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On their first day of middle school yesterday, our children walked past some beautifully tended landscaping. That’s because two weeks ago, a group of families volunteered a Saturday to weed, trim, and otherwise clean up the school grounds. They wanted students to start the year on the right foot… and not get lost in three-foot tall weeds.
It was a good day’s work, so the volunteers will continue their efforts throughout the academic year. They’re willing and able, and they know that their efforts will pay off.
If only funding public schools were as clear and easy. Instead, school funding is complex, and in our recent era of tax cuts, school funding options are ever-changing and maybe insufficient. An average taxpayer could (and might prefer to) get lost if they try to keep track of all the moving parts. But a little knowledge of the school funding landscape can be a good thing.
For starters, funding schools includes far more than just property taxes.
I took an informal poll of my friends a while back, asking how they thought public schools were funded. Out of a dozen people, most guessed “property taxes.” One parent at our middle school commented recently, “I can’t believe we pay so much in property taxes but we have to get volunteers to weed.”
True enough, local property taxes provide a substantial amount, about one-third, of the money used to finance public education. It has remained a significant source of funding for public schools. But its role has changed over the years in many states, including my home state of Michigan.
Property taxes fell at the end of the 1970s and into the 1980s as local governments faced “property tax revolts”. During the Great Recession of 2007 as property values fell, property tax growth slowed. For a while, in 2010-2011, property tax revenues actually fell.
At the same time, judges, who worried about unequal educational opportunities across school districts, pushed many states to shift away from local property taxes as a main source of funding. Some states have taken primary responsibility for school funding, favoring state-imposed taxes over local property taxes.
While this may result in more equal education funding, it may also leave some parents and local governments feeling that they have lost control of education decisions affecting their community.
Michigan voters, for example, approved Proposition A in 1994 to equalize funding across school districts and lower property taxes. The state now uses a formula to distribute revenues from its sales and use tax, cigarette tax, state education tax, and real estate transfer tax. Local property taxes provide a base level of funding, but don’t add dollars to the overall per-pupil amount.
But other revenue opportunities are sometimes limited, and none are panaceas.
States’ revenue-raising and equalized-funding efforts can get a little muddy. States frequently preempt local governmentsfrom raising taxes themselves. And it’s not necessarily easy to raise state income taxes for schools: Just last week in Arizona, a court barred a fall ballot measure that would have raised income taxes and devoted the added revenues to schools.
But in at least a dozen states, voters do have the authority to approve a local sales tax to support schools. Beverly Bunch of the University of Illinois at Springfield explains that raising a sales tax can be more politically viable than raising a property tax (if that option is available). “The sales tax is less visible, is not paid in a lump sum, and part of the burden typically is borne by non-residents.”
States now are able to require out-of-state online sellers to collect sales taxes, too. How much of a windfall is it? Estimates range between $8 billion and $13 billion annually, across all the states. My colleague Howard Gleckman explains, though, that states are already “deciding how to spend the money—mostly by reducing sales or other tax rates.”
But the thing is, sales taxes—whether collected in person or online—are regressive. They disproportionately burden those who have lower incomes. Also problematic: If the economy stumbles, consumers buy less and sales tax revenue shrinks.
Of course, states can always tax vice. Legalized gambling, including newly legalized sports betting, generates revenue. There also are “sin taxes” on substances like tobacco and marijuana. But how much can they raise?
Look at New Jersey and sports betting. The state expects to receive $13 million in tax revenue from sports betting in the fiscal year that began July 1. But its annual education budget is $15 billion, more than 1,000 times as large. As my Howard Gleckman notes, “There is little doubt that sports wagering will become a new source of tax revenue for many states. But will it become the big cash cow that many predict? I wouldn’t bet on it.”
Or consider Colorado and marijuana. In 2012, Amendment 64 that legalized marijuana required a share of associated tax revenues to be directed to schools. But taxes on pot sales in the 2017-2018 fiscal year accounted for just 1.6 percent ($90.3 million) of the state’s $5.6 billion K-12 education budget. As Colorado state senator Mike Johnston said, “There aren’t enough sins in the state to fully fund the K-12 system.”
Where does all of this leave taxpayers?
States have choices when it comes to raising revenue. So do local governments. And taxpayers have been doing their part with their tax dollars (and volunteer hours). Depending on where we live, we may end up paying more, in a greater variety of ways, in the future.
But should funding public schools be so complex and relatively uncertain? I took another informal poll of friends this past weekend: They answered with a resounding “no.” Granted: It's not a new question. But it’s an important one.
Here’s to more taxpayers asking for clarity.
The Tax Hound, publishing the first Wednesday of every month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.