Real Property Tax Funding of Public Schools: An Overview

The United States has a decentralized educational system, where most public schools in the country are financed at the local level through various taxation mechanisms. One of the significant sources of revenue for American public schools is the real property tax. This tax revenue comes from the value of the land and the buildings situated on it, and property owners are obligated to pay it. These taxes vary from state to state, district to district, and even street to street. In this article, we will discuss the basics of real property tax funding of public schools, its mechanism, and the ways it impacts schools and communities.

History of Real Property Tax Funding of Public Schools:

The establishment of public schools in the United States began in the mid-nineteenth century. The first school systems were established in Massachusetts in the 1830s, and as the movement spread, other states followed suit, creating a patchwork of school systems at the local level. At this time, education funding came from a variety of sources, such as the local government, private donations, or tuition payments.

The funding mechanism of public schools took a considerable turn in the early 20th century with the growth of the real property tax. During this time, the rise of urbanization put an increasing strain on local governments to build and maintain public schools. When funding from federal or state governments was not sufficient, local governments resorted to imposing property taxes to generate revenue. This development cemented the real property tax as a critical revenue source for public schools.

What is Real Property Tax?

In simple terms, a real property tax is a tax levied on a piece of land and any improvements made to it, such as buildings, structures, and landscaping. The tax is calculated based on the assessed value of the property, which is determined by an assessor’s office or an appointed board of assessors in each locality. The property taxes may be allocated for different purposes such as schools, parks, emergency services, roads, and libraries.

How are Real Property Taxes calculated?

The assessment of property differs in every state. However, the process usually involves a mass appraisal, where assessors consider data on recent sales and trends in the real estate market. Once the valuation is completed, the tax rate for the district is applied to the assessed value, resulting in the amount owed by the property owner. Tax rates vary depending on the location and the purposes to which they are allocated.

Real property tax revenue for public schools:

Real property taxes are a significant source of funding for public school districts. In 2018-2019, it accounted for 30.9% of all education revenues nationwide; its validity varies between states. However, in California, it contributed to 60% of the state’s total local revenue for education. Moreover, The Education Commission of the States (ECS) reports that in some areas of the country, such as rural districts, property tax contributes as much as 90% of total school funding.

What does this mean for Public Schools?

The reliance of public schools on real property tax is both a strength and a weakness. On the one hand, it provides a stable source of revenue for schools because.

1) Property values tend to be relatively consistent, and

2) There is a degree of stability in the number of property owners in a district. Property taxes are also not subject to the same fluctuations as other forms of local revenue such as sales or income taxes, which are subject to changes in the economy.

However, this also means that if property values decrease, or there is a drop in the number of property owners, the revenue collected through real property taxes also declines, leaving public schools to find alternative sources of funding.

Education equity and Real Property Tax:

One of the most significant concerns that arise from the reliance on real property tax for public school funding is the issue of educational equity. While public schools are funded by state and federal taxes, property taxes play a massive role in supplementing the base funding given to schools. Thus, the amount of funding that a school receives is directly linked to the assessed value of the properties in the district, meaning that school funding varies dramatically between wealthy areas and poor locations.

This disparity means that school districts with high property values can raise more money and afford to invest more in their schools than districts where property values are lower, leading to inequalities in education. The additional funds in a wealthy district could go towards higher salaries for teachers and staff, investing in state-of-the-art facilities, and providing enrichment programs, while underfunded schools have to cut corners, putting students in adequate education at risk.

Solutions to Educational Inequality:

There have been multiple solutions proposed to address the issue of educational inequality related to real property tax funding.

1) Foundation Funding: Foundation funding guarantees schools a minimum level of funding per-pupil, with additional funds generated by the local tax. However, the foundation amount differs depending on the state and is often not adequate in narrow economic districts.

2) Property Tax Relief: Some states implement property tax relief programs that allocate funds to less wealthy school districts. Property tax relief can come in the form of direct aid, tax credits, tax abatement, or rebate programs.

3) Wealth Equalization: Wealth equalization is a system that aims to redistribute funds from property-rich school districts to those property-poor. It is typically done through redistribution of the property tax revenue collected from the wealthiest districts.

4) Consolidation of Districts: Consolidating school districts can also address educational inequality. Merging smaller or weaker districts with larger and wealthier neighboring districts will help reduce educational disparities by combining resources to provide a higher quality education that is more uniform across regions.

Final Thoughts:

The real property tax plays a crucial role in America’s public education system, with almost one-third of all education revenues coming from it. While it provides a consistent source of funding, it also consistently contributes to income-based inequality in education. Addressing this issue through equitable distribution of resources or redistricting is an essential step toward providing every child with access to a high-quality education, regardless of their background. Government and school authorities must continue to work together to find solutions to these problems to ensure that the system is fair and effective for all children.

Given the United State’s economic frailty, the close relationship between property tax revenue and funding for public education has been recently questioned. Local governments levy property taxes to produce an array of public goods:maintain and build roads, offer citizens protection through law enforcement agencies, and provide public schooling. The tax revenues generated through real property tax are by far a localities biggest money maker.

The majority of tax revenues levied from real property tax are “kicked back” into the community in the form of public schooling-nearly 50% of property tax revenue is spent on public schooling. The tax revenues are used to fund public schools and the costs they impose on a community-teachers salaries, utilities such as electricity, books, resources needed for students, athletics, transportation etc. The main problem in regards to tax revenues and public school funding revolves around a school’s dichotomy-schools are extremely expensive to maintain and run, yet vital to the well being and future of society.

Given the recent economic news, the failure of corporations, and the mere collapse of housing markets, many state and local governments have experienced a deficit or a severe shortage in state funding. Localities, like every other aspect of society has been pinched due to the economic turmoil. Consumption, property values, and incomes have drastically decreased; these factors all greatly influence a communities tax revenues.

Sales taxes are directly proportional to consumption numbers, property values are directly proportional to real property taxes, and incomes of course are connected to the personal income tax. All of these economic factors tied into tax revenues have precipitously dropped since the recession. When a community has less tax revenue coming in, they fail to meet their costs and the needs of society. The relationship between tax revenue and public services are so sensitive; a drastic shock to the system like a recession can throw everything awry.

Real property tax revenues are the greatest form of income for a state government; the majority of real property tax revenue is distributed towards public schooling. This relationship or occurrence is typical throughout state governments across the country. Considering many states and localities are operating under a deficit, many politicians, lawmakers, and citizens believe that the amount of tax revenue distributed to public schools is exorbitant. The problem with this notion is twofold.

Education is obviously critical to the well being of a community and it’s future; without education society would significantly regress. The other problem lies within the tax revenue makeup of less developed communities. Struggling cities or neighborhoods produce slim tax revenues, which are reflected on the lack of efficiency for their public schools. Should we ease the strain of struggling communities by further decreasing funding to an already struggling school?

Proponents for decreasing tax revenue or aid to public schools point to the fact the public education system in America is flawed. Research has shown that a correlation does not exist between public education expenditures and economic growth. Advocates for decreased funding claim that instead of maintaining high levels of funding for education, we should instead review the efficiency of a public school system.

Even with a high percentage of funding many students or teachers are not operating as effectively as they could be. This problem lies more within society and the family than it does with economics or the amount of funding given to schools. The debate is fierce, one that varies based on jurisdiction, and has no true equilibrium.