Tax caps cost schools hundreds of millions

It seemed like such a good idea at the time. Indiana legislators enacted property tax caps over a decade ago. Then, in 2010, we added them to the state constitution by a referendum vote of 72% to 28%. I don’t recall much talk at the time about consequences for school funding, but we’re seeing them now.

In some school districts, the consequences look to be devastating.

According to data from the Indiana Department of Local Government Finance, public schools are losing about $268 million in revenue this year as a result of caps. That’s over one-tenth of their total levy, the amount of property tax revenue the districts would otherwise be able to raise.

The impact of the caps varies widely, with big losses for some large and urban school districts: $18.3 million for Indianapolis Public Schools, $17.7 million for Gary Community Schools and $12.3 million for Wayne Township (Indianapolis) schools.

Chart showing schools with biggest tax cap losses.

School districts with the largest losses from property tax caps. Source: Indiana Department of Local Government Finance.

Gary schools are losing almost half of their potential local property tax levy.

When it comes to lost revenue per pupil, the biggest losers include Gary Community Schools, $3,535; Muncie Community Schools, $,1,620; Beech Grove School Corp., $1,450; Anderson Community Schools, $1,298; and Westfield-Washington School Corp., $1,134.

It’s probably no accident that Gary and Muncie are the two Indiana districts to be labeled financially “distressed” and taken over by the state. Muncie was later transferred to Ball State University.

Chart of school districts with largest property tax cap losses per pupil.

School districts that lose the most money per pupil from property tax caps. Source: Indiana Department of Local Government Finance.

Terry Spradlin, executive director of the Indiana School Boards Association, noted that the state’s 290 school corporations have lost nearly $1 billion to tax caps in the past four years. The legislature has provided districts some flexibility for managing the losses, but it’s still a struggle.

“These are significant issues that are long-term, and there are no easy solutions,” Spradlin said.

Under Indiana’s school funding system, the state pays most school operating costs, including salaries and benefits for teachers and other school employees. But school corporations rely on local property taxes to pay for transportation, capital projects and construction debt.

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