A New Look at School Funding Inequality

School funding in Pennsylvania is so unequal that the state nearly turned its entire tax system upside down trying to fix the situation this past March. In an attempt to mend a system where per-pupil spending in low-income districts is 33 percent lower than in high-income school districts, Pennsylvania’s state legislature almost completely abolished the state’s school property tax and replaced it with increased income and sales taxes.

In other states as well, the role of property taxes in school funding formulas has become a point of tension, both in state legislatures and court systems. Unlike most other developed countries, the United States funds public schools through taxes on local wealth — chiefly, property taxes. While states vary in their funding methods, local taxes account for nearly half of public school funding in the United States. This funding system creates great disparities between wealthy districts with large property tax bases and poor districts, which lack this kind of local wealth. This is why the United States needs to radically change its method of administering property taxes to increase equity between school districts.

The federal government provides grants, which attempt to lessen inequalities in school funding within states, to some degree of success. However, the money that currently helps equalize funding between states and districts was initially intended to provide additional support for students who are, for some reason, more expensive to educate, presuming a system that is already fairly equitable. “The point of that money was to supplement, recognizing that poor children and English language learners and students with disabilities come to school with additional challenges,” Secretary of Education Arne Duncan told the Washington Post.

Skeptics of initiatives to increase equity in school funding point to a common idea that increased school funding bears little impact on educational attainment. Education Policy researchers Bruce J. Biddle and David C. Berliner debunked this view in an article for the Association for Supervision and Curriculum Development (ASCD). The claim that increased school funding does not yield higher educational achievement in public schools dates back the National Center for Education Statistics’ 1966 Coleman Report, which found little connection between level of school funding and academic achievement. Biddle and Berliner point out that the Coleman Report, while influential, was flawed, as it  failed to account for a number of important variables now known to affect student achievement, among other issues.

In reality, most studies have found positive results from increased school funding. For example, one working paper from the National Bureau of Economic Research found that increasing low-income pupil spending by 20 percent achieved graduation rates 23 percent higher. According to Biddle and Berliner, “the bulk of studies by economists have reported positive net effects of funding, and if one combines their findings through statistical aggregation, the resulting pooled estimates suggest sizable effects of funding.” Specifically, schools with more funding can boost educational attainment by attracting better-qualified teachers and reducing class size, particularly for early education.

The standard solution to equalizing funding, both through litigation in state courts and legislative policy, seems to focus on decreasing school reliance on property tax revenue — which is collected at the local level — and increasing reliance on state taxes, such as income and sales taxes. States would be able to redistribute funding from the wealthiest districts to the poorest districts. This way, schools in low-income areas would not suffer as much from low property tax bases.

The standard solution to equalizing funding, both through litigation in state courts and legislative policy, seems to focus on decreasing school reliance on property tax revenue — which is collected at the local level — and increasing reliance on state taxes, such as income and sales taxes.

In San Antonio Independent School District v. Rodriguez case, the Supreme Court held that basing school finance on property taxes does not violate the Fourteenth Amendment’s Equal Protection Clause. However, under the Tenth Amendment, public education falls under state jurisdiction, and all state constitutions feature some kind of clause requiring an adequate or equitable system of public education. Under these clauses, litigants have argued that state school systems should reduce their reliance on property tax revenues, to varying degrees of success. Beginning with the influential Serrano v. Priest case in California, litigants in many states, such as Vermont and New Hampshire, have been able to lessen public schools’ reliance on property taxes for funding while those in some states like Illinois have been unsuccessful in their efforts.

But this solution does not come without major issues. For one, revenue streams from income and sales taxes are more volatile than those coming from property taxes. In 1978, when California passed Prop 13, a law that severely limited property taxes, the state’s schools became more reliant on state taxes for funding. Consequently, the volatility of these taxes has produced years of budget crises during recessions, which have forced major reductions in school funding and large teacher layoffs.

In addition, if states suddenly cut property taxes and increase taxes from the state (as Pennsylvania lawmakers are considering), states could end up hurting the very communities they intend to help. Often, states raise state sales taxes in order to offset reductions in property taxes. In fact, lawmakers in both Pennsylvania and Nebraska are currently considering this strategy as a way to increase equity in school funding. Unfortunately, sales taxes are known to be more regressive than property taxes — meaning sales taxes hit low-income residents the hardest. In other words, an increase in the sales tax may simply raise taxes in the poorest districts rather than redistribute income from wealthy districts.

Center for American Progress researcher Juliana Herman noticed some of the problems that arise with the current system of educational funding and proposed that the United States take notice of a change made in Canada during the 1990s. Originally, Canada had a system of school funding quite similar to that of the United States; localities administered property taxes themselves to fund local schools. As in the US, this led to large funding inequities within the school system. As a result, three out of the four largest provinces in Canada — Ontario, British Columbia, and Alberta — drastically altered the way property taxes were carried out. Rather than localities administering property taxes, provinces themselves administered the property taxes and distributed the revenue within localities. This has led to increased equity within those provinces’ school systems.

As Harmon notes in the study, the successful implementation of this system in Canada shows that it could, in fact, be implemented in the United States. According to the study, “This conversion debunks the idea that systematic change in school funding is not possible and that we are simply stuck with the status quo.”

Such a proposal in the United States would be a way to keep the positive aspects of using property taxes to fund local schools while lessening some of the inequity that plagues the nation’s public schools. While it would certainly take strong political will to achieve such a change, in states such as Pennsylvania, which are plagued by funding inequities, a radically different approach is certainly necessary.