Cynthia Brown, vice president for education policy of the Center for American Progress, argues in a recent Education Week commentary that we should stop using local property taxes to fund schools and shift fiscal responsibility for K-12 education to the states.
Indiana’s experience suggests advocates for equitable school funding should be careful what they wish for. Relying on state revenues to fund schools may result in a simpler, fairer system. But it may also mean that schools are less likely to get the money they need.
Brown builds from the work of the U.S. Department of Education’s Commission on Equity and Excellence, of which she was a member. Its report, issued in February, concluded that efforts to improve the schools should start with equity, including equity in funding.
“States should adopt a state-based system of school financing,” she writes, “one in which states provide all nonfederal resources for education, and districts no longer have the power to raise funds from local property taxes.”
Indiana switched to state-based K-12 funding 2009 as part of a larger “property tax reform” initiative. Generally speaking, the state now pays school general fund expenses, including instruction and most salaries. Local property taxes are used to pay for buildings and transportation. (Voters can choose in a referendum to raise their own property taxes to supplement state dollars for the local school district’s general fund).
No sooner had the switch taken place than the economy hit the skids, state tax revenues nose-dived and then-Gov. Mitch Daniels cut school funding by $300 million to keep the state in the black. Schools are still suffering from that cut, which arguably wouldn’t have been quite so deep if property taxes had still been part of the school funding mix.
This year, with the state budget in good shape, legislators had a chance to make schools whole. Instead, they devoted $500 million to Gov. Mike Pence’s plan for cutting the state income tax – even though Indiana’s rate is already second-lowest among the more than 40 states that have an income tax, according to data from the Tax Foundation.
The legislature approved funding increases for K-12 schools of 2 percent in the first year of the budget cycle and 1 percent in the second year. That barely keeps pace with inflation, and dozens of school districts will actually get less money than they received this year.
As John Ketzenberger of the Indiana Fiscal Policy Institute points out, Indiana’s tax revenues – and consequently the state’s public schools – now depend almost entirely on state income and sales taxes, both of which are more susceptible than property taxes to ups and downs in the economy. Next time lawmakers struggle to balance the budget, schools will take it on the chin.
Pre-2009, legislators would approve a funding formula every two years that allocated both state revenues and local property taxes to fund K-12 schools. If there wasn’t enough state money to build the formula, legislators could shift the burden to property taxes, knowing they weren’t likely to get the blame for a local tax increase. School boards would reliably adopt the maximum property tax rate and insist the tax increase had been handed down by the state. But under the current system, schools depend entirely on state legislators, who give lip service to education but make it their first priority to hold down taxes.
Brown recalls the 1983 A Nation at Risk report and its lament that a “rising tide of mediocrity” was engulfing America’s schools. “I worry today that mediocrity is found as much in our legislatures as in our schools,” she writes.
With a state-based system of funding schools, that’s exactly the problem.