There's a part in the one Kozol book I borrowed from Dan where he talks about the evolution of people's expectations re: the goverment and public education. He was talking about that Texas case where the Supreme Court said there is no constitutional right to public education and thus no federal claim that property tax funding systems are unconstituitonally unfair/unequal. He goes on to say that over the years, people have come to assume that they do have a right to public education, and a right to decent and basically equal education for all. I think this is true, whatever the other complicated politics regarding school funding, testing, and vouchers. There's such a powerful and compelling message in there that should (perfect world!) be easy to rally people around.

Michigan

In Michigan, too, the decoupling of school district funding with local property taxes, which tied per-student funding to the student him- or herself, also opened up a school-of-choice program, where students could attend any public school in the ISD, regardless of residence. This has really racked city schools and struggling schools, while suburban schools (especially those close to urban districts) have seen enrollments (and funding) boom.

The large number of differnet school districts create inequality

Rendel's plan moving more of the taxation revenue and funding to a central state-wide kitty and less in the hands of the multitude of townships and local school boards is a step towards equality of educational opportunity for PA residents. It also eliminates a lot of the waste from having so many small school boards purchase and pay for their own curriculum in terms of economies of scale.

The flipside is that when suburban counties get asked to pick up the bill for a base level sufficient education for all of Pa's students - to put limits to class stratification in educational opportunity by school district - well they will probably ask for Philadlephia to look at its arcane tax assessment practices. In Philly we have highish property tax millage rates but ridiculously out of whack assessments leading to comparatively low property taxes overall. The assessments tend to be much, much lower comparatively for recent but throroughly gentrified neighborhoods - see Fumo's $7million manse appraised at $350K - but lower middle class and poor neighborhoods comparatively over assessed compared to the deals given to the Fairmounts, Queen Village's, etc. of the world. So people in un-hip neighborhoods are doubly screwed - paying more proportionally than those in "hipper" areas and getting some of the worst schools - which in turn drives families out of the neighborhood and to the burbs feeding a vicious cycle of population loss and global-warming causing sprawl.

-Sean
MrLuigi, my cat, actually only types half as badly as I do.

There's no magic bullet

Any state atempt at funding needs quality local funding revenue as well -- one reason we want to tie in the BRT struggle to school funding. It's true that districts with a handful of schools going up against Philly with its 270 + 61 charters is just not going to create empathy and equity among districts, but what Stan Karp points out is that no matter what happens, if there is not a concerted recognition and attempt to infuse new money into public education (rather than an attempt to appease certain factions and that includes the public schools), most of our attempts to create a more equitable school system will be minimal at best.

Other things about taxes

Probably a lot of us would support a progressive state-wide income tax picking up some of the cost of uniform education standards but the PA constitution is kind of a bugger on its uniformity clause #1, and #2 many Pennsylvanians view it as a god given right to buy into economically exclusive zipcodes and schools districts, couching it behind the rhetoric of "local control" of the schools. Rendel's version is probably a reasonable take on something that might actually pass statewide and be a move in the right direction but its hardly a total solution.

There are some inherent downsides to property taxation since it taxes people on an unrealized financial gain. If you are an elderly pensioner, it makes no difference if your house is suddenly in a "hot" area - its still just your house - and market driven fluctuations in the market value of a house can cause real economic hardships.

-Sean
MrLuigi, my cat, actually only types half as badly as I do.

HB 1275 as a Potential Solution to School Funding

PA HB 1275 was a good potential solution to the real estate tax issue that got killed by special interest groups (e.g. attorneys) and partisan positioning. The Bill would have ended all real estate taxes for school districts, eliminated the 0.5% earned income tax in place for many school districts, increased the state income tax rate to 3.92% from 3.07%, imposed the state sales tax on more items (but still exempted all current food and clothing exemptions, residential utilities, health services, prescription drugs, mass transit, core B to B services, wholesale sales, distributor sales, advertising, and trucking). If enacted, the Bill would result in PA assuming funding for schools and would have taken significant steps to fix the inequities in school funding among different districts. Obviously there were winners and losers under the Bill, but it was a good option that never got a fair hearing.

So overall we need more

The kind of more that it sounds like has to come at least in part from the federal level. Moving the burden off of local property taxes means a only slightly more fair distribution of mostly not enough overall.

HR1275 sounds like another move in the right direction. What are its chances?

-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Would there be property taxes at all?

How would property taxes be used and determined? In the end, though, the issue is whether the goal is simply to reduce taxes and appease voters or whether there is a thoughtful system that moves towards equity and adequacy for schools. This means more money, not less.

I believe in property taxes

But I often feel folks on "our side" miss important aspects of the issue. For one thing there is a a strain of the "anti-gentrification" movement that views new businesses - even locally owned mom and pops ones - on our cities beleagered commercial corridors as signs of the coming appocalypse. In this town as businesses go under, abandonned commercial buildings often see their property taxes cut severely and the owners have little incentive to fix and rent or sell. Far too often those buildings sit unused for decades becoming a drag on the city as a whole, making a lack of jobs worse and the availability of commercial services progressively scarcer, driving down the livability of neighborhoods already on tough times. Instead of dozens of small businesses run by local merchants, providing opportunities for immigrants and small time entrepeneurs who historically "re-invent" urban neighborhoods, our urban neighborhoods become an even more a scarce sprinkling of low-paying big box retailers that the surrounding suburbs are.

I would tax commercial properties with up to date assessments, not mark them down as drastically when the owner passes or goes out of business and boards up the front and be more aggressive about turning those properties over via sherrif's sales to new entrepeneurs willing to make the investment in something new. More money for schools, more jobs, more vibrant neighborhoods. Three times as much of each dollar you spend in locally owned business goes back into the local economy as go into it from a dollar spent in a chain.

OK pardon the diversion off topic but I guess I felt a need to explain why I was such a meany to the kids playing house in the abdonned shoe store in the other thread. Basically the situation that allowed them to take possession of the building in the first place (and do so little productive with it) is to me always going to be a symptom of whats wrong with how Philly deals with its property taxes - which in turn effects both our local economy and funding for Philly's schools.

So yes, property taxes do hit both businesses and individuals (which is fair) and when implemented correctly provide the needed incentive to get empty store fronts and commercial properties to turn over to new hands rather than getting caught in perpetually boarded up limbo.

On the other hand, older residents ABSOLUTELY do need protections from being taxed out of homes that are increasing in value while their incomes are not - i.e. caps that defer the full collection till the owners die or sell the house.

Some property taxes fulfill a needed function in terms of organically encouraging neighborhood commercial strips to reinvent themselves thats a hell of lot cheaper than waiting till things fall down to the point that government mandates massive eminent domain-drive bulldoze-it-all urban redevelopment projects.

I say a combination of property and income or spending derived taxes.
-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Right so what about combined property/sales?

I think property tax is functional and important. It's a stable revenue (far more so than sales and income which are regressive and can fluctuate dramatically depending on the economy)and businesses as an entity pay property taxes - much differently than sales and income. So what if property taxes were capped, state funding boosted, and a supplement from a sales tax increase is used to bring up lower spending districts to an agreed adequacy level? The problem of course is that when 95% of districts are below adequacy, it's not exactly a "supplement" kind of situation.

HB 1275 is Dead and Federal Funding

HB 1275 is dead. It was a combination of partisan politics, special interest groups, not wanting to change the status quo, and a belief that Act 1 (Casino money for tax reductions, and limits on real estate tax increases) was enough real estate tax reform. In terms of more money from the federal government, I would not hold my breath. Education is viewed as a local state issue and not a federal issue (especially in terms of funding). In 2005, most PA school districts received negligible federal funding, with the higher amounts (in terms of a portion of their revenue going to urban or urbanized districts, rural districts were generally in a group below the urban/urbanized districts, with wealthy suburban districts receiving the lowest funding levels. As examples, Lower Merion received 0.65% of their revenue from federal funding. Reading did the best in PA at 16.45%. Philadelphia was at 15.01% (the highest rate in the five county area). The fact that there is a massive federal deficit and that the cities/urban/metro areas received nearly no attention or discussion during the presidential primary election, despite significant efforts of groups like Brookings does not bode well for well for more federal funding of any significant amounts for education.

There would not be any real estate taxes for school funding under HB 1275, though real estate taxes would remain for county and municipal funding.

Not so certain about federal funding

No Child Left Behind, for all its crumminess, may have fundamentally torn down the barrier between the federal government and local schools. For the first time, the feds reached in and started making educational demands and mandates on local schools; Obama, at least, along with most Dems (especially those who initially backed the measure) have strongly supported increasing funds to help meet those mandates.

That doesn't mean that the spigot will flow, that the federal government will replace the states, etc. But in terms of plugging some gaps and rounding some corners, there may be some hope there.

One problem w/Federal school funding

There is precisely *no* role given in the US Constitution for the Federal government regarding education. None. Therefore, under the terms of the Tenth Amendment to the US Constitution, education funding is state matter, unless and until an amendment to the US Constitution says otherwise.

I'm not saying that a Federal role in public education is a bad thing. I'm just saying that it's not as simple as it may appear.

-Z

I am only a three years of law school plus a little

expert in this, but I think you are way, way off. The federal government has pretty wide latitude to give money to the states, and can attach conditions to the receipt of that money (with certain limitations). The bar for the federal government's power to spend is not nearly so high as the bar for it's power to tax.

The feds give millions to schools

Title I (for special needs), Title III (for English language learners)and more. I'll check about the general numbers at the District.

It's true that it's under specific categories, but clearly with NCLB (an unfunded mandate) the next administration has plenty of right, opportunity and leeway to play a major role in reforming public schools nationwide.

Oh, I know the Fed's not *prohibited*...

... from providing education funding, along w/the caveat that, if you want Federal money, you need to play by Federal rules. My point is that, Constitutionally, the Federal government has no mandatory role in public education. This, in and of itself, clearly implies that it is a function of 'the several States,' to use the Constitution's preferred wording.

-Z

I don't think

that implication is clear at all. It is not just not prohibited, it is affirmatively allowed, under the general welfare clause. A constitutional amendment's certainly not necessary.

Veering off debate to the immediate for a sec

WE NEED TO FIGHT BACK FOR OUR KIDS!

The State Senate is on the verge of cutting the Governor’s proposed
$291 million increase in basic education funding by 41 percent! Late
yesterday, the Senate Appropriations Committee voted 16-10 to slash
$118 million from the proposed increase when it approved its version
of the budget, Senate Bill 1389. The Senate Committee’s action is
unacceptable.

Senate Bill 1389 is scheduled to be the second bill considered by the
full state Senate at 1:00 p.m. today. A cut of this magnitude not
only will make adoption of a long-term school funding formula much
more difficult, but it will deprive many Pennsylvania students of a
better education starting this fall. And it will disrupt the local
school district budgeting process.

Please e-mail or call your State Senator in his or her Harrisburg
office NOW to request a vote against Senate Bill 1389 unless the $291
million increase is restored!

For more information on the Pennsylvania School Funding Campaign and
additional tools and resources for your work, please go to www.paschoolfunding.org

-Sean
MrLuigi, my cat, actually only types half as badly as I do.

Clarification on that email

(Since I helped distribute it after all)

I have since learned that SB1389 is not the be all and end all of this ed budget. The House won't support it. The Senate is sending an opening salvo to say that the Governor's ed budget is going to be a fight. We have 10 days to move the ed budget forward.

Since we're all volunteers here. There are a few first steps everyone can do.
1) Commit to making 3-5 phone calls between now and Friday to senators and house reps to support the ed budget (it would take less than 10 minutes total). Be strategic. Call your local legislator first and then hone in on key folks and local leaders on the House and Senate side (should I name names?).

2) If that's done, ask friends, neighbors, colleagues, partners to do the same. Ask them if they can do this (3-5 phone calls) especially if they don't live in Philly and know people or themselves are from counties outside Philadelphia. Go to www.votesmart.org to find your legislator.

3) Feel free to email me hgbf@aol.com if you want data like how each school district county benefits under the education budget. The district by district data is available here.

4) We figure we need to target key people in both the House and Senate and see if we can get about 10 phone calls in their districts. That at the minimum would include the House and Senate leadership as well as others.

The email above should be tempered with a more systemic yet still urgent approach to moving this.

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